Marshals Arrive, Ruth Madoff Leaves as Manhattan Home Is Seized

By David Glovin, Erik Larson and David M. Levitt

July 3 (Bloomberg) -- U.S. marshals seized Bernard Madoff’s $7 million Manhattan penthouse apartment following a federal judge’s order that the Upper East Side residence be forfeited by the convicted con man.

Madoff’s wife, Ruth, moved out yesterday as they arrived, her lawyer said.

“Ruth moved out voluntarily pursuant to prior agreements we had reached with the government,” attorney Peter Chavkin said. He declined to say where she will live.

U.S. District Judge Denny Chin in Manhattan last week authorized the government to seize the aerie. The East 64th Street property will be sold to reimburse investors bilked by Madoff, who is serving a 150-year prison sentence. Irving Picard, the trustee unwinding his brokerage, is also liquidating assets to pay ex-clients. On July 1, another judge granted Picard’s request for the right to break Madoff’s lease on three floors at the “Lipstick” office building in midtown Manhattan.

A crowd of more than 50 reporters and onlookers formed in front of Madoff’s apartment building yesterday. Sheryl Rose, 35, a Manhattan resident who works in advertising sales, was on her way to get a tooth pulled across the street when she stopped to watch the scene.

‘Fend For Herself’

“She should absolutely leave,” Rose said of Madoff’s wife. “She should be left to fend for herself. She shouldn’t be living on East 64th street.”

Madoff, 71, was sentenced June 29 for masterminding the largest U.S. Ponzi scheme ever. Prosecutors said the money manager told clients they had as much as $65 billion invested with him. The government has so far documented losses of about $13 billion.

“We have taken possession of the Madoff apartment right now at twelve noon, and Mrs. Madoff is no longer in possession,” U.S. Marshal Joseph Guccione said in an interview. “We have possession of their furniture and everything in it.”

The residence is one of several Madoff owned with his wife before the scheme was exposed Dec. 11. Others are in Palm Beach, Florida; and Montauk, New York, on the eastern end of Long Island. Madoff has agreed to forfeit those as well.

Home Confinement

Bernard Madoff spent three months under home confinement in the apartment, between his arrest and his March 12 guilty plea. Since then, he’s been held at a federal lockup in lower Manhattan. His lawyers have requested that he serve his prison term at a federal correctional facility in Otisville, New York, 80 miles northwest of New York City.

About 10 blocks south of Madoff’s former Manhattan home, at the now-closed offices of Bernard L. Madoff Investment Securities LLC, the con man’s 1986 lease may now be broken, freeing up more funds to pay back fraud victims, a U.S. bankruptcy judge ruled.

The right to void the agreement for the elliptical building’s 17th through 19th floors was approved July 1 by U.S. Bankruptcy Judge Burton Lifland in New York. The order lets Picard stop paying rent before the contract’s January 2012 expiration.

The 17th and 18th floors are 19,000 square feet, and the 19th floor is 16,200 square feet, said Russell Freeman, asset manager for Metropolitan Real Estate Investors LLC, which owns the 587,000 square-foot tower. Madoff was one of the original tenants when it was completed in 1986, Freeman said.

Direct Lease

Madoff’s personal office on the 19th floor has been stripped of furnishings, leaving black low-rise formica cabinets, fitted for the room’s curved windows. The view to the southeast offers glimpses of the East River through the skyscrapers, including Donald Trump’s Trump World Tower. Mounted overhead is a Sony television with an insert for videocassettes.

The raised trading floor features no-frills black formica desks. An elliptical stairwell leads down to the 18th floor.

Madoff’s investment advisory business was run out of the 17th floor. His market-making and proprietary trading units were on the 19th floor and back office functions were on the 18th.

The 19th floor is being “actively” marketed through CB Richard Ellis Group Inc., the building’s leasing agent. Siebert Financial Corp., which had sublet part of a floor from Madoff’s firm, will remain under a direct lease, Freeman said.

Trading Positions

That floor has about 100 trading positions, making it good for “a plug and play trading operation,” Freeman said.

“We did everything we could with our brokers and attorneys to work with the trustee,” Freeman said. “In light of the horrible situation, they tried to do the right thing by everybody.”

The space may not be easy to rent given the rise in New York office vacancies, said Marisa Manley, president of Commercial Tenant Real Estate Representation Ltd., a Manhattan- based tenant brokerage. Midtown Manhattan’s office vacancy rate hit 15 percent in the second quarter, the highest in 15 years, Jones Lang LaSalle Inc. reported.

“There’s enough space in other good buildings, that even if the Lipstick Building has some cachet -- and it certainly does -- you know what? There’s a lot of good space out there,” Manley said.

The East Side tower, designed by architects Philip Johnson and John Burgee, is called the Lipstick building for its shape and reddish brown stone façade. The curved walls can create “inefficiencies,” Manley said. “If you have rectilinear furniture, you got to figure out what to do with those odd spaces. People got to figure out, where do I put my credenza?”

Potential Tenants

Freeman said “you do run into that” kind of thinking when potential tenants view the space.

“By the same note, you run into people who really do like the uniqueness of it,” he said.

Under Picard’s deal with the landlord, the trustee will continue to pay rent on the 17th floor until it’s vacated by the FBI, which plans to continue using the location for another year as part of its probe of Madoff’s firm.

Under the same deal, Picard will continue to pay rent for the 19th floor for six months while the landlord seeks to rent the space. Picard will have control of that floor for the next two months while he gathers records and disposes of assets, according to the filing.

“It would have been extremely difficult to locate a party willing to take on the 885 lease for a short period, especially at the above-market rates,” Picard said in the filing, referring to the building’s Third Avenue address.

Under his agreement with the landlord, the 18th floor will continue to be occupied by Surge Trading Inc., which outbid two other firms to buy Madoff’s market-making business. The lease rejection is effective June 30.

The bankruptcy case is In re Bernard L. Madoff, 09-11893, U.S. Bankruptcy Court, Southern District of New York (Manhattan). The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporters on this story: David Glovin in New York federal court at dglovin@bloomberg.net; Erik Larson in New York at elarson4@bloomberg.net; David M. Levitt in New York at dlevitt@bloomberg.net.