Madoff victims win $7.2 billion from Picower estate

NEW YORK (CNNMoney) -- It's a landmark day for victims of Bernard Madoff's Ponzi scheme. A bankruptcy court judge approved the trustee's request to dole out billions of dollars in seized assets to the victims.

Judge Burton Lifland ruled on Thursday that Irving Picard, the court-appointed trustee in the recovery of assets stolen by Madoff, should free up cash to compensate victims.

This applies specifically to the $7.2 billion estate of Jeffry Picower, a philanthropist and Madoff associate who died of a heart attack in 2009. On Dec. 17, 2010, Picard reached a deal with Picower's widow Barbara, who agreed to turn over the money her husband received from the Madoff scheme so it could be returned to victims. This is the largest forfeiture in U.S. history.

"It was totally appropriate and correct and very beneficial to the victims," Picard told CNNMoney.

Picard claimed in court filings that Picower was a key beneficiary of Madoff's scheme. The trustee said Picower had withdrawn $7.8 billion from Madoff's firm since the 1970s, even though he only invested $619 million. Picower "knew or should have known that [he] was profiting from fraud, because of the highly implausible high rates of return" on his accounts, the trustee said.

Barbara Picower has denied that her late husband knew anything about the scheme.

Many victims have received compensation through the Securities Investor Protection Corp., which insured $783 million of the damages to investors. But with the court's ruling, this is the first time that victims will receive money from seized assets.

The trustee has verified nearly $6 billion worth of claims from 2,372 victims. More than 10,000 claims have been denied, in some cases because the victims withdrew more from Madoff than they invested, and in other cases because they invested through feeder funds.

The trustee has sued at least 400 investors, who withdrew more money from Madoff than they invested.

Madoff pleaded guilty in March 2009 to orchestrating the most massive Ponzi scheme in history. He used his Manhattan investment firm as a front for the pyramid-style scam.

He stole money from investors while claiming to be investing it in the markets. He would provide the stolen money to his more mature investors, like Picower, while fraudulently claiming that the returns were legitimate.

Madoff is serving a 150-year sentence in a medium security federal prison in Butner, N.C.