Jeffrey Langlois/Palm Beach Daily News

A scandal flush with superlatives added yet another on Friday with a $7.2 billion legal settlement, the largest single forfeiture in American judicial history, to benefit the victims of Bernard L. Madoff’s global fraud.

The total amount available for compensating Madoff victims is now just under $10 billion, far more than expected when Mr. Madoff’s Ponzi scheme — the largest ever — fell apart after his confession and arrest two years ago this month.

Cash losses in the fraud are estimated at $20 billion, but Irving H. Picard, the trustee gathering assets for victims, cautioned that the losses — like the amount recovered — could rise as he continued his negotiations with Mr. Madoff’s investors. Whether or not those investors suspected the fraud, Mr. Picard is entitled to sue to recover the fictional profits that were withdrawn so that they can be distributed to those whose cash disappeared in the scheme.

For people who left most, if not all, of their savings in Mr. Madoff’s hands through the life of his fraud, the settlement significantly raises the prospect that at least some of their money will be recovered. Mr. Picard said he hoped to start distributing a portion of the money to eligible victims in the first three months of next year.

The payment is part of a global settlement of claims lodged against the estate of Jeffry M. Picower, who died in October 2009 and who had quietly accumulated an enormous fortune built on legitimate Wall Street trading.

His widow, Barbara, authorized the settlement on behalf of his estate, saying that she intended to use the bulk of her inheritance from him to continue the couple’s philanthropic work.

“Today’s truly historic settlement with the estate of Jeffry Picower is a game-changer for Madoff’s victims,” said Preet Bharara, the United States attorney in Manhattan.

The settlement amount represents the difference between the cash withdrawn from Madoff accounts by Mr. Picower, who was one of Mr. Madoff’s largest investors, and the cash originally invested, estimated at just under $620 million.

Mr. Bharara noted that Mrs. Picower was “returning every penny” her late husband received from his Madoff accounts so that the money could be used “to help those who have suffered most.” He added: “Barbara Picower has done the right thing.”

Mrs. Picower, who lives in Palm Beach, said in a statement, “I am absolutely confident that my husband, Jeffry, was in no way complicit in Madoff’s fraud.” She emphasized that neither federal prosecutors nor the trustee gathering assets for Madoff victims had charged him with any illegal conduct.

That Mr. Picower’s widow is able to agree to such a large forfeiture reflects her late husband’s utterly unheralded career as a private investor on Wall Street, where he amassed a fortune that certainly made him one of the richest men in the country.

Mr. Picower was among the wealthiest individual clients at Goldman Sachs. Executives who ran the firm’s exclusive private wealth management business, with clients including Ralph Lauren and Bill Gates, were amazed that Mr. Picower had become so wealthy yet managed to stay out of the public spotlight.

In the late 1990s, Mr. Picower’s personal brokerage accounts at Goldman were worth about $10 billion, according to two people with direct knowledge of the account.

“It was amazing,” said a former Goldman executive. “The guy was worth $10 billion, just at Goldman, and that alone would have made him one of the richest men in the country, yet he wasn’t in the Forbes 400,” the magazine’s annual roster of the rich and super-rich, until after the Madoff scandal.

An aggressive investor with an appetite for risk, Mr. Picower also borrowed heavily at Goldman to trade stocks, amplifying his profits. At one point, his Goldman accounts had more than $5 billion in margin loans against them, according to the people familiar with his account history.

The Madoff trustee asserted in a complaint filed in May 2009 that Mr. Picower was equally successful with his Madoff accounts — but that the “profits” he withdrew from those accounts over the years came from money that Mr. Madoff had stolen from other investors.

The two men met in the late 1960s, when Mr. Picower’s brother-in-law, Michael Bienes, joined the accounting firm operated by Mr. Madoff’s father-in-law, Saul Alpern. Mr. Picower became an early investor with Mr. Madoff and had nearly three dozen separate accounts with him by the time the fraud collapsed.

Over the years, Mr. Picower had withdrawn billions in cash from those accounts to make substantial charitable gifts, including $50 million in 2002 to establish the Picower Institute for Learning and Memory at the Massachusetts Institute of Technology.

In his complaint, Mr. Picard asserted that Mr. Picower, as a supremely sophisticated investor, should have recognized all the red flags that indicated Mr. Madoff was conducting an enormous fraud. Lawyers for Mr. Picower rejected that assertion, saying he had been victimized by a fraud so elaborate that it fooled regulators, hedge fund managers and major accounting firms for decades.

The estate will pay $5 billion to Mr. Picard to settle the complaint he filed in bankruptcy court, which is subject to approval at a hearing set for Jan. 13. On Friday, a Federal District Court judge approved a settlement by the estate to pay $2.2 billion to the Justice Department, which had filed civil forfeiture claims against the estate earlier that day.

Regardless of the route the money travels, all of it will wind up in the hands of eligible Madoff victims, according to both Mr. Bharara and Mr. Picard.

The settlement provides relief only to those Madoff investors who withdrew less from their accounts over the years than they originally invested. These “net winners,” investors who took out more cash than they put in, will not be eligible to share in the recovery unless a federal appeals court determines that their claims are valid. A ruling on that issue is expected next year.

But the Picower payment will almost certainly affect the growing speculative market for Madoff claims, where professional investors have been quietly buying up claims approved by the trustee at a substantial discount to their face value. In recent months, traders have offered Madoff victims 20 to 34.5 cents on the dollar for their claims.

Now, it seems increasingly likely that claims bought for that amount will wind up being worth considerably more, perhaps as much as 50 cents on the dollar — a nice profit for the speculators who took the risk of buying them.

Peter Lattman contributed reporting.

Statement of Barbara Picower, widow of Jeffry M. Picower

Complaint Against Picower Estate Over Madoff Claims

Agreement by Picower Estate to Pay $7.2 Billion

Statement by U.S. Attorney on Picower Settlement