Sonja Kohn had a 23-year 'criminal relationship' with Bernard Madoff

The trustee overseeing the bankruptcy of Bernard Madoff's investment firm launched a $19.6 billion lawsuit against Austrian banker Sonja Kohn and dozens of related firms on Friday, the largest lawsuit he has launched to date to recover assets for victims of Mr. Madoff's decades-long fraud.

The civil complaint, filed by Irving Picard in federal bankruptcy court in Manhattan, alleges Ms. Kohn, the principal shareholder and former head of Bank Medici AG, had a 23-year "criminal relationship" with Mr. Madoff in which more than $9.1 billion was funneled into his Ponzi scheme. However, Mr. Picard said he is seeking to recover $19.6 billion, or the entire amount of the principal he claims investors lost in Mr. Madoff's scheme.

"The Ponzi scheme could not have continued for as long as it did" if not for Ms. Kohn propping it up, said the lawsuit, which also names relatives and other entities related to her, which Mr. Picard referred to as "the Medici Enterprise."

Friday's lawsuit is the latest filed by Mr. Picard before a Saturday deadline for "clawback" lawsuits aimed at recovering funds lost through the fraud.

"In Sonja Kohn, Madoff found a criminal soul mate, whose greed and dishonest inventiveness equaled his own," Mr. Picard said in a statement. He said he expected to uncover more information about what he called a "criminal" organization through the lawsuit, given "the scope of Madoff's Ponzi scheme, the deceptive nature of the defendants, and the deliberately Byzantine structure of the Medici Enterprise."

Mr. Picard alleged 22 counts of civil racketeering, conspiracy and fraud against Ms. Kohn and others.

Ms. Kohn told The Wall Street Journal last year, "I am actually the greatest Madoff victim. It is a tragedy for my family, my company and for me personally."

Bank Medici surrendered its license in March 2009.

Ms. Kohn allegedly met Mr. Madoff through Cohmad Securities Corp. co-founder Maurice "Sonny" Cohn while she was workingas a retail stock broker at Merrill Lynch & Co. in New York in the mid-1980s, Mr. Picard said. Cohmad is a brokerage firm that operated out of Mr. Madoff's Manhattan office.

Mr. Picard accused Ms. Kohn of feeding billions of dollars through so-called feeder funds in exchange for "secret kickbacks" from Mr. Madoff that totaled at least $62 million. Mr. Madoff allegedly paid her a flat fee, which was usually over $6.5 million a year, and kept it secret from others within his firm, Mr. Picard said.

The payments allegedly were made through a network of sham companies and disguised as a payment for "market research" that was never used by Mr. Madoff under the heading "BLM Special," Mr. Picard said. That was the label, Mr. Picard said, used by Mr. Madoff when making payments from the investment firm "for gifts to family members, forgiven loans to friends, payments of personal expenses and charitable contributions." She was paid both by Mr. Madoff and by investors seeking to invest with Mr. Madoff, Mr. Picard said.

As the scheme fell apart in late 2008, Ms. Kohn allegedly conspired to protect herself and her family, causing one of the funds to withdraw $536 million in the fall of 2008, including $423 million on Nov. 4, 2008, Mr. Picard said in the lawsuit.

Just days before Mr. Madoff was arrested in December 2008, Ms. Kohn directed her husband to withdraw all of their personal assets from any member of the "Medici Enterprise" that had potential exposure, said the lawsuit.

After Mr. Madoff's arrest, Ms. Kohn denied to Austrian authorities that she was close to Mr. Madoff, Mr. Picard said. However, she held herself out to potential investors as Mr. Madoff's close friend and "intimated that their special relationship yielded special returns on investments" with his firm, Mr. Picard said.

In November, Cohmad Securities, Maurice Cohn and his daughter, Marcia, reached a settlement with the Securities and Exchange Commission regarding their relationship with Mr. Madoff. The SEC accused them of negligence in making statements to potential Madoff investors as well as not keeping accurate books and records. They didn't admit or deny wrongdoing as part of the settlement.

A separate civil lawsuit filed by Mr. Picard last year against Mr. Cohn and his daughter is pending. They have denied wrongdoing.

"Sonny Cohn and Cohmad were not privy to Madoff's arrangements with Sonja Kohn and were unaware of the extent of their relationship since, as the trustee acknowledges, Madoff kept it a secret," said Steven Paradise, a lawyer for Mr. Cohn and Cohmad.

Separately, Mr. Picard said on Friday that on Friday that he had settlements totaling $80 million with a number of a number of charities and nonprofit organizations, resolving claims related to their withdrawals from Mr. Madoff's scheme.