Madoff Feeder Merkin Loses Arbitration, Ordered To Pay $12.7M

Sep 8 2010 | 9:39am ET

A pair of investors was awarded nearly $13 million by arbitrators in their case against Bernard Madoff feeder fund mogul J. Ezra Merkin.

Rosewood, N.J.-based Sandalwood Debt Funds A and B had accused Merkin, who ran three Madoff feeder funds, of common-law fraud, breach of fiduciary duty and negligent misrepresentation. The arbitration panel, which held six days of hearings in May, did not explain its decision to grant the Sandalwood funds the award.

Sandalwood Fund A was awarded $2.1 million and Fund B $10.5 million. Merkin—the sole respondent to the claim—was also ordered to pay $112,000 in fees. Sandalwood has asked a New York state judge to confirm the arbitrators’ decision.

The Sandalwood funds invested in Merkin’s Gabriel Capital Corp. Merkin has also been sued by New York Attorney General Andrew Cuomo and the court-appointed receiver in the Madoff case, Irving Picard. Cuomo accuses Merkin of investing much of his funds’ assets with Madoff without informing clients, claiming he reaped nearly $500 million in fees under the arrangement.

Madoff himself is serving a 150-year term for running the $65 billion, multi-decade Ponzi scheme.

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