A defunct fund of hedge funds has agreed to pay $210 million to victims of the Bernard Madoff Ponzi scheme, which the firm allegedly suspected but did nothing about.
Ivy Asset Management, a division of BNY Mellon, struck the settlement with New York Attorney General Eric Schneiderman. Internal documents from the fund of funds, which BNY shut down in 2010 during the investigation that led to New York's lawsuit, show that the division had serious concerns about Madoff that they did not disclose to clients.
Ivy claims that it had quietly raised its concerns with investors and urged them to reduce their Madoff positions. Ivy clients lost some $236 million when Madoff's scam collapsed in 2008.
"Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients," Schneiderman said. "Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses."
Schneiderman's office said that most client losses would be recovered.
The settlement also includes several other defendants, who have agreed to pay a combined $9 million.
For its part, BNY would not comment on the settlement, other than to say that it would not affect its fourth-quarter earnings.