Fairfield Greenwich, Madoff Feeder Fund, May Sue Auditor

Dec 18 2008 | 3:12am ET

Fairfield Greenwich Group, the New York hedge fund firm which has the most exposure to the Bernard Madoff funds of any investor, may sue its accountants for failing to detect the alleged fraud.

Fairfield Greenwich has a whopping $7.5 billion of client assets invested with Bernard L. Madoff Investment Securities, which prosecutors and regulators allege was a $50 billion Ponzi scheme. Facing the prospect of litigation against it by aggrieved investors with little to recoup from Madoff himself, Fairfield Greenwich may point the finger at PricewaterhouseCoopers, its auditor, according to the Financial Times.

The report comes just a day after one investor sued Ascot Partners—like Fairfield Greenwich’s Fairfield Sentry, a feeder fund for Madoff Securities—and its auditor, BDO Seidman. BDO Seidman said its audits of Ascot, which is run by GMAC Financial Services Chairman J. Ezra Merkin, “conformed to all professional standards.”

More than half of Fairfield Greenwich’s $14.1 billion in assets were invested with Madoff. including all $7.3 billion invested in Fairfield Sentry. With the firm facing the losses and potential lawsuits from investors, the New York Post ran a story this week headlined “Hedge Fund Unlikely to Survive Madoff Blow.”

In a statement Tuesday, Fairfield Greenwich painted itself as a victim of “a highly sophisticated and massive fraud.” But the firm’s business was deeply entwined with Madoff: Many investors came to the firm specifically because of its relationship with Madoff, and 64% of its $250 million in revenue last year came from that relationship, The Wall Street Journal reports. And it was set to collect some $135 million in fees this year for selling Madoff-linked products around the world.

Last year, a planned investment by several private equity funds in Fairfield Greenwich collapse when Madoff refused to allow the p.e. investors access to his firm for due diligence. Earlier this week, the Fairfield Greenwich’s merger with Swiss private bank Banque Bénédict Hentsch collapsed due to its involvement with Madoff.

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