A Connecticut town’s pension funds have sued their former consultant and auditor over $42 million in losses suffered in the Bernard Madoff scandal.
Fairfield’s pensions filed the lawsuits against NEPC and KPMG in state court yesterday, accusing the two of due-diligence failures. A lawyer for the pensions called the move “the first in a series of litigations we will be bringing,” with suits planned against Madoff feeder funds Maxam Capital Management and Tremont Partners, and the possibility of action against individuals “actively involved in the fraud.”
According to the lawsuit, NEPC undertook “no due diligence investigation of Madoff” and rated funds invested with him as having “conservative” risk. KPMG is accused of using inaccurate data in its audits of the feeder funds, and failing to tell the pensions that financial statements could not be verified.
“These two entities were charged, by their retainers, to do a full investigation,” David Golub, a lawyer for the pensions, told the Connecticut Post. He said that had they done so, the Fairfield boards would have yanked their investments before Madoff’s alleged scam collapsed.
In a statement, NEPC denied any wrongdoing, and called the pensions’ lawsuit “unfortunate.”
“To be clear, NEPC, at all times, fulfilled its responsibility to provide prudent and professional investment advice to the tow’s pension funds and their beneficiaries,” it said. “NEPC will vigorously defend against the suit and is confident that, when all the facts are known, it will prevail.”
Meanwhile, in Hartford, Connecticut lawmakers will hear from Madoff victims at a 1 p.m. forum. The General Assembly's Banking Committee, which is considering hedge fund regulation on the state level, has invited state residents, business and municipalities to the forum. Among those planning to speak are Fairfield's own First Selectman Ken Flatto.