New York Sues Merkin Over Madoff Losses

Apr 7 2009 | 2:46am ET

New York Attorney General Andrew Cuomo has sued J. Ezra Merkin, the former GMAC Financial chairman and Bernard Madoff feeder fund manager, accusing him of defrauding investors in his four hedge funds by “recklessly” putting billions with the confessed Ponzi schemer.

According to Cuomo’s complaint, filed yesterday in New York state court, Merkin steered some $2.4 billion in assets to Madoff in exchange for $470 million in fees. While Cuomo says Merkin marketed himself as an “investing guru,” he was little more than a “glorified mailbox” for Madoff.

Merkin invested substantially all of the assets of his Ascot Partners and Ascot Fund with Madoff, as well as about one-third of the assets of his Gabriel Capital Corp.—also named as a defendant in Cuomo’s lawsuit—and Ariel Fund. The suit alleges that the latter two allocated the money to Madoff, who pleaded guilty to defrauding investors of as much as $65 billion last month, secretly. Cuomo’s complaint also alleges that some 85% of Ascot’s investors did not know that Madoff was managing almost all of their money, despite the fact that the funds were set up n 1992 as feeder funds to his Bernard L. Madoff Investment Securities.

In a statement, Merkin’s lawyer calls Cuomo’s lawsuit “without merit.”

“Investors in all of the funds expressly authorized Mr. Merkin to allocate assets to third-party managers such as Madoff, without giving them notice or obtaining their consent,” Andrew Levander said.

The lawsuit accuses Merkin of perpetrating a fraud in connection with the sale of securities, persistent fraud in conducting business, and breach of fiduciary duty in connection with serving on the boards of nonprofit organizations. It seeks damages, disgorgement of all fees, restitution and “other equitable relief.”

RELATED ARTICLES:

Special Coverage: The Bernard Madoff Scandal


In Depth

Fundraising for Mid-Sized PE Funds: Should You Use a Registered B/D?

Dec 6 2016 | 7:18pm ET

When does a fund sponsor need to use a registered broker/dealer when raising capital...

Lifestyle

Trump Attends 'Villains and Heroes' Costume Party Dressed As...Himself

Dec 5 2016 | 11:16pm ET

U.S. President-elect Donald Trump attended a "Villains and Heroes" costume party...

Guest Contributor

A Hard Look At Your ‘Soft’ Hedge Fund Marketing Information

Dec 8 2016 | 9:03pm ET

Conventional wisdom holds that due diligence examines quantitative as well as qualitative...

 

From the current issue of

Since the inception of Modern Trader, a core editorial theme has centered on the wisdom and power of crowds. Editorial emphasis has focused on companies and projects engaged in the collection and analysis of information. 

AVAILABLE NOW at BARNES & NOBLE

NEWSTAND LOCATOR