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.”


Special Coverage: The Bernard Madoff Scandal

In Depth

Related-Company Fees: Normal Industry Practice or Conflicted Compensation?

Nov 11 2015 | 4:23pm ET

Regulatory agencies as well as investors are increasingly exploring whether certain...


Ferrari Roars in Wall Street Debut

Oct 21 2015 | 4:28pm ET

Shares of supercar maker Ferrari jumped as much as 15 percent to a high of nearly...

Guest Contributor

Private Debt - What is the Opportunity?

Nov 11 2015 | 3:28pm ET

In this contributed article, Rob Allard, founding partner of Firebreak Capital...


Editor's Note

    Oct 21 2015 | 10:41am ET

    One of the most unique charity benefits in the hedge fund industry, A Leg To Stand On's (ALTSO's) Hedge Fund Rocktoberfest - NYC, raised nearly $500,000 last Thursday thanks to the generous support of major sponsors and nearly 1,400 attendees from the Tri-State finance, business and hedge fund communities. Read more…