New York – AG Cuomo Charges Ezra Merkin With Civil Fraud In Madoff Case

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    New York – New York Attorney General Andrew Cuomo charged J. Ezra Merkin with civil fraud Monday alleging he “betrayed hundreds of investors” by funneling $2.4 billion of clients’ money into Bernard Madoff’s multibillion dollar Ponzi scheme without their knowledge.

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    Mr. Merkin, a New York financier, philanthropic leader, and the former chairman of finance company GMAC, raised billions of dollars from charities, universities, funds and individual investors, lied about putting the bulk of it with Mr. Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds, according to the complaint.

    “Merkin held himself out to investors as an investing guru…In reality, Merkin was but a master marketer,” says Mr. Cuomo in the complaint.

    Mr. Cuomo does not allege that Mr. Merkin was aware of Mr. Madoff’s scheme. When Mr. Cuomo launched his investigation into Mr. Merkin in January, Mr. Merkin’s lawyer, Andrew Levander, said Mr. Merkin would cooperate fully with any investigation. A call to Mr. Merkin’s attorney, Andrew Levander was not immediately returned.

    In December, after Mr. Madoff confessed to authorities of his fraud, Mr. Merkin told investors he was shocked by the fraud, and told them he’d lost the $1.8 billion he’d placed with Madoff in the Ascot fund. He added he had suffered personally as well.

    The sales pitches for Mr. Merkin’s three funds, Ascot Partners LP with Ascot Fund Ltd., Gabriel Capital Corp. and Ariel Fund Ltd., included promises that he actively managed the money, according to the complaint, which adds that he misguided investors about his Madoff investments in quarterly reports, in investor presentations and in conversations with investors.

    Investors in Mr. Merkin’s funds, including Yeshiva University, New York University, New York Law School, Bard College, and Boston Properties chairman and New York Daily News owner Mort Zuckerman’s charitable trust, lost tens of millions in the Madoff Ponzi scheme through their investments with Mr. Merkin’s funds. Mr. Merkin sat on the board of some charities that took his money. Some have sued Mr. Merkin separately.

    The Ascot fund was formed by Mr. Merkin in 1992 exclusively as “feeder” fund for Mr. Madoff, says the Attorney General. It grew to hold $1.7 billion from 300 investors by the end of December, 2008. Mr. Madoff then used the money in a massive Ponzi scheme.

    About 85% of the investors in the Ascot fund did not know their money was siphoned to Mr. Madoff, the complaint says. For those that knew, the truth about the size and scope of the investment was obfuscated, says Mr. Cuomo. Mr. Merkin collected an annual fee from Ascot’s investors amounting to 1% to 1.5% of the total assets in the fund – a fee that included the fictitious Madoff returns, says the complaint. By 2008, Mr. Merkin was collecting about $25.5 million a year from managing Ascot.

    In one presentation to a non-profit investor, Mr. Merkin stated that only 15% of the Ascot fund was invested with Mr. Madoff, says the complaint, which includes over 100 pages of emails, presentations and other documents. Mr. Merkin told another investor who learned of the Madoff investment that it was done through Morgan Stanley, and therefore protected – a lie, says the complaint.

    Mr. Merkin told investors in his Gabriel and Ariel funds that he was investing in distressed assets and bankruptcies when he actually transferred more than one third of each of those funds’ money to Mr. Madoff starting in about 2000. Mr. Madoff’s supposed strategy was about stocks and stock options, not distressed assets.

    The complaint also alleges that Mr. Merkin ignored several warning signs about Mr. Madoff’s investing returns. In the early 1990s, Victor Teicher, a money manager who had worked for Mr. Merkin, told him not to invest with Mr. Madoff because such steady returns were impossible, according to the complaint.

    Mr. Merkin also allegedly knew of the tiny suburban New York accounting firm, Friehling & Horowitz, with one active accountant, that Mr. Madoff used – a red flag to many investors.

    In his files, Mr. Merkin kept two 2001 news articles questioning Mr. Madoff’s returns – one published in Barron’s and one by a hedge fund newsletter called MARHedge, according to the complaint.

    Mr. Merkin was not personally heavily invested in his own Ascot fund. He did not reinvest his $169 million in management fees for the years 1995 to 2007 back into his own fund, says the complaint. All told, Mr. Merkin invested personally and through family trusts and foundations $7 million in Ascot in its first six years, and less than $2 million over the following 10 years.

    Mr. Cuomo’s complaint is the second to charge a so-called Madoff “feeder” fund with fraud. The lawsuits widen the potential pool of resources from which investors may try claw back some of their losses.

    Massachusetts regulators last week charged Madoff’s largest feeder fund, Fairfield Greenwich Group, with civil fraud.

    Fairfield had $6.9 billion of its $14 billion of assets invested with Madoff, according to the firm. Founding partners Jeffrey Tucker and Mr. Noel each earned more than $30 million in 2007 and more than $100 million each over the past decade, the complaint says.


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    19 Comments
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    Anonymous
    Anonymous
    14 years ago

    chilul hashem of the highest order

    PMO
    PMO
    14 years ago

    To be fair, it is not known whether he knew what Madoff was doing or not. However, he did misrepresent his funds. For that he should just seize his assets and distribute them to the people he lied to.

    Nobody should make it out like this was as bad as a Madoff thing. It seems Merkin was just trying to build himself up to more than he really was.

    A Chillul H” cherry on top of a wall street Chillul H” sundae…. it is shameful.

    Anonymous
    Anonymous
    14 years ago

    Misrepresentation?! He took a fee of how much? to direct funds to an investment fund that a moron with a few bucks would also do directly if he had the opportunity? People entrust their money with financial gurus with the intent that their money is placed in a sound and basically safe financially vehicle. Merkin is just a siphon for monies that wary people would not have given Madoff directly. And remember an 8% return is safer sounding than 10%. Right? So us shmoes out there get fooled into a calm sleep while the crooks out there are taking our bank accounts. And I’m sure his sister will say it’s our fault as she has already. Wonder if she lost anything in this scandal.

    Anonymous
    Anonymous
    14 years ago

    Oh Ezra how the mighty have fallen.

    Anonymous
    Anonymous
    14 years ago

    looks like torah and madoh [madoff] didnt mix too well here

    deepthinker
    deepthinker
    14 years ago

    Inspired by Avi Shafran’s admiring portrait of Bernie Madoff, here is my take on the Merkin story:

    There is a thin line between legitimate investing and fraud. Legitimate investors sometimes gamble on a stock and lose tons of money for their investors. They continue to exist, because reasonable people know that “Ypu can’t win them all,” and they keep their moey in the investment fund, hopin for profits later that will make up for the losses.

    If everone took our his money suddenly, the fund would collapse. This is called a “run on the bak.”

    Bernie Madoff and Mr. Merkin gave their investors above-average returns for DECADES. A ponzi scheme doesn’t last that long.

    In the early 1990’s Madoff ran into trouble, and he couldn’t produce the returns his investors had become accustomed to. So, he made a fateful decision, and he started using investment capital to pay off investors, a classic Ponzi manuever. He hoped ting would turn around, and he would be able to put the money back. But, it didn’t work, and he had to continue depleting his capital.

    So, my question is this: Why is madoff a crook–the very devil himself–when Citibank, Freddi-Mac, and Fannie-May, who lost trillions of dollars on wild gambles of their investors money, are made whole by the Federal Government, with trillion of taxpayer money, while their executives get cushy jobs with the Obama administration, instead of going to jail, like Madoff/

    Yitzchok
    Yitzchok
    14 years ago

    I find it hard to feel bad for J. Ezra Merkin. He was not receptive to heimishe people that came to him looking for help, instead he prefered to “help” the “sheine menshen” like YU, Ramaz,Lincoln Center, etc.. He was not one of us, not then and not now.

    Yitzchok
    Yitzchok
    14 years ago

    To: # 12. I am a more modern Jew the you think. However I do recognize the real thing when I see it. I am in finance and never gave up an opportunity to help a “frum” person that came knocking on my door for help with getting themselves on their own 2 feet. J. Ezra Merkin practically threw orthodox looking people out of his office unless they were there to give him money. This is a fact, and I challenge anyone to say otherwise. J. Ezra Merkin only gave to those that could further his own ambitions. J. Ezra Merkin is a smart learned guy but I don’t believe he was motivated by any altruistic values at all. J. Ezra Merkin was looking out for one person and one person only, and that was himself. I do not regret saying what I did. And I will end off the same way. He wasn’t one of us then and he is not one of us now.

    Foodtekie
    Foodtekie
    14 years ago

    My father o b”m, said a good word to me once. He said in Yiddish that he went throughout his life in the straightest path he could. He told me that as a result, he wasn’t the richest person, but, he could sleep at night. For the Ezra Merkins, Dina Weins, Jack Abramoffs and other “frum” Jews of this world who pray to the G-d of Mamon, the eighth commandment of Lo Tignov-Do Not Steal- was vitiated as long as you gave $ to charities. I wish them many sleepless nights.