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Madoff feeder fund charged with fraud in connection with investment scheme

By Bernard Hibbitts (editor) and University of Pittsburgh School of Law students.

[JURIST] Secretary of the Commonwealth of Massachusetts William Galvin filed a complaint Wednesday against Fairfield Greenwich Group alleging fraud for their involvement in the Bernard Madoff investment scheme. According to the complaint, Fairfield Greenwich acted as a feeder fund, giving their clients access to Madoff's investments. The complaint alleges that of the approximately $7.2 billion in Fairfield's investment assets - more than half of their total assets - 95 percent was invested with Madoff Investment Securities. The charges represent the first regulatory actions against a feeder fund related to the Madoff fraud case. The allegations cite a:profound disparity between the due diligence Fairfield represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities LLC...and the due diligence it actually conducted, as well as misrepresentations to investors in its Sentry funds about Fairfield's degree of knowledge and comfort with respect to Madoff's operations... failure Fairfield to disclose to investors the interconnected relationship between Fairfield and Madoff Investments.In January, Fairfield Greenwich reacted to Madoff's arrest by stating an intent to represent their clients' interests by aiding authorities. In December, soon after Madoff's arrest, Fairfield Greenwich vowed to pursue recovery of their lost assets. Last month, Madoff pleaded guilty to security fraud charges for his alleged involvement in a multi-billion dollar Ponzi scheme. In February, Madoff consented to a partial judgment with the US Securities and Exchange Commission (SEC) over civil charges brought by the SEC to obtain a preliminary injunction and asset freeze against him. The same day, SEC Division of Enforcement Director Linda Thomsen announced she was stepping down from her post. In the week following Madoff's charges, SEC Chairman Christopher Cox said that he would launch an immediate investigation into how the fraud allegedly perpetrated by Madoff went undetected for so long.

Full post as published by JURIST - The Paper Chase on April 01, 2009 (boomark / email).