Legal News

Cuomo Hits Merkin With Big Lawsuit Over Madoff Investments

By Ashby Jones

It’s not exactly surprising news (nor is this) but news it is, nonetheless: Earlier Monday, New York AG Andrew Cuomo filed a civil suit against financier Ezra Merkin (pictured), alleging he “betrayed hundreds of investors” by funneling $2.4 billion of clients’ money into Bernie Madoff’s Ponzi scheme without their knowledge. Click here for the early WSJ story; here for the complaint.

According to the complaint, 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 Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds. Click here and here for earlier WSJ stories about Merkin.

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

Merkin’s lawyer, Dechert’s Andy Levander, called the lawsuit “without merit,” and added: “We are disappointed that the Attorney General of the State of New York has filed this hasty and ill-conceived civil lawsuit, against which we intend to defend vigorously. . . . Contrary to the Attorney General's allegation, investors in the Ascot Funds were well aware that the money was being invested with Madoff.”

Cuomo does not allege that Merkin was aware of Madoff’s scheme. In December, after Madoff confessed to authorities of his fraud, 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 one of his funds. He added he had suffered personally as well.

The sales pitches for 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.

Full post as published by Law Blog - WSJ.com on April 06, 2009 (boomark / email).