Legal News

Picard?s Latest: A Huge Lawsuit Against Fairfield Greenwich

By Ashby Jones

The Madoff developments are coming fast and hard these days. Yesterday, we had news that federal investigators were looking into the roles played by a handful of big Madoff investors. And on Monday afternoon came word that Irv Picard, the Baker & Hostetler lawyer serving as trustee for Bernie’s firm, had filed suit seeking $3.5 billion from Fairfield Greenwich, the Connecticut hedge fund run by Walter Noel (pictured) that funneled more money Bernie’s way than anyone else. Click here for the WSJ story; here for the NYT story.

The suit, filed Monday in federal court in Manhattan, seeks the return of the money three Fairfield Greenwich funds took out of their Madoff accounts from 2002 until the scheme's collapse in December. The suit alleges the funds, which placed client money with Madoff, “should have known” he was engaged in fraud. The suit doesn’t provide evidence Fairfield or its officers had knowledge of the Madoff fraud but says the firm didn’t perform the adequate due diligence it promised its clients.

The suit alleges Fairfield missed numerous warning signs, including trades listed in its accounts that could never have occurred, and seeks the return of money it withdrew on behalf of its clients since 1995.

Moreover, the complaint said, the funds' account records showed prices for 280 stock trades that did not match the actual price range for those stocks when the trades supposedly occurred. Some trades were shown as occurring on days that were actually holidays or weekends, according to the complaint.

"These trades were clearly fictional," the complaint said.

Seemingly damning evidence aside, lawyers familiar with the cases say Picard may have difficulty collecting from the defendants even if the suits succeed. That is because the money may already be in the hands of Fairfield’s own clients, who are likely off-limits to Picard, since they weren’t direct investors with Madoff.

Fairfield said in a statement: “There is no merit to this lawsuit, and it will be defended vigorously.”

Full post as published by Law Blog - WSJ.com on May 19, 2009 (boomark / email).