Madoff Scandal Aftershocks Reach 'Insiders'
Beneficiaries Are Caught up in Madoff's Ponzi Scheme Shock Waves
A lawsuit filed by US Bankruptcy Court last Thursday claims Merkin knew the millions in fees he collected from directing investments to Madoff were the spoils of a massive Ponzi scheme, New York Daily News reported on May 8. US Bankruptcy Court trustee Irving Picard has sued Merkin to recover the $557.8m Merkin and his Gabriel Capital Corp have withdrawn from Madoff's firm since 1995.
Bernie Madoff who pleaded guilty last March, is currently in jail awaiting a sentence which could be as long as 150 years for running what has been described as the biggest Ponzi scheme on record, paying investors with money from new investors over a period of more than 30 years. Some of the investors who cashed in early from Madoff's $65m scam may now have to pay back what they took out.
Merkin Warned
Picard said Merkin earned consistent 11% to 16% returns on investments, despite the volatility of the S&P 100 Index during the same period and claims Merkin's financial analyst and his accountant had warned him Madoff's profits were too good to be true. In a statement, Picard's lawyer, David Sheehan, says that, based on these facts, Merkin knew or should have known Madoff's firm was engaged in fraud.
Merkin is also facing lawsuits from New York University which is suing for a loss of $24m from investments in Madoff's scheme through Merkin's feeder fund. A lawsuit has also been filed by state Attorney General Andrew Cuomo.
Picard's Clawback
Picard is chasing up to $735m in Madoff assets and has sent out 223 letters in an attempt to "claw back" money from investors who cashed out as long as six years before the collapse."These amounts were paid to you at the expense of other customers while [Madoff's firm] was insolvent. The trustee demands that you immediately return such amounts ... for the benefit of all defrauded creditors," a letter to one investor says.
Ignorance is no defence for prominent Beverly Hills money manager Stanley Chais who has been accused by Picard for unjustly receiving more than $1bn from Madoff's scheme. Chais and his companies and family trusts "collectively profited from this scheme through the withdrawal of more than $1bn, and knew or should have known that they were reaping the benefits" of Madoff's misconduct, Picard said in his complaint filed in US Bankruptcy Court, according to Los Angeles Times (May 2).
Madoff's Hollywood Victims
Picard claimed Chais "knew of should have known" something was wrong when his family investments with Madoff averaged returns of 40% and sometimes as high as 300%. The lawsuit alleges Chais was the main beneficiary of the scheme for at least 30 years, enabling his family to withdraw money which belonged to Madoff's victims. These include Hollywood celebrities such as Steven Spielberg, John Malkovich, Kevin Bacon and Eric Roth, screenwriter of The Curious Case of Benjamin Button, who is suing Chais for losing all his retirement money.
Meanwhile, Associated Press reported on May 9 Massachusetts Secretary of State William Galvin has revoked the securities registration of New York-based Cohmad Securities Corp, which has an office in Boston, and fined the firm $100,000 for failing to provide details on its relationship with Madoff. A Boston hearing officer ruled the firm, which is widely regarded as a virtual subsidiary of Madoff, must provide state regulators with an accounting of all Massachusetts investors the firm referred to Madoff.
Meanwhile, Associated Press reported on May 9 Massachusetts Secretary of State William Galvin has revoked the securities registration of New York-based Cohmad Securities Corp, which has an office in Boston, and fined the firm $100,000 for failing to provide details on its relationship with Madoff. A Boston hearing officer ruled the firm, which is widely regarded as a virtual subsidiary of Madoff, must provide state regulators with an accounting of all Massachusetts investors the firm referred to Madoff.
Sources:
"Madoff buddy, Ezra Merkin, sued over plunder from Ponzi scheme" by Thomas Zambito, New York Daily News, May 8, 2009
"Trustee in Bernard Madoff scandal files complaint against Stanley Chais', Los Angeles Times wire service, May 2, 2009
"Mass. orders firm to account for Madoff referrals", The Associated Press, May 9, 2009
Madoff 'insiders'...facing court
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