New York charges Madoff 'feeder' Ezra Merkin with fraud

New York Atty. Gen. Andrew Cuomo today charged money manager J. Ezra Merkin with civil fraud in the Bernie Madoff Ponzi scheme, alleging that Merkin funneled more than $2.4 billion in clients’ funds to Madoff while ignoring "glaring red flags."

Merkin, a well-known New York philanthropist and the former chairman of General Motors Corp.’s financing arm, GMAC Financial Services, "profited enormously from Madoff’s scheme, reaping huge commissions while investors lost all their money," Cuomo said in a statement.

Merkin earned $470 million in management and incentive fees over time by steering money to Madoff, Cuomo said.

"Merkin duped individual investors, non-profits, and charities into believing he was responsibly managing their investments, when in actuality he was dumping them into history’s largest Ponzi scheme," Cuomo said.

Andrew Levander, Merkin's attorney, said his client would "vigorously defend" against Cuomo's suit, which Levander called "hasty and ill-conceived."

Merkin, 55, has said he was stunned by Madoff’s scheme. He is already facing suits from other clients, including New York University and Mort Zuckerman, publisher of the New York Daily News.

Merkin’s funds, including Gabriel Capital and Ariel Fund, were "feeder" funds for Madoff. Cuomo alleges that Merkin presented himself to clients as an "investing guru," but says his true role was "master marketer."

In his statement accompanying the suit filed in New York State Supreme Court, Cuomo alleges that Merkin knew that investment professionals were suspicious of Madoff because, "beyond Madoff’s uncommonly steady returns, there were fundamental questions about Madoff’s money management business that suggested fraud."

Merkin kept in his files two press articles questioning Madoff’s practices and returns, Cuomo says.

Levander said Merkin had performed "extensive due diligence" on Madoff. "Unfortunately, Mr. Merkin's due diligence, just like the detailed investigations performed by countless others, including regulators, was thwarted by the intricate, fraudulent scheme perpetrated by Madoff."

-- Tom Petruno

Photo: J. Ezra Merkin. Credit: Eliana Aponte / Associated Press

Comments

[john]

He is one of many.

[pugtv]

"was thwarted by the intricate, fraudulent scheme perpetrated by Madoff."

That intricate lack of detail and paperwork can really throw an investment guru's due diligence off. Merkin must be a genius.

[mizzle]

Every one of the feeder fund guys needs to go to jail. The idea that these parasites did due diligence is a horrific lie spread by the attorneys they have already retained. There is not a shred of evidence that Madoff has purchased any stocks or bonds or any other kind of securities in at least 13 years. Tell me how much due diligence would it take to reveal that? They all need to go to jail and their families forced to live on food stamps.

[GZ]

People want blood, and I think he looks like a pig and can't believe anyone can make 500 million doing what he was doing, BUT everyone from the SEC down was fooled. Madoff was a legend. Now we have Monday morning quarterbacking like it was obvious...it was NOT obvious.

[Jonathan Ainsley Bain]

the domino effect begins

[martscan]

To think, for one minute, that Merkin, Fairfield Greenwich Grp and other funds fed massive amounts of money to khaver, Bernie, believing everything was kosher, is to believe there isn't a pick-up truck in Winnemucca. My take is that they all knew Bernie wasn't on the up and up but as long as they could prove an arm's length relationship with his operation, who cared, while their exorbitant fees and commissions kept rolling in?