Monday, June 25, 2012
The New York Attorney General announced a $410 million settlement with J. Ezra Merkin, who controlled four funds that invested over $2 billion with Bernard M. Madoff on behalf of hundreds of investors. Investors in the funds, Ariel Fund Ltd., Gabriel Capital L.P., Ascot Fund Ltd. and Ascot Partners L.P., lost in excess of $1.2 billion, while Merkin received hundreds of millions of dollars in management fees.
Under the agreement, Merkin will pay $405 million to compensate investors over a three-year period, and $5 million to the State of New York to cover fees and costs. This is the first settlement resulting from a government action against Merkin.
In April 2009, the Office of Attorney General charged Merkin with violations of the Martin Act, General Business Law § 352; and Executive Law § 63(12) for concealing Madoff’s control of the Merkin Funds and for breaches of his fiduciary duty to manage the funds prudently. The lawsuit sought damages, disgorgement of all fees by Merkin, and injunctive relief.
Depending on the size of their losses, eligible investors will be entitled to receive over 40 percent of their cash losses. Pursuant to a claims process, investors who were not aware of Merkin’s delegation to Madoff will receive a defined percentage of their losses, while those who were aware of Madoff’s role will be eligible to receive a smaller recovery. In addition, all investors are likely to receive additional payments at a future date when the Madoff Estate is able to distribute moneys recovered by Irving Picard, the Securities Investor Protection Corporation Trustee for the liquidation of Madoff’s Estate, who is not involved in Attorney General Schneiderman’s settlement.
For nearly two decades, Merkin presented himself as a skilled money manager and used his social and charitable connections to raise over $4 billion from hundreds of individuals, charities, and other investors. Merkin turned over to Madoff all of the money in the Ascot Funds, and a substantial portion of the Ariel and Gabriel Funds.