New York State Attorney General Eric T. Schneiderman on Monday announced he won a $410 million settlement of a lawsuit against J. Ezra Merkin, accused of steering an estimated $2 billion in client money to Bernie Madoff via four funds he controlled.
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The investors in the Ariel Fund Ltd., Gabriel Capital L.P., Ascot Fund Ltd. and Ascot Partners L.P., lost more than $1.2 billion. Merkin is alleged to have received hundreds of millions of dollars in management fees, according to the attorney general’s suit.
“Eligible investors will be entitled to receive over 40% of their cash losses,” a statement from the AG says.
Under the settlement, Merkin will pay $405 million to compensate investors over a three-year period, plus $5 million to New York state to cover fees and costs. This is the first settlement resulting from a government action against Merkin, a statement from the attorney general’s office says.
Merkin could not be reached for comment.
“I am proud to announce that we have recovered over $400 million for the investors and charities that were harmed by history’s largest Ponzi scheme. This agreement is a victory for justice and accountability,” said Schneiderman in the statement. “Many New Yorkers entrusted their investments to Mr. Merkin, who then steered the money to Madoff while receiving millions of dollars in management and incentive fees. By holding Mr. Merkin accountable, this settlement will help bring justice for the people and institutions that lost millions of dollars.”
In April 2009, the attorney general charged Merkin with violations of the Martin Act for concealing Madoff’s control of the Merkin Funds and for breaches of his fiduciary duty to manage the funds prudently, the statement says. The lawsuit sought damages, disgorgement of all fees by Merkin, and injunctive relief.
Under this settlement, the $410 million will be returned to investors, under the direction of David Pitofsky and Bart Schwartz, the court-appointed receivers overseeing the Merkin funds.
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“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,” the statement says.
And “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,” the statement says.
“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,” the attorney general’s office says. But Merkin then turned over to Madoff all of the money in the Ascot Funds, and a substantial portion of the Ariel and Gabriel Funds, the AG says.
The attorney general then charged Merkin with issuing “misleading offering documents and quarterly reports” that “concealed Madoff’s role and misrepresented the role he was playing in managing the funds.”
More than 10% of the funds came from charities and non-profits.