Hedge Fund Settles Madoff Suit

One hedge fund has agreed to reimburse its investors who were swindled in the historic Ponzi scheme orchestrated by the disgraced, now jailed, financier, Bernard Madoff. The hedge fund—Fairfield Greenwich Advisors—apparently moved money to Madoff, said Boston.com, and will now reimburse its Massachusetts investors for some $8 million to cover losses. The agreement was reached Wednesday with Secretary of State William F. Galvin, said Boston.com,

Galvin, said Fairfield Greenwich, did not conduct the “rigorous” due diligence of Madoff it told its investors in Massachusetts it had, reported Boston.com. Galvin hopes that this agreement “will become a template for other resolutions’’ in the massive Ponzi scandal, quoted Boston.com.

The hedge fund did not admit nor deny the state’s claim, but did agree to pay back almost 12 investors with the original amounts they invested along with six-percent annual interest, said Boston.com, which added that Fairfield Greenwich will also pay a $500,000 state fine. As part of the settlement, the state downgraded the charges to one count of failing to conduct due diligence, a reduction from the original charge of fraud, said Boston.com.

Hearings were scheduled in which officials at Fairfield Greenwich Advisors were slated to testify; the deal was announced the day before the hearings, reported Boston.com. Averting a trial spares Fairfield Greenwich from revealing of what it was and was not aware in the Madoff scandal, for instance, noted Boston.com, executives at the hedge fund made over $300 million in fees just for referring investors to the swindler in the past three years alone.

The deal, said Boston.com, which is the first made by the state’s top securities regulator in the Madoff scandal, has left critics angry that thousands of Fairfield Greenwich customers who do not reside in Massachusetts were left out. Meanwhile, the hedge fund lost more than any other single entity involved in what is believed to be the largest Ponzi scheme in history, a total of $7.2 billion.

Court-appointed trustee—Irving Picard—in charge of liquidating Madoff’s finances—sued Fairfield Greenwich in Manhattan’s federal court, in an attempt to recoup $3.2 billion in lost customer funds. Madoff is now spending 150 years in prison for orchestrating a Ponzi scam estimated to have cost duped investors an incomprehensible $65 billion.

The Securities and Exchange Commission (SEC) has come under fire for apparently missing warnings that something was amiss with Madoff’s investment advisory business. A recent agency investigation looked at how the SEC failed to detect the historic fraud since 1992 and faults it for not fully going after tips, having inexperienced staff handle reviews, not looking into unbelievable and sustained profits, not pushing when Madoff was clearly caught in lies, and not pursuing trading records that would have pointed them to the scam, according to an earlier Bloomberg.com report. It seems the SEC cut an examination short, shifting gears to work on another issue; did not release many hundreds of exhibits noted in a recent investigative report, one of which was Madoff testimony from this June; and released the report after business hours on Friday evening of the recent three-day Labor Day weekend.

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