Madoff-Linked Hedge Fund Manager Gives Up Control of Funds

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Irving Picard, the Bernard Madoff trustee, recently filed a lawsuit against Ezra Merkin, one of several so-called middlemen who funneled investors’ money into Madoff’s funds. Those funds turned out to be a huge Ponzi scheme that swindled Madoff’s clients out of billions of dollars. Now, the Associated Press (AP) reports that Merkin has agreed to give up his control of the bilked funds to Picard.

We recently reported that Merkin told investors he personally managed three hedge funds—Ascot Partners, Ariel Fund, and Gabriel Capital. However, according to charges filed against Merkin by the New York Attorney General (Andrew Cuomo), Merkin turned virtually all of this money over to third-party money managers, including Madoff. According to the complaint, Merkin typically did not disclose to investors, or actively obscured from them, that Madoff was managing some or all of their investments. Though acting primarily as a marketer and a middleman, Merkin pocketed hundreds of millions in management and incentive fees from investors, according to Cuomo.

Super Troopers rip Warlock III: The End of Innocence download The AP said Cuomo’s office requested the so-called “turnover agreement”—which is not a settlement—reporting that the deal is scheduled for approval tomorrow. Once finalized, the funds will be passed to Guidepost Partners LLC; Merkin’s Ascot Partners fund will be handled separately, explained the AP. The court-appointed trustees will handle the funds’ liquidation, the AP added.

As we previously reported, Cuomo claimed Merkin kept $2.4 billion of investors’ funds in Madoff even though he knew of irregularities and other glaring red-flags and despite that at least two of Merkin’s most trusted colleagues repeatedly told him that Madoff’s returns were too good to be true, one even warning it could be a Ponzi scheme.

Picard also charged Merkin knew Madoff was running a scam. According to Picard’s lawsuit, Merkin withdrew more than $500 million in “nonexistent principal” from Bernard L. Madoff Investment Securities in the years before Madoff confessed last December. The lawsuit also claims Merkin “‘earned’ tens of millions of dollars in management and performance fees, even though he knew or should have known that (the firm) was engaged in fraud.”

The AP noted that Ascot Partners was one of the largest feeders to Madoff’s scheme and was ultimately completely liquidated. The fund maintained a nearly $2 billion account with Madoff with monies from New York University, Tufts University, Bard College, and Yeshiva University. Merkin was a trustee at Yeshiva, said the AP.

Cuomo has said that Merkin mixed personal and account funds, using firm money to buy about $91 million worth of artwork for his apartment, amassing what the AP described as “one of the largest private collections of work by abstract painter Mark Rothko.” Merkin has legally agreed not to sell the artwork, said the AP.

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Madoff pleaded guilty to 11 fraud counts on March 12. The former chairman of the NASDAQ stock exchange ran an investment advisory business for decades that was, in reality, a Ponzi scheme. Last November, Madoff told his investors his fund held over $64 billion, but in reality, it only held a mere fraction of that amount. Because Madoff’s Ponzi scheme went on for decades, it is suspected that he was far from the only person in his circle who knew of the swindle. It’s been known that several people close to Madoff—including key employees, as well as his wife, sons, and brother—were among those close to him caught up in the probe.

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