New York settled a lawsuit for $410 million with J. Ezra Merkin over claims that his funds secretly placed client money with Bernard L. Madoff.
The agreement provides $405 million to compensate investors and $5 million for the state, according to a statement by the office of New York Attorney General Eric Schneiderman. The case was filed in 2009 by his predecessor, Andrew Cuomo.
“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,” Mr. Schneiderman said in the statement. “By holding Mr. Merkin accountable, this settlement will help bring justice for the people and institutions that lost millions of dollars.”
The state claimed in its complaint that Mr. Merkin betrayed hundreds of investors, including charities, that entrusted him with their savings by “recklessly” feeding their funds to Mr. Madoff’s Ponzi scheme while falsely claiming he actively managed their funds.
Mr. Madoff, who pleaded guilty to running a Ponzi scheme that authorities say swindled investors of about $17 billion, is serving a 150-year prison sentence.
Mr. Merkin controlled four funds that invested more than $2 billion with Mr. Madoff on behalf of investors, according to Schneiderman. As a result of Mr. Madoff’s scheme, the investors in Mr. Merkin’s funds — Ariel Fund, Gabriel Capital, Ascot Fund and Ascot Partners — lost in excess of $1.2 billion, the office said. More than 10% of the assets obtained by Mr. Merkin belonged to charities and non-profit organizations, Mr. Schneiderman said.
Mr. Merkin’s fund is not affiliated with Ariel Investments’ Ariel Fund Ltd.
Andrew Levander, an attorney for Mr. Merkin, said in a statement that Mr. Merkin “is pleased to have achieved a resolution that is fair to his investors.”
Under the agreement, Mr. Merkin will pay $405 million to investors over a three-year period. Depending on the size of their losses, eligible investors will be entitled to more 40 percent of their cash losses, Mr. Schneiderman said. Under a claims process, investors who weren’t aware of Mr. Merkin’s delegation to Mr. Madoff will receive a defined percentage of their losses, while those who were aware of Mr. Madoff’s role will be eligible to receive a smaller recovery, according to Mr. Schneiderman.
