Madoff Feeder Ezra Merkin Charged With Fraud
With Bernie Madoff in jail, perhaps overturning dinner benches and enquiring as to the whereabouts of people’s tools, the net is widening to ensnare other bad men involved in the scandal. Ezra Merkin is one – not only does he have to put up with the daily embarrassment of sharing his name with that of a pubic wig, he also got served with civil fraud charges yesterday for allegedly channelling investors’ money into Madoff’s funds without telling them, and receiving a hefty commission for doing so. Looks like his sister’s attempts at cleaning the family name were all for naught.
By sending the money to Madoff, without the permission of the investors, Merkin, former chairman of General Motors’ financing arm GMAC, made around $470m in fees; many of the investors he exploited to get these ill-gotten gains were charities. One of the charitable foundations that lost money thanks to Merkin’s alleged mischief was headed up by Mort Zuckerman, who also filed charges against Merkin yesterday to try and get back the $40m in losses he sustained to the Madoff fraud.
Zuckerman said that at no point did Merkin tell him “actually, I’m going to give all your money to this Madoff guy. Don’t worry, he knows Kevin Bacon!”; Merkin for his part is saying that he sent Zuckerman a memo highlighting the “lack of diversification” in his investments, which is lacking a certain specificity if you ask me.
Merkin’s lawyer said both lawsuits were “without merit”, saying that all the people who invested with Merkin expressly allowed him to “allocate assets to third-party managers”. Really? They just let him send millions of dollars wherever he thought best? What’s more believable is that Merkin didn’t know it was a Ponzi scheme that he was sending the money to, just as countless other investors and regulators didn’t realise, and his lawyer says as much in his statement.
It comes a week after Fairfield Greenwich, a fund that had fed nearly half of its investments to Madoff, was also served with civil fraud charges for similarly turning a blind eye while taking hefty fees for providing the investments. And also suing Merkin are NYU, who had employed Merkin to invest their money; they ended up losing $24m to Madoff. Merkin has continued his bad karma by not paying the lawyers that defended the fund against the NYU allegations.
Time magazine has an interesting piece from Robert Chew, an investor with a Madoff feeder fund, who holds his hands up and says: we should have been more careful, but the money was just too good. You would think that because the money was so good investors’ bullshit alarms would start sounding, but it goes to show that Madoff’s fraud worked for so long because it was just so ballsy, blinding everyone concerned with unbelievable sums. Poor Chew can’t write for toffee – at one point talking with blithely Brass Eye grandeur of “the cone of secrecy… pulled down tight from day one” – but his honesty is pretty amazing, and makes the important point that without the extra layer of opacity afforded Madoff by the feeder funds, the fraud would never have carried on as long as it did.
And if you want to luxuriate in thousands of words on the intertwined existences of Merkin and Madoff, head over to this New York magazine article. Nice moments include Madoff singing Neil Diamond on a beach in Mexico during his 70th birthday party: “Where it began, I can’t begin to know.”
Posted by Ben Beaumont-Thomas in Hot Money | April 7, 2009 11:24AM |