Madoff trustee seeks to block settlement with N.Y. AG

Jessica M. Karmasek Aug. 2, 2012, 12:00pm



NEW YORK (Legal Newsline) - The trustee overseeing the liquidation of Bernard Madoff Investment Securities LLC is seeking to block a $410 million settlement between New York Attorney General Eric Schneiderman and hedge fund manager J. Ezra Merkin.

The trustee, Irving H. Picard, has asked a federal judge to impose an injunction against the attorney general using bankruptcy law, Bloomberg News reported.

"Merkin's money is not limitless, and with the prospect of over $400 million depleted through the settlement, the trustee is concerned that little or nothing will be left for BLMIS customers," Picard wrote in the bankruptcy court filing Wednesday.

Schneiderman's office secured the settlement with Merkin in June.

Merkin controlled four funds that invested more than $2 billion with Madoff on behalf of hundreds of investors, including many New York residents and charitable organizations.

Madoff, the former non-executive chairman of the NASDAQ stock market, is the admitted operator of a Ponzi scheme considered to be the largest financial fraud in U.S. history. He is currently serving a 150-year prison sentence in Butner, N.C.

As a result of Madoff's scheme, the investors of the four funds -- Ariel Fund Ltd., Gabriel Capital LP, Ascot Fund Ltd. and Ascot Partners LP -- lost in excess of $1.2 billion.

According to Schneiderman's office, Merkin turned over to Madoff all of the money in the Ascot funds and a substantial portion of the Ariel and Gabriel funds, but concealed Madoff's role in managing the funds.

In turn, Merkin, who presented himself as a "skilled money manager," received hundreds of millions of dollars in management fees, Schneiderman's office said.

Under the agreement with the attorney general, Merkin will pay $405 million to compensate investors over a three-year period, and $5 million to the State to cover fees and costs.

"This agreement is a victory for justice and accountability," Schneiderman said in June.

"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's Office charged Merkin with violations of the Martin Act and other state laws for concealing Madoff's control of the Merkin funds and for breaches of his fiduciary duty to manage the funds prudently.

The lawsuit sought damages, disgorgement of all fees by Merkin, and injunctive relief.

Under the agreement with Schneiderman's office, the $410 million paid by Merkin will be used to return money to investors, under the direction of David Pitofsky and Bart Schwartz, court-appointed receivers overseeing the winding-up of the Merkin funds.

Schwartz said of Picard's move Wednesday:

"We have entered into a fair, legal and binding settlement. We will vigorously oppose any attempt to derail it."

From Legal Newsline: Reach Jessica Karmasek by email at

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