HARTFORD, Conn. (Legal Newsline) - Connecticut Attorney General Richard Blumenthal sued a Westport National Bank, a Wilton money manager and his company on Monday to recover $16.2 million for investors affected by Bernie Madoff's Ponzi scheme.
The lawsuit charges Westport National Bank, Robert L. Silverman and his company, PSCC Inc., with multiple violations of state banking laws.
Blumenthal's suit alleges that the defendants ignored repeated and obvious indications of fraud, failed to fulfill their duty to verify Madoff's claimed investments and miscalculated fees, which resulted in millions of dollars in overcharges.
The suit also alleges that the defendants acted as investment advisors without the necessary state licenses and failed to provide written information on fund risks and strategies.
"The bank and Mr. Silverman effectively aided and abetted Madoff's massive fraud, ignoring clear and compelling signals that his investments were bogus," Blumenthal said.
"Screaming signs and sirens shouting fraud - the same securities bought and sold on the same day, the same bonds with different maturity dates - were repeatedly and reprehensibly disregarded.
Westport National Bank is alleged to have collected $2.4 million in fees between 2000-2007 for various duties performed as custodian of its clients' funds. The company, Blumenthal alleges, performed very few duties and handed over most of the responsibilities to Silverman and his company.
As a result of these actions, Silverman's firm earned a separate $13.8 million in fees. These fees were so high that Madoff complained, causing the fees to be lowered, Blumenthal says.
"These investors were betrayed twice, first by Madoff and then by their advisors who charged them millions and then hurled them into the abyss," Blumenthal said. "Not only did they mislead investors, but miscalculated fees to enrich themselves.
Silverman and his company began doing business in the late 1980s with Bernard L. Madoff Investment Securities. Silverman hired a new custodian - Westport National Bank in Westport - for his Madoff accounts in 1999. Two investment funds were set up by Silverman and his bank to funnel money into Madoff's scheme, Blumenthal says, adding that one of the funds was for general investing and the other was for IRAs.
As custodian, Blumenthal alleges, Westport National Bank was supposed to handle billing, perform administrative work and take legal possession of securities and other investments, including verifying their purchase on behalf of investors.
None of these activities were conducted by the bank, which handed them over to Silverman and his company, Blumenthal said. Neither Silverman or Westport National Bank ever properly verified that Madoff made the investments he claimed, Blumenthal said.
A total of 240 consumers, including 97 in Connecticut, invested in the two Westport National Bank Madoff funds, Blumenthal says, estimating that consumers originally invested about $10 million.