N.Y. AG Schneiderman settles with Ivy for $210M over Madoff allegations

NEW YORK (Legal Newsline) - New York Attorney General Eric Schneiderman announced a $210 million settlement on Tuesday with Ivy Asset Management LLC, a company that allegedly advised clients to invest with Bernard Madoff.

The settlement with Ivy, a Bank of New York Mellon subsidiary, will provide a payment of $210 million by the firm and approximately $9 million by other defendants. The settlement is expected to return all or nearly all of the original investment to investors defrauded by the Ponzi scheme when added to future amounts Madoff investors expect to receive from the Madoff bankruptcy proceeding.

"Today's settlement brings accountability for one of the worst financial frauds in American history, and justice to defrauded investors," Schneiderman said. "We have recovered over $210 million for the victims who were harmed as a result of the world's most notorious Ponzi scheme. Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients. An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses."

Ivy was paid more than $40 million between 1998 and 2008 to give advice and conduct due diligence with clients with large Madoff investments. Ivy's due diligence determined that Madoff did not invest his funds as advertised. Internal Ivy documents found deep but undisclosed reservations about Madoff but, despite reservations, Ivy failed to disclose its suspicions to clients for fear of losing the fees it received through the investments, Schneiderman said.

Ivy clients, including dozens of New York union welfare and pension plants, lost more than $236 million after Madoff's Ponzi scheme collapsed, Schneiderman said.

A 2010 lawsuit alleged that Ivy engaged in violations of both the Martin Act for fraudulent conduct in connection with the sale of securities and the Executive Law for persistent fraud in business conduct, as well as breach of fiduciary duty. The lawsuit sought the disgorgement of all fees Ivy received, as well as damages and restitution.

Under the terms of the agreement, Ivy will pay $210 million to return money to investors and repay fees and expenses to Schneiderman's office. The settlement funds, as well as money received from the liquidation of Madoff's estate, will compensate defrauded investors for all or nearly all of the money invested with Madoff.