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Madoff Must Reveal All Assets by New Year’s Eve, Judge Rules

Date: Saturday, December 27, 2008
Author: Erik Larson, Bloomberg

Investors looking to recoup some of the $50 billion they lost in Bernard Madoff’s alleged Ponzi scheme may get a better idea what the New York financial adviser has left when he is forced to reveal his assets to regulators.

Madoff, 70, must provide a detailed list of all investments, loans, lines of credit, business interests, brokerage accounts and other holdings to the Securities and Exchange Commission by New Year’s Eve, a federal judge ruled. Madoff’s foreign business units were given until Jan. 26 to provide a similar accounting.

The list is to include all assets held for his “direct or indirect benefit,” U.S. District Judge Louis Stanton in Manhattan wrote in a Dec. 18 order in the SEC lawsuit against Madoff. The list must describe “the source, amount, disposition and current location of each of the items listed.”

A catalog of Madoff’s assets may reveal targets for angry investors including hedge funds and charities seeking the return of their funds. New York-based Bernard L. Madoff Investment Securities LLC began liquidating after his Dec. 11 arrest for securities fraud. Madoff, under house arrest in his Manhattan apartment, faces as much as 10 years in prison and a $5 million fine if convicted.

Several investors filed proposed class-action, or group lawsuits against Madoff and his firm following FBI allegations that he admitted the business was “one big lie.”

Investment Firms

Investment firms that did business with Madoff have also been sued. New York University said it lost $24 million in investments managed by Madoff, according to a lawsuit filed Dec. 23 in New York state court in Manhattan against fund manager J. Ezra Merkin and his Gabriel Capital LP fund and Ariel Fund Ltd. The school alleged Merkin invested NYU’s money with Madoff without telling investors or performing proper due diligence.

In a separate proposed class-action against Merkin, who is also the chairman of auto lender GMAC LLC, Harry Susman, a lawyer for The Calibre Fund, alleged he misled investors by claiming to have put investor money in a “diverse portfolio of securities.”

Gabriel Capital LP, a $1.5 billion fund, plans to liquidate due to Madoff losses, Merkin said in a Dec. 18 investor letter. The fund lost 39 percent this year through Nov. 30, mirroring the drop in the S&P 500 Index. Merkin told Ariel investors it also plans to wind down in light of the losses from the Madoff fraud, according to the NYU lawsuit.

Merkin’s Lawyer

Merkin’s lawyer, Andrew Levander, didn’t immediately return a call seeking comment.

Madoff’s firm was the 23rd-largest market maker on Nasdaq in October, handling an average of about 50 million shares a day, according to exchange data. It took orders from online brokers for some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Federal prosecutors alleged Madoff engaged in a classic Ponzi scheme in which he would pay off old investors with the money of new investors.

His lawyer, Ira Sorkin, didn’t return a call seeking comment.

Madoff, who hasn’t formally responded to the securities fraud charge, is due in court Jan. 12, unless he is indicted before then. Prosecutors and defense lawyers may also agree to postpone the court date.

In a Dec. 18 interview, Sorkin said Madoff’s company is cooperating with the government. Madoff met with prosecutors earlier this month, according to people familiar with the case.

Asset List

A list of Madoff’s assets has yet to be filed, according to electronic federal court records. It’s unclear whether such an accounting will be made available to Madoff investors.

SEC spokesman John Nester didn’t return a call or e-mail seeking comment after business hours. SEC lawyer Alexander Vasilescu didn’t return an e-mail after business hours.

The NYU lawsuit added to a growing list of alleged victims of Madoff, including Liliane Bettencourt, the world’s wealthiest woman and the daughter of L’Oreal SA founder Eugene Schueller; Spanish billionaire Alicia Koplowitz; U.S. filmmaker Steven Spielberg; Nobel laureate Elie Wiesel; and Yeshiva University.

New York-based money manager Thierry Magon de La Villehuchet, who may have lost $1.4 billion of client funds invested with Madoff, was found dead in his Manhattan office Dec. 23 in what police said was an apparent suicide.

The New York City Medical Examiner said Dec. 24 it had completed an autopsy of de La Villehuchet, a co-founder and chief executive officer of Access International Advisors, and that results will be returned next week.

Bettencourt, the L’Oreal heiress, invested part of her $22.9 billion fortune with Madoff through de La Villehuchet, according to two people familiar with the matter.

The case is Securities and Exchange Commission v. Madoff, 08-cv-10791, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Erik Larson in New York at elarson4@bloomberg.net.