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Hedge fund billionaire sued for investing in Madoff scheme

Date: Tuesday, January 13, 2009
Author: James Doran, Guardian

J Ezra Merkin, the fallen hedge fund billionaire with links to Bernard Madoff, faces fresh lawsuits seeking as much as $100m (66m) that investors claim he squandered on the $50bn Ponzi scheme.

Merkin, 55, was forced to close his $1.5bn Gabriel Capital hedge fund last month after disclosing massive losses from investing in Madoff's business.

New York University (NYU) is already suing Merkin over $24m of losses from his Ariel fund. The university claims its investment was placed with Madoff without permission.

"Until 12 December 2008, we had no knowledge that NYU's funds were instead being managed by Bernard Madoff," said an affidavit from NYU filed in New York state supreme court.

In the next week to 10 days, a further swath of lawsuits from investors who lost between $80m and $100m investing with Madoff are set to be filed by Jake Zamansky, a well-known New York securities lawyer.

Zamansky said the lawsuits would name Merkin personally as most of his clients trusted him to invest their cash wisely, not merely to hand the money over to his friend Bernie Madoff.

"Most of these people I am representing had never heard the name Bernie Madoff until the fraud was exposed,"

Zamansky said. "They thought they were investing with Ezra Merkin. The least they expected him to do was to look under the hood of the vehicles he invested their money in. He clearly did not do that."

Zamansky said he had about 10 clients, each of whom lost "north of $10m" investing with either Merkin or Madoff.

Merkin is the son of the late Hermann Merkin, a Jewish philanthropist who donated millions to help build Yeshiva University, the Fifth Avenue synagogue and Merkin Concert Hall in New York.

Andrew Levander, a lawyer representing Merkin, declined to return calls seeking comment.

Other big investors, including Yeshiva University, which lost $110m, and New York Law School, also blame Merkin for placing millions with Madoff without their knowledge.

Although Merkin vigorously denies any wrongdoing in all of the claims against him, he has resigned from most of his high-profile positions.

On Friday he stepped down as chairman of GM's car loans arm, General Motors' Acceptance Corporation (GMAC), while he walked away from his post as a trustee at Yeshiva in December and recently stepped down as chairman of the investment committee at the UJA Federation of New York.

GMAC pledged to replace its board as a condition of receiving billions of dollars of US government bail-out funds.

Merkin was chairman of GMAC while the firm reported five consecutive quarterly losses totalling $7.9bn as car sales slumped and foreclosures soared across the United States.