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Hedge Fund Manager Defended by Madoff’s Lawyer Gets 40 Months


Date: Monday, February 2, 2009
Author: Cynthia Cotts, Bloomberg.com

A hedge fund manager who used the same defense lawyer as Bernard Madoff received a sentence that was a third of the maximum possible after he was convicted of defrauding investors out of $10 million.

Vincent Montagna remains free on bail more than two years after pleading guilty. He was sentenced to 40 months in prison instead of a possible 9-year term. His lawyer, Ira Sorkin, also represents Madoff, the New York investment adviser U.S. prosecutors accused of running a $50 billion Ponzi scheme.

Though Montagna and Madoff aren’t known to be connected beyond their choice of attorney, the case may provide a window on Madoff’s prospects in avoiding or reducing the maximum 20 years in prison he faces if convicted. Madoff, 70, is free on bail, though restricted to his Manhattan apartment.

“If Sorkin can do as well with Madoff as he did with Montagna, Madoff won’t be going to jail for a long time,” said Walter Flicker, a San Diego-based consultant who invested $50,000 with Montagna.

U.S. District Judge John Koeltl in Manhattan sentenced Montagna at a hearing Dec. 22. He noted his long history of charity; that his wife and three children are financially dependent on him; that a long time has passed since he committed the fraud; and that some of the losses were due to market conditions and didn’t directly benefit Montagna.

‘Very Significant’

“The scope and amount of the fraud, however, still remains very significant,” Koeltl said, adding that the sentence was “sufficient but no greater than necessary to accomplish the purposes of deterrence, just punishment, and protection of the public.”

Sorkin declined to comment on whether Montagna, 36, provided information to the government in exchange for a reduced sentence. The lawyer has said Madoff is cooperating with prosecutors.

As part of his sentence, Montagna must forfeit $686,000 and property in Pennsylvania and Nevada, and any future income must go to paying the $7.7 million he owes investors, according to a forfeiture order dated Jan. 5.

“This is how white-collar crime should be handled -- by turning the defendant into a pauper,” Michael Shapiro, a defense lawyer at New York-based Carter Ledyard & Milburn, said in an interview. “Long prison sentences are for violent predators.”

Montagna’s sentence is lighter than it may have been, though not outside of the federal sentencing guidelines, Shapiro said. If Montagna had cooperated, he likely would have gotten less than 40 months, according to Shapiro.

Sorkin co-chairs the white-collar defense practice at Washington-based Dickstein Shapiro Morin & Oshinsky.

‘Appropriate’

“The court imposed the sentence that it thought was appropriate,” Nicole De Bello, a Dickstein Shapiro associate who also represents Montagna, said in an interview.

Katherine Polk Failla, a prosecutor in the U.S. Attorney’s office in Manhattan who worked on the Montagna case, and Yusill Scribner, a spokeswoman for the Acting Manhattan U.S. Attorney Lev Dassin, declined to comment.

The government said in court papers that the recommended sentencing range for Montagna was between seven and nine years in prison. Charged with two counts of securities fraud, two counts of investment adviser fraud and five counts of wire fraud, he may have faced as much as 80 years in prison.

Kind of Leniency

Sorkin’s other client is unlikely to get the kind of leniency afforded Montagna because his behavior allegedly destroyed the lives of so many investors, according to Shapiro. After prosecutors and Sorkin agree on a plea for Madoff, the parties will make sentencing recommendations and the judge will act quickly, the lawyer said.

“It will be months at most before Madoff is in jail,” Shapiro said. Madoff hasn’t formally responded to the lone charge of securities fraud that he faces in a criminal complaint filed last month.

Montagna’s funds, Tiburon Asset Management and Tiburon Partners, raised about $10 million from 70 investors between 1998 and 2002, and lost almost all of it, according to a Securities and Exchange Commission lawsuit.

The fund manager was arrested in May 2005. From 2000 to 2004, he schemed to defraud investors by overstating assets, concealing conflicts of interest and diverting clients’ money for his own use, according to the criminal indictment.

‘Tiburon Investors’

“Montagna caused Tiburon investors to pay, on at least two occasions, his personal income taxes,” according to the indictment.

In 2002, he caused one of the funds to transfer a property worth $325,000 in Bensalem, Pennsylvania, to a partnership controlled by his wife, Christine Palmer, according to the SEC complaint. In turn, Palmer’s partnership paid $1.

Following his arrest, Montagna posted a $300,000 bond and remained free, with travel restricted to New York and Pennsylvania. He now lives with his wife and children in Doylestown, Pennsylvania, according to court records.

Montagna pleaded guilty in June 2006. In September of that year, the SEC barred him from working as an investment adviser, according to an agency statement.

Koeltl postponed the sentencing hearing repeatedly. Montagna was given travel waivers, allowing him to go to Florida, California, Hawaii and elsewhere. Beginning in November 2006, prosecutors gave him permission to travel in connection with his job as a chef for Wolfgang Puck’s catering company.

Wolfgang Puck

Montagna works for Wolfgang Puck Catering as a freelance chef, company spokeswoman Pamela Brunson said in an interview.

In December, Koeltl ordered Montagna to surrender to the U.S. Bureau of Prisons on March 6, after Shapiro said that Montagna had a job cooking for an event related to the Academy Awards in California in late February, according to a court transcript.

The judge later extended the deadline to March 20 so the defendant may attend his son’s fifth birthday party, according to court papers.

Flicker, the San Diego-based consultant who invested with Montagna because he had a long history of very good results, said he has yet to recover a penny.

“This lack of enforcement makes a mockery of the white- collar criminal justice system,” he said. “It’s no surprise Madoff is not in jail when convicted hedge-fund fraudsters can remain out on bail nearly three years after pleading guilty.”

The case is U.S. v. Montagna, 05-cr-0457, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Cynthia Cotts in New York at ccotts@bloomberg.net.