Merkin Investor Awarded $1.8 Million in Madoff Case

Date: Tuesday, May 18, 2010
Author: Karen Freifeld, Bloomberg

An investor in J. Ezra Merkin’s Ascot Partners LP, a feeder fund for Ponzi schemer Bernard Madoff, was awarded $1.75 million by arbitrators who found Merkin intentionally breached his fiduciary duty by not disclosing Madoff’s role in the fund, according to a court filing.

Merkin also was negligent in performing due diligence on Madoff, a majority of an arbitration panel found, according to a petition filed today in New York state court. Investor Noel Wiederhorn, who put $1.46 million into Ascot Partners in 2003 and 2004, is seeking a judgment confirming the award, which was for the amount he invested plus interest.

Wiederhorn, a Wycoff, New Jersey, pediatrician, also asked that the sealed record of the arbitration case be made public.

“These findings could have significance in later litigation and arbitrations against Mr. Merkin as well as against numerous other Madoff feeder-fund managers,” Weiderhorn’s attorney, David Bamberger, wrote in asking for the record to be unsealed.

The evidence showed “major contradictions and ambiguities” in transaction confirmations, which should have caused Merkin to question the Madoff trades, according to his filing. The evidence in the hearing also established the “extreme improbability” of the transactions Madoff reported in the over-the-counter options market, the papers said.

Merkin has been pursued by investors, government officials and regulators since Madoff’s $65 billion fraud was exposed in 2008.

Claims Rejected

Andrew Levander, an attorney for Merkin, said in an e- mailed statement that the arbitration panel rejected most of Wiederhorn’s claims. Levander said Wiederhorn falsified his net worth to invest in Ascot and was aware of Madoff’s role in managing the assets.

“We are very disappointed that the panel majority, in nevertheless awarding damages in what it characterized as a difficult case in which both parties were victims of Madoff, manifestly disregarded the law and claimant’s own testimony,” Levander said.

Bamberger said the arbitration panel didn’t find that Wiederhorn was aware of Madoff’s role and it didn’t “ascribe an ill motive” as to how his client filled out a subscription form.

New York Attorney General Andrew Cuomo has sued Merkin and his Gabriel Capital Corp., alleging that Merkin secretly placed $2.4 billion of client funds with Madoff. The case overlaps with investigations being pursued by Irving Picard, a court-appointed trustee in the Madoff bankruptcy.

Mort Zuckerman, chairman of Boston Properties Inc. and publisher of the New York Daily News, also sued Merkin and Gabriel Capital for more than $40 million in losses stemming from investments made with Madoff.

Madoff, 71, pleaded guilty in March 2009 and is serving a 150-year sentence.

The case is Wiederhorn v. Merkin, 601265/2010, New York State Supreme Court, New York County (Manhattan).

To contact the reporter on this story: Karen Freifeld in New York at kfreifeld@bloomberg.net.