Madoff Trustee Seeks $3.6 Billion From Hedge Fund

Date: Thursday, July 22, 2010
Author: The New York Times

The trustee trying to recover money to repay investors who lost billions of dollars in Bernard L. Madoff’s Ponzi scheme is seeking $3.6 billion from a hedge fund firm and individuals that he says enabled Mr. Madoff to operate his fraud for at least two decades, The Associated Press reports.

The trustee, Irving H. Picard, filed papers in Federal Bankruptcy Court in Manhattan late Tuesday against the Fairfield Greenwich Group, two dozen affiliates and its founding partners, among others, saying they held nearly half of Madoff’s billions of dollars of reported assets under management.

More from The Associated Press:

The lawsuit, first filed in May 2009 against three Fairfield Greenwich funds that are being liquidated, cast the widest net yet across entities and individuals that Mr. Picard insists had to know something was seriously wrong.

Defendants had “actual and constructive knowledge of Madoff’s fraud and cannot deny their knowledge of many ‘red flags’ indicating the likelihood of that fraud,” the lawsuit said. “The defendants were not victims. They were enablers. They were facilitators. They deepened the pain of Madoff’s customers and their own investors.”

Fairfield Greenwich said in a statement that the lawsuit was filled with “false, misleading and rehashed accusations.”

“We find it incomprehensible that it would be filed while Fairfield Greenwich is in the midst of constructive, good-faith negotiations with the trustee and other parties,” the company said.

“We are outraged that Mr. Picard has chosen to characterize a number of so-called ‘red flags’ — warning signals apparent only in hindsight — as evidence that Fairfield Greenwich participated in the Madoff fraud,” the statement said. “We reject absolutely the allegation that Fairfield Greenwich or any of its executives or employees was aware of the fraud or in any way abetted it.”

The statement added that Fairfield Greenwich was victimized like other investment firms and was disappointed that Mr. Picard “grossly understated the extent to which Fairfield Greenwich principals invested alongside their clients and suffered more than $70 million dollars of losses in the Madoff fraud.”

Mr. Picard said in the court papers that the defendants had an ”extraordinary and lucrative” deal that allowed them to receive more than a billion dollars in fees for selling a fund “that had returns that were so consistently positive, they were seemingly impossible.”

Mr. Madoff’s Ponzi scheme collapsed in December 2008 when he confessed to his sons and later to the F.B.I. that his private investment business was a fraud. Although Mr. Madoff had sent statements to investors in November 2008 saying they had as much as $65 billion in assets, only a few hundred million dollars remained.

Mr. Madoff, 72, pleaded guilty to fraud charges and was sentenced last year to 150 years in prison.