Cuomo launched his probe and issued his subpoenas in the days immediately after news of Merkin's involvement with Madoff.
"At least two of Merkin's most trusted colleagues repeatedly told Merkin that Madoff's returns were too good to be true," the suit says.
It was one of the first, if not the first, action against a feeder fund. Since then, another aggressive state official, William Galvin, the Secretary of State of Massachusetts, has brought a similar in scope civil suit against the Fairfield Greenwich Group, co-founded by a society bold face name, Walter Noel, and with more than $7 billion in Madoff's hands, the largest of the feeder funds. Fairfield Greenwich, according to depositions by its executives, made hundreds of millions in fees as a result of the money it put in Madoff's hands.
In a statement through a spokesman, Merkin's attorney Andrew Levander said, "We are disappointed that the Attorney General of the State of New York has filed this hasty and ill-conceived civil lawsuit, against which we intend to defend vigorously. From the outset of the Attorney General's investigation, Mr. Merkin, Gabriel Capital Corporation, and the funds they manage have provided their full cooperation, answering all questions and producing hundreds of thousands of documents. The evidence shows that this lawsuit is without merit. Contrary to the Attorney General's allegation, investors in the Ascot Funds were well aware that the money was being invested with Madoff. Furthermore, investors in all of the Funds expressly authorized Mr. Merkin to allocate assets to third party managers such as Madoff, without giving them notice or obtaining their consent. Mr. Merkin performed extensive due diligence on Madoff and his trading strategy, and in addition arranged meetings with Madoff for many investors to perform their own due diligence. Unfortunately, Mr. Merkin's due diligence, just like the detailed investigations performed by countless others, including regulators, was thwarted by the intricate, fraudulent scheme perpetrated by Madoff."
Mortimer Zuckerman, the publisher of the New York Daily News, and a billionaire real estate magnate, suffered losses to his charity of $30 million. Nobel Laureate and holocaust survivor Eli Weisel's Foundation for Humanity also suffered losses through money placed with Madoff through Merkin. And Ira Rennert, the chairman of Merkin's synagogue, is also alleged to have suffered staggering losses through investments with Madoff through Merkin.
"I can say that the Attorney General's law suit is fully justified by the experience I had with Ezra Merkin as described in my lawsuit that incidentally was filed the same day," Zuckerman told ABC News.
Zuckerman filed his own lawsuit today seeking to recoup $40 million in losses as a result of Merkin placing funds from Zuckerman's charitable trust and another fund with Madoff.
According to Zuckerman's suit, which also filed in State Supreme Court in Manhattan, Merkin represented that he "exercised reasonable care" in selecting managers and made "periodic reviews." "There is no way Merkin could make such a representation without learning basic facts about Madoff's operation, including the fact that Madoff had not made any stock purchases for at least 13 years," the complaint stated.