Madoff Feeder and Former GM Executive Ezra Merkin Alleged to Have Lied to Investors
Ezra Merkin defrauded charities, non-profits says New York AG Andrew Cuomo.
April 6, 2009— -- Ezra Merkin, the former chairman of automaker GM's finance arm, and the founder of the $5 billion Gabriel Capital Group, allegedly defrauded his investors and breached his duties to them by losing $2.4 billion in client money that he funneled to $50 billion Ponzi scheme master Bernie Madoff, despite having told investors he was managing the money himself, according to a civil suit filed against him by New York's Attorney General, Andrew Cuomo.
Merkin's attorney struck back swiftly, calling Cuomo's suit "hasty and ill-conceived."
Merkin was forced to resign as chairman of GMAC as a condition of the $6 billion federal bailout of that company when, almost immediately after Madoff's arrest on Dec. 11, he admitted in letters to his clients that he needed to "unwind" his funds and had been a victim of Madoff.
But according to the state's civil suit – brought under the broad powers Cuomo wields under the Martin Act – Merkin committed fraud in connection with the sale of stocks, fraud in conducting his business and breached his fiduciary duty to his clients. The suit alleges that Merkin lost $2.4 billion of the $5 billion clients invested with him because he placed the money with Madoff while suggesting in at least some cases that the money was under his management and oversight. He violated that act "by concealing from his clients the investment of more than $2.4 billion with Bernard L. Madoff," the 54 page civil suit alleges.
"Cuomo alleges that investors, including several prominent charities and non-profits, entrusted their investments to Merkin, who then steered the money to Madoff without their permission, in exchange for $470 million in management and incentive fees," Cuomo's office said in a written statement.
