According to the civil complaint, the SEC relied on Fairfield's representations in determining Madoff's operation was not fraudulent. The court papers state that based on the conversation, Fairfield had to know Madoff was manipulating the SEC regulators.
It also suggested that Fairfield disclosed proprietary investor information to Madoff in an effort to "curry favor." Fairfield "repeatedly gave him proprietary information," the complaint states.
The facts and allegations that Massachusetts says it used to establish its case against the Fairfield Greenwich Group include detailed conversations between Madoff and Fairfield executives, and chilling depositions in which Fairfield executives admit to facts, including that they knew Madoff's multibillion-dollar investment business was audited by a firm with just one accountant.
The filing cites a September 2005 e-mail sent from a client to Fairfield in which the clients asks about the "small accounting firm" used by Madoff investments. "Is that accounting firm checked and approved by Fairfield Greenwich Group?" the client asked.
Fairfield Greenwich knew that Madoff's accounting firm "only had one employee," according to the filing, but the Fairfield's CFO Dan Lipton replied that the firm was "small to medium-sized." "They have hundreds of clients and are well-respected in the local community," Lipton instructed someone at Fairfield to tell the client, according to the filing.
According to Lipton's testimony, he was told by one of the partners at Friehling that their firm was well-respected.
But the filing says the most telling indicator of the "interconnected, co-dependent relationship" came as Madoff's scheme unraveled.
In November and December 2008, Madoff, apparently desperate for funds to shore up his scheme, reversed a long standing policy limiting the amount of money Fairfield could place under his management. And, the court papers state he 'reacted angrily" when he learned that a Fairfield investor sought to cash out significant amounts of assets under Madoff's management.
In response to his anger, Fairfield, instead of questioning his motive, the complaint asserts, redoubled its marketing efforts "to defend against redemptions" and allegedly began to rapidly set up a series of new funds in cooperation with Madoff.
"In the words of Walter Noel, one of Fairfield's founders, 'we tried to help stem things,'" the court papers state. $14.8 million was raised for one of the new vehicles but "no offering documents for that fund ever existed."
The court papers cite a letter from Fairfield's Jeff Tucker to Madoff dated December 10 -- the very day Madoff confessed his crimes to his sons and the same day his wife withdrew about $10 million from another Madoff vehicle, in which Fairfield noted, "We have taken a number of steps with our other funds in order to put all of our investible capital in Sentry and the new split strike strategy which we call Emerald."