One of Bernard Madoff's largest feeder funds has been sued for $3.5 billion by the trustee in charge of liquidiating the assets of Bernard L. Madoff Investment Securities LLC. The Fairfield Greenwich Group, headed by society page bold faced name, Walter Noel, asserted it had $14 billion under management prior to the December arrest of Madoff and his subsequent guilty plea to charges of running a more than $60 billion Ponzi scheme.
Irving Picard, the trustee in charge, filed a lawsuit in federal bankruptcy court Monday alleging that Fairfield Greenwich Group did not conduct due diligence on behalf of their clients who invested in three of their hedge funds.
According to Picard the managers of the funds "ignored multiple red flags" and should have realized that the trades were "clearly fictional" because, for example, the prices for some of the trades were outside the daily range and in other cases the trades were settled on weekends and holidays.
"At no time did the Defendants conduct a performance audit of BLMIS or match any trade confirmation provided by BLMIS with actual trades executed through any domestic or foreign public exchange," the complaint states.
Fairfield had earned about $100 million per year in fees based on the money it placed in Madoff's hands, according to another complaint filed in Massachusetts citing testimony from Fairfield executives.
Fairfield Greenwich Group disagrees and argues that they are victims in the scandal.
"Fairfield Greenwich funds lost far more from the Madoff fraud than they ever redeemed. There is no merit to this lawsuit and it will be defended vigorously," Seth Faison, a spokesman for the company, said.
The firm's founder Noel has a mansion in Greenwich, Conn. as well as a fabulous hilltop retreat on the private Caribbean island of Mustique. He along with his wife and family have been featured in magazines, such as Town & Country, enjoying their glamorous lifestyle.
Noel's personal attorney has previously stated that Noel and his family are also victims of Madoff and that his firm, despite its best efforts, did not know that Madoff was scamming the investors Noel sent to Madoff.
Fairfield Greenwich Group Faces Fraud Charge in Massachusetts
Since 1995 the three hedge funds, Fairfield Sentry Limited, Greenwich Sentry, L.P., and Greenwich Sentry Partners, L.P., invested approximately $4.5 billion with Madoff. They received an average rate of return of 10% to 21% from 1996 to 2007 with only a few months of negative returns, according to the complaint.
The three funds withdrew $3.2 billion since 2002. $1.2 billion was withdrawn in the 90 days prior to his arrest, according to Picard.
The complaint also references an alleged phone call between Madoff and employees of Fairfield Greenwich Group which took place in 2005, at the same time the SEC was investigating Madoff. According to the complaint Madoff began the phone call by stating: "Obviously, first of all, this conversation never took place, Mark, okay?"
During this phone call Picard alleges that Madoff coached the employees and "gave them precise instruction as to what to say in response to questions from SEC attorneys."
"The fact that Madoff did not want the Defendants to disclose true and accurate information about BLMIS to the SEC should have put the Defendants on notice that Madoff was engaged in illegal activities" and wanted to avoid closer inspection, Picard alleges.
Fairfield Greenwich Group also faces legal action in Massachusetts. In April the Massachusetts Secretary of State charged the company with fraud.
Fairfield Greenwich Group is fighting the charge.
"The complaint here was rushed into existence and is so filled with errors and factual distortions as to completely misstate the conduct of the companies that make up the Fairfield Greenwich Group," according to a statement on its website.