A prominent hedge fund manager whose clients lost more than $2 billion to Ponzi scheme mastermind Bernard Madoff was hit with civil fraud charges Monday by New York Attorney General Andrew Cuomo.
J. Ezra Merkin was accused of securities fraud and other state charges for falsely leading investors to believe he managed their money as he instead funneled the funds to Madoff with little oversight.
Merkin, who headed the second Madoff feeder fund charged with fraud, improperly collected more than $470 million in fees from clients that included major charities and non-profits, according to the state court complaint.
While the lawsuit doesn't accuse Merkin of knowing about Madoff's scam, it alleges he ignored red flags, failed to perform promised oversight and deceived some investors. He also allegedly mixed business and personal funds, including more than $91 million to buy art for his Manhattan home.
"In reality Merkin was but a master marketer, his efforts substantially directed only at convincing investors — including many charities — to invest in his funds," the complaint charged.
The lawsuit seeks restitution, damages and disgorgement of fees received by Merkin, a former chairman of General Motors' financing arm.
Defense attorney Andrew Levander called the lawsuit "without merit."
Merkin "performed extensive due diligence on Madoff and his trading strategy," said Levander. "Unfortunately, Mr. Merkin's due diligence, just like the detailed investigations performed by countless others … was thwarted by the intricate, fraudulent scheme perpetrated by Madoff."
Merkin previously has been sued by New York University and New York Law School over millions in Madoff losses.
Last week, Massachusetts Secretary of State William Galvin filed fraud charges against the Fairfield Greenwich Group, a separate fund that fed more than $7 billion of investors' money into the scam.
Madoff pleaded guilty last month to securities fraud and other charges for running a scam that fleeced investors worldwide.
Cuomo's lawsuit quoted from a deposition in which Merkin said his "monitoring" of Madoff involved speaking with him up to 15 times yearly.
He conceded that over time he heard from "persons who expressed skepticism about one or another aspect" of Madoff's strategy."