Cuomo Says Investment Firm Knew Madoff Was Cooking Books But Didn't Move Clients' Money

May 11, 2010 — -- New York Attorney General Andrew Cuomo filed a lawsuit Tuesday against a subsidiary of Bank of New York Mellon for allegedly deliberately misleading clients about investments tied to convicted Ponzi schemer Bernard Madoff. The suit alleges that Ivy Asset Management and two former Ivy executives, Lawrence Simon and Howard Wohl, kept clients in the dark about Madoff so Ivy could earn millions in advisory fees.

"Ivy and its former coprincipals saw the trouble with Madoff coming around the bend," said Attorney General Cuomo, "but instead of guiding their clients through the financial waters, they sold them down the river." Madoff is in federal prison after pleading guilty to orchestrating a decades-long, $65 billion scam.

Between 1998 and 2008, according to a statement released by the Attorney General's office, Ivy was paid more than $40 million to advise clients who had large Madoff investments. The lawsuit alleges that while Ivy, led by ex-CEO Simon and former Chief Investment Officer Wohl, was conducting due diligence, it learned that Madoff was not investing funds. According to the suit, Ivy did not tell clients for fear of losing revenue.

Ivy's clients lost over $227 million when Madoff's Ponzi scheme fell apart. The victims included New York union pension and welfare plans as well as hundreds of individual investors.

Said Cuomo, "These defendants violated their own basic responsibility as investment advisers by putting their own financial interests ahead of their clients. They shamelessly profited off of their own clients' impending misfortune and we are holding them accountable for their actions."

The Attorney General's office said its investigation had revealed internal company documents that show Ivy, Wohl and Simon knew of problems with Madoff long ago.

"This is a clear example of our inability to make sense of Madoff's strategy, and one where his trades for our accounts are inconsistent with the independent information that is available to us," reads an internal memo from 1997.

In 1998, Wohl recommended to Simon that Ivy withdraw funds from Madoff, according to an email obtained by the Attorney General's office. Simon responded via email that they should not remove the funds since it would reduce the fees they would earn.