Trustee sues Madoff feeder fund manager for $1 billion

NEW YORK -- The trustee trying to recover Bernard Madoff's assets filed a lawsuit Friday seeking more than $1 billion from prominent California money manager and philanthropist Stanley Chais and his family, arguing they "knew or should have known" Madoff was running a Ponzi scheme.

Filed in U.S. Bankruptcy Court in New York, the complaint charged that Chais and his relatives were prime beneficiaries of Madoff's scam for more than 30 years and should be required to return the money for eventual distribution to thousands of victimized investors.

Trading accounts for investment funds managed by Chais received "unrealistically high and consistent" annual returns of 20% to 24%, with just three months of losses in 12 years, the complaint charged.

At the same time, Chais' own family and corporate accounts reported annual returns that sometimes topped 300% and had a combined average annual return of nearly 40%, the complaint charged.

"Either an utter lack of volatility over twelve years or implausibly high rates of return over the same period suggests misconduct," the complaint charged. "That the same investment manager purported to accomplish both at the same time should have removed all doubt."

The more than $1 billion the lawsuit seeks from Chais and numerous family trusts represents "what was, in fact, other investors' money," according to a statement issued Friday night on behalf of Irving Picard, the trustee searching accounts around the globe for Madoff-related assets.

So far, Picard has recovered roughly $1 billion — a fraction of the nearly $65 billion in investor accounts that were listed in Madoff's business records. Earlier this week, a legitimate Madoff business that matched stock buyers and sellers fetched a winning bid of up to $25.5 million at a court-approved auction.

David Sheehan, an attorney representing Picard, said the lawsuit is the first of several actions that will be filed against entities that either acted as Madoff insiders or that benefited from the scheme "to the severe detriment of other customers" of Madoff's purported investment business.