Connecticut Bank Is Drawn Into Madoff Scandal

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Connecticut Bank Is Drawn Into Madoff Scandal
By DIANA B. HENRIQUES
Published: December 31, 2008
Lawyers in Florida say they are investigating the role that a Connecticut bank may have played in steering money to Bernard L. Madoff, the Wall Street trader accused of operating a $50 billion Ponzi scheme.


According to the lawyers, their clients believed for more than a decade that they had an account at the Westport National Bank, a division of Connecticut Community Bank in Westport, from which they had received statements for many years. Early last week, they learned their money had actually been entrusted to Mr. Madoff, the lawyers said.

A number of wealthy investors and institutions have already filed lawsuits complaining that money they put into prominent hedge funds or private partnerships had actually been passed along to Mr. Madoff without their knowledge.

But this time, that complaint is being made against a federally regulated bank, which is subject to much more rigorous oversight than the other investment vehicles through which money has flowed to Mr. Madoff.

The bank disputes the allegation. It said on Wednesday night that its only role had been to maintain “a custodial account for a number of individuals and entities” who invested with Mr. Madoff. It did not say how many customers were affected, or how much money was involved.

“As custodian, Westport National Bank served in a ministerial capacity only,” said its president, Richard T. Cummings Jr., in a statement. The bank gave no investment advice to its custodial customers and did not invest any of its own money with Mr. Madoff, the statement concluded.

Mr. Madoff, the founder of Bernard L. Madoff Investment Securities, was arrested on Dec. 11 and charged with a single count of securities fraud.

On Wednesday he provided a report on his personal assets and liabilities to the Securities and Exchange Commission, which would not disclose the report.

According to court documents, Mr. Madoff was arrested after telling two senior executives at his firm — later confirmed to have been his two sons — that the investment advisory business he had run for years was “a lie” and “a giant Ponzi scheme” whose losses could run as high as $50 billion.

Since then, a growing roster of prominent charities, schools and celebrities have reported losing money they had knowingly entrusted to Mr. Madoff.

But other investors caught up in the scandal have said they actually thought they were investing with someone else — in this case, Westport National Bank.

The lawyers handling the Florida investigation said their clients are a middle-aged professional couple in South Florida who had dealt with Westport National since at least 1996. They had been solicited to open an account at the bank by a promoter, whom the lawyers also declined to name.

The couple told their lawyers that they had always believed their money was being held and invested by the bank. They received regular statements from the bank showing deductions for “custodial fees” and “record-keeping fees” that totaled 4 percent a year, according to Adam T. Rabin, a partner at McCabe Rabin in West Palm Beach.

Craig Stein, his co-counsel and a partner in Stein, Stein & Pinsky in Boca Raton, said that a bank statement from January 2005 showed that the custodial fee had been paid through the sale of “5.3 shares of BLM,” while the record-keeping fee, paid to the promoter, had required the sale of “31.26 shares of BLM.”

Mr. Madoff’s firm does not have any publicly traded shares, and the couple thought these transactions involved investments the bank had made on their behalf, Mr. Stein said.

“The couple told us that they had seen the terrible news about the Madoff victims and said ‘Oh, those poor people,’ ” he added. “They had no idea that they were among those victims.”

Then, a few days after Mr. Madoff’s arrest, the couple came home to find a Federal Express envelope at their door. It contained a letter from Westport National Bank, a copy of which was provided to The New York Times.

The letter, dated Dec. 12, opened: “Dear Custodial Services Customer.” It stated that the couple had given “full discretionary authority” over their custodial account at the bank to the Madoff firm.

“You may have learned of the recent allegations involving Bernard Madoff and his firm,” the letter continued.

It then asked the couple to notify the bank if they wanted it to request that Mr. Madoff’s firm “return assets of yours to the bank.”

The bank is one of five divisions of Connecticut Community Bank, formed in 2004 by the merger of Greenwich Bank & Trust Company and Westport National.

It is supervised by the Office of the Controller of the Currency. A spokesman for the agency said it did not disclose details of bank examinations. In 2005, other public records showed that the bank’s parent, Connecticut Community Bank, had assets of $252 million. State records show that it had about $370 million in assets earlier this year.