Fairfield CT plans to arrest Madoff and others for fraud
Town plans to arrest Madoff and others for fraud
By Meg Learson Grosso, Staff writer
Fairfield Police intend to arrest Bernard Madoff for fraud that caused a loss of $42 million in the Town Pension Fund. Furthermore, the Pension Board itself will pursue litigation against any pension advisers whom they think did not fulfill their fiduciary duty.
"We intend to find out and figure out who's responsible and to bring litigation wherever it's possible," said seasoned litigator David Golub of the firm, Silver, Golub & Teitell of Stamford.
Town Attorney Richard Saxl announced his choice of Golub as a litigator, at a press conference in the First Selectman's office on Monday afternoon. He said that Robert Morris of the firm Pullman & Comley would also work with Golub. Morris was not present on Monday.
"There are advisors all along the way," said Golub, citing money managers, hedge fund advisers, and others who "along the way, kept the funds in what was ultimately this Ponzi scheme."
"There are auditors who came in and who purported to audit the investments and there are some striking things that are in those audits that appear to be red flags as well," said Golub.
The attorney noted that there were financial institutions that refused to do business with Madoff and "We know now that there was a detailed 18-page complaint (to the SEC) asserting that this was probably the largest Ponzi scheme ever in existence."
That was written in 2005, noted Golub, saying that all the facts that were in that letter could be known by others and should have been acted upon.
"And then the second group of people that we're looking at very seriously are people who had to feed the Ponzi scheme. If there are people who had knowledge that there was criminality involved, or if we can show 'willfull blindness' to criminality, there's a basis for criminality as well," said the attorney.
"It's a question of there were people in Connecticut who helped raise billions of dollars," said Golub.
"To the extent that we can establish that any of the third parties knew that something criminal was going on, then the town funds will assert claims against those parties, also," he said.
"Our pension board never, ever got any warnings from any of our advisors, ever," said First Selectman Ken Flatto. He pointed out that the pension board were volunteers who relied on the advice of the people whom they paid for that advice and the board had expected those professionals to do their due diligence.
Flatto noted that as late as Dec. 11, the New England Pension Consultants had published a letter advising the town that it was not overweight in any particular style and that hedge funds had protected the pension fund "from adversity."
"Because our pension fund has been hurt ... it is encumbent on us to recover monies not just from litigation, but from filing a criminal complaint, so we asked our police department to pursue anyone involved in this fraud," said Flatto, introducing Deputy Police Chief Gary McNamara.
MacNamara said, "It's no secret that Madoff admitted to federal officials that he had undoubtedly committed one of the largest frauds in history."
The Deputy Chief added that Fairfield police had investigated and prosecuted other Ponzi schemes and that the department would be getting help from others, including the state's attorney's office. He added that the federal government couldn't prosecute Madoff for state crimes and pointed out that Madoff was part of a fraud committed in this state.
Asked if prosecuting Madoff and others in Connecticut was simply a device for getting Fairfield noticed in other litigation, Golub said, "There's a flurry of activity in New York Federal court in the southern district, which is Manahattan, and we think we'll have an advantage because we'll be the sole plaintiff in state court in Connecticut. We may move faster."
In addition, Golub noted that there were certain remedies available under state law that may not be available under federal law. In other instances, remedies were available under federal law but there might be 150 plaintiffs, Golub said.
When asked if he had experience litigating cases involving securities, Golub said, "You're asking about a Ponzi scheme. This is fraud litigation. I've done a number of significant cases involving major claims for losses."
He named the Connecticut Resource Recovery Authority (CRRA) case in which CRRA conducted an illegal transaction with Enron involving $240 million. He said municipalities had lost $35 million and he had won that amount in court. However, he demurred about how much of that would go to his fees. He added that CRRA was now appealing the case.
The Minuteman also asked if many experts would have to be hired and Golub named accounting experts, securities experts, and pension experts, saying, "This is a case that needs expert assistance."
First Selectman Flatto said that $25,000 for hiring experts and lawyers had been set aside from the pension funds, which have money for those purposes. If town attorney Richard Saxl assists the other lawyers, that money would come from the town, "because we feel he represents the town," said Flatto.
The first selectman said a sub-committee has been formed of five pension board members who will give advice for litigation and approve funds. The sub-committee consists of Flatto; John Starr, Chairman of the Employee Retirement Board; Bonnie McWain, Director of Finance for the School System; Erik Kalapir and Kenneth Brachfeld.
John Starr also noted that the pension board has terminated its contractual relationship with its adviser, New England Pension Consultants.
There are two pension boards, one for fire and police and one for town employees, including school employees who are neither teachers or administrators, but the funds are effectively mixed in one fund and the two boards meet as one when they consider investments.
The pension funds had $236 million at the end of December and that amount would cover about 86 percent of all the money that is needed to pay present and future claims, Flatto said, adding that about $12 million a year is needed for current claims.
"In my opinion, there is no way that this is a one person fraud," said Flatto, adding, "I believe that there had to be multiple individuals that had to have had knowledge." He noted that the first goal was to recover funds.