Massachusetts Accuses Fairfield Greenwich With Fraud
Massachusetts Accuses Fairfield Greenwich With Fraud (Update3)

By Karen Freifeld and Brad Skillman

April 1 (Bloomberg) -- Massachusetts Secretary of the Commonwealth William F. Galvin accused Fairfield Greenwich Group of fraud in misrepresenting to Massachusetts investors its lack of knowledge of the operation of Bernard L. Madoff Investment Securities.

The group’s Sentry Funds had placed about 95 percent of its assets, totaling $7.2 billion, with Madoff, Galvin said today in an e-mailed statement. Bernard Madoff, 70, pleaded guilty in Manhattan federal court last month to defrauding investors of an much as $65 billion in the biggest Ponzi scheme in history.

The administrative complaint filed by Galvin in Boston seeks restitution to Massachusetts investors for losses and reimbursement for performance fees paid to Fairfield by those investors. It also seeks an administrative fine.

“Investment advisers have a fiduciary responsibility to their clients under law,” Galvin said in the statement. “The allegations against Fairfield in this complaint outline a total disregard for such responsibility, which helped the Madoff scheme stay afloat for so long.”

Fairfield founder Walter Noel admitted in testimony to the securities division that Fairfield was not involved in anything “but turning money over to” Madoff, according to Galvin’s statement.

Executives Coached

Galvin said Madoff coached Fairfield executives on how to respond to questions from the U.S. Securities and Exchange Commission who were looking into concerns of fraud by Harry Markopolos, a former money manager, who has told Congress he tried to persuade the agency for nine years that Madoff was a fraud.

Fairfield executives “were blinded by the fees they were earning, did not engage in meaningful due diligence and turned a blind eye to any fact that would have burst their lucrative bubble,” according to Galvin’s complaint.

Executives at New York-based Fairfield Greenwich are reviewing the complaint and had no immediate comment, Thomas Mulligan, an outside spokesman for Fairfield, said in a telephone interview.

Earlier this week a Connecticut judge froze the assets of Fairfield Greenwich Group and other so-called feeder funds that steered investors to Madoff, along with those of Madoff’s family members, a lawyer said.

Bridgeport Superior Court Judge Arthur Hiller on March 30 granted a freeze at the request of the town of Fairfield’s pension fund and its 1,500 members, said David Golub, a lawyer for the fund. The town’s initial $22 million investment with Madoff through Maxam Capital grew to $42 million, he said.

Hiller granted a temporary order freezing the assets, with the exception of normal living and business expenses, until a hearing on April 13. Those involved in the feeder funds whose assets were frozen include Sandra Manzke, founder of Maxam Capital, and Walter Noel Jr., a partner at Fairfield Greenwich Group, Golub said.

To contact the reporter responsible for this story: Karen Freifeld at

Last Updated: April 1, 2009 10:34 EDT

Comments: 0