Bernie Madoff: Sandra Manzke's Link To $6.7 Billion In Losses

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Bernie Madoff: Sandra Manzke's Link To $6.7 Billion In Losses
May 20, 2009, 11:39AM

If you missed Frontline's television special, "The Madoff Affair" last week, it is available online. The website has lots of docs and other nifty info, too.

If nothing else, watch the Michael S. Bienes and Sanda L. Manzke interviews which are available online here and here. The two feeder fund operators are perfectly in sync on one point: They are off the hook because they had to do what Bernie told them to do.

The interviews piqued my interest in Manzke. I learned she founded Maxam Capital Management ( Darien CT) after she left Tremont Capital Management (Rye NY) in April 2005. Manzke founded Tremont Capital in 1984 and Tremont Services, a holding company, went public some time before 1995. It was subsequently purchased by Oppenheimer Funds in 2001 for $100 million. Mass Mutual is Oppenheimer's parent.

The same day Hedge Fund Reviews announced Manzke's departure from Tremont, she became embroiled in a legal issue in Palm Beach County.


Sandra L. Manzke, Maxam Capital Management CEO

After Bernie exposed himself, Manzke claimed Maxam lost $300 million in the fraud and she shut down her firm down. Tremont, a much larger firm, reportedly lost $3.1 billion in the fraud, much of which was invested with Bernie before Manzke's departure. According to Manzke, she said she first met Bernie in the early '90s which is presumably when she began doing business with him.

What is less well-known is that Sandra Manzke served on the Kingate Global Fund board of directors since its founding. Kingate, another Madoff hedge fund customer, lost $3.3 billion. Contradicting Manzke's timeline, CBS Marketwatch reported on 12/18/2008 that Kingate became a Madoff customer in 1990. Marketwatch also reported that Tremont had partial control over Kingate.

In the Frontline interview, Manzke claimed she didn't know how big Madoff's operations had become, implying that she would have acted differently if she had. Exactly what threshold would have triggered a different response and what is it she would have done?

Manzke quite openly admitted she knew Bernie was an unregistered investment advisor and she did not mention his name in any prospectuses because Bernie told her not to.

I'm not all that familiar with SEC reporting requirements for investment firms but it looks to me like Manzke also failed to register investments offered by Tremont with the SEC as required by federal law.

This is a notice of a sale of securities by American Masters Broad Market L.P. filed with the SEC. The document was filed in 2/2006 but the date the fund was founded is 1994. The limited partnership subsequently became Rye Select Broad Market Fund LP which is part of Tremont's Rye Group which held the Madoff investments.





I am surpised that Mass Mutual's lawyers did not confirm that the Tremont investments were registered with the SEC at the time of purchase in 2001. Unregistered securities combined with a lack of transparency in Tremont's prospectuses should have been a big red flag that the Madoff investments were not on the up and up.

I am also curious as to what exactly made Tremont register the investments after so many years. I don't know if the American Masters LP was operating as Rye Select in 2/2006 but if it was, somebody's got some explaining to do as to why it wasn't registered under its current name until a second amendment was filed in 12/2006.

Worth noting that Tremont's newer Rye funds do not appear to have sold well after 2005 despite Bernie's sterling reputation.

I reviewed Maxam's investor advisor disclosure statement on the SEC website and I don't understand it. The form was signed on 1/9/2009 by Maxam's chief compliance officer, April Bukhofser. It obviously was prepared after the Madoff fraud became public because Bukhofser refers to a lawsuit filed by a client in connection with Bernard L. Madoff Investment Securities.

In Item 5e, Maxam disclosed it had 15 clients and a total of $1.0 billion in assets under management. $432 million of those assets was categorized as discretionary funds and $578 million was listed as non-discretionary funds.

In Item 7.B., Maxam disclosed an affiliation with general partner, Maxam Capital GP, LLP, and a limited partnership, Maxam Absolute Return Fund LP. Maxam Absolute was formed in 9/2005 but only registered as an investment offering in 1/2008. Assets under management were reported to be $244 million then and presumably represent Maxam's lost Madoff investments.

But according to SEC filings, Maxam Capital also managed Maxam Attucks Diversified Fund which did register with the SEC in 2/2006. The initial filing reported that a maximum of $1,000,000,000 of securities would be offered for sale but none had been sold as of the date of the filing. The fund's executive officer is listed as JPMorgan Tratnaut Fund Administration (Ireland) Limited.

If Manzke was managing $1 billion in the Maxam Attucks fund in addiition to the $300 million in Maxam Absolute, where was the money invested and why did she have to shut down her firm if Maxam Attucks wasn't a Madoff casualty?

The first amendment to the Maxam Attucks dated 3/19/2009 is not online at the SEC website so I am stuck as to what changes were made to the registration statement then. A second amendment dated 4/30/2009 changing the name to Attucks Diversity Fund LLP indicates the amount of securities sold was only $5.5 million and Attucks declined to disclose the size of its offering. I am surpised "declined" is an option permitted by the SEC.

Where did a billion dollars disappear to?

Maxam's other SEC filings are puzzling, too. The 13Fs contain no data because the info is reported elsewhere. Where?

(13Fs are quarterly reports that list an investment advisor's holdings. For example, BMIS reported that a substantial portion of its own assets was held in options each quarter.)

I don't know if it is significant but on 10/14/2008, Maxam along with three other entities named Wilshire filed Form 40-APP with the SEC which is a request for exemption under the Company Investment Act of 1940. I would think it has to do with reporting requirements. All of the Wilshire companies appear to be under the umbrella of Wilshire Associates of Chicago.

Sandra Manzke's behavior in the fall of 2008 is troubling. The timing of her widely reported 11/21/2008 letter to hedge fund operators and investors in which she expressed her disgust with the hedge fund industry and called for a self-regulating industry group is too close to Bernie's demise on 12/11/2008 be blithely written off as a coincidence.

Manzke wrote that letter knowing full well the recipients were familiar with her history with Bernie Madoff and Bernie's insistence on secrecy. The fact that the letter was immediatley publicized on the internet and in PageSix is an indication that someone went out of his or her way to do so. I wouldn't be at all surpised if Manzke had hired a p.r. consultant.

Personally, I think the acting US attorney for the Southern District of NY, Lev Dassin, should drag Sandra Manzke off the golf course , haul her downtown and turn the bright lights on (if he hasn't already).

I don't know about anyone else but Manzke's flippant attitude made me furious and it underscored the problem on Wall Street today. This woman openly flouted SEC rules for years while she was the CEO of a publicly traded company. She directly or indirectly helped Bernie Madoff steal billions of dollars and ruin the lives of many innocent people yet she seemed downright annoyed about having to answer any questions at all about her twenty-year role in one of the biggest frauds in history.