MassMutual sued in Madoff scandal

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MassMutual sued in Madoff scandal
Investors try to recoup $3b from the Bay State firm

By Beth Healy
Globe Staff / April 20, 2009
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Investors of disgraced financier Bernard Madoff have filed 18 lawsuits against Massachusetts Mutual Life Insurance Co. in an effort to recoup $3.3 billion that its hedge fund group lost in the scandal. But the Springfield insurer is trying to distance itself from the ordeal and says it has no liability in the matter.


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MassMutual maintains that the losses racked up by investors in its hedge fund group, Tremont Group Holdings Inc., are their own - and not the responsibility of the insurance company. Tremont had the second-largest loss among Madoff clients after Fairfield Greenwich Advisors, a New York hedge fund that lost $7.5 billion.

But the lawsuits filed against the insurer and its subsidiaries allege that MassMutual does bear ultimate responsibility for a business it owns and whose profits it enjoyed in better times.

"MassMutual held itself out as the financial expert for our clients to rely on," said Bryan A. Wood, a lawyer at Berman DeValerio in Boston who is representing Massachusetts victims of Madoff in a suit filed against MassMutual. He said Tremont was acting on behalf of MassMutual when it solicited investors, "making claims that it was doing adequate due diligence on any of the funds and managers that it employed."

MassMutual would not make any executives available to be interviewed about Madoff. The company issued the same public statement in response to each lawsuit: "Some of our affiliated entities are among the many victims of the illegal activities perpetrated by Bernard L. Madoff Investment Securities." It goes on to say that MassMutual "has strong defenses to this complaint and we will defend ourselves vigorously."

The company is displaying an arms-length relationship with Tremont as a storm of legal action hits other big companies taken in by Madoff.

Fairfield Greenwich Advisors is facing a host of investor lawsuits, as well as a complaint by Massachusetts Secretary of State William F. Galvin, alleging that the firm misled investors and ignored red flags on Madoff's scheme. Banco Santander of Spain, the third-largest Madoff loser, has offered to reimburse private banking clients a portion of their $2.9 billion swindled by Madoff. Bank Medici of Vienna, which lost $2.1 billion of client funds, is facing widespread legal action and is winding down its business.

Ever since news of the multibillion-dollar fraud broke in December, MassMutual's strategy has been to emphasize the layers between its core business - a $360 billion life insurance operation and asset manager - and the entity that invested predominantly with Madoff.

There are at least three layers, starting with Rye Investment Management, the unit of Tremont that invested nearly all its client funds, $3.1 billion, with the man convicted in March of running a massive Ponzi scheme. Then there's Tremont, which oversees a number of hedge funds, and lost another $200 million to Madoff. Finally, there's OppenheimerFunds Inc., a mutual fund group that owns Tremont and reports into Springfield.Continued...