Merkin funds subpoenaed in Madoff case
Merkin funds subpoenaed in Madoff case
By Joanna Chung and Brooke Masters
Published: January 15 2009 17:15 | Last updated: January 15 2009 22:55
Andrew Cuomo, the New York attorney-general, has issued subpoenas to three investment funds run by Ezra Merkin, former chairman of GMAC, General Motors’ financing arm, as part of a new probe related to the alleged $50bn fraud by Bernard Madoff.
The entry of Mr Cuomo’s office into the Madoff case creates new issues for investment managers who channelled money to the US financier. New York law gives him very broad subpoena powers and has a very broad definition of fraud.
Mr Merkin managed Gabriel Capital Group, mostly a hedge fund of funds, and two hedge funds, Ariel and Ascot Partners. All invested with or acted as “feeder” funds to Mr Madoff, who is accused by federal prosecutors of running a giant “Ponzi” scheme.
Mr Cuomo’s subpoenas to the three funds are seeking information on who invested with them, what they were told and where the money went, say people familiar with the investigation.
Mr Cuomo, whose office oversees charities, has also subpoenaed 15 non-profit groups that had money with Mr Madoff, and some institutions where Mr Merkin held board positions. Mr Merkin himself had been subpoenaed to testify, people familiar with the matter said.
Mr Merkin, a leading member of New York’s tightly knit Modern Orthodox Jewish community, has been on the boards of at least six major non-profit organisations. Most also invested with his funds. Several investors have sued him.
“We have facts and information that there are a large number of charities victimised,” Mr Cuomo said yesterday. “We regulate charities . . . so we have a particular interest in that regard.” Charities are likely to have lost more than $100m, he said, adding that his investigation could be criminal or civil “depending on the facts”.
New York state’s 1921 Martin Act allows cases to be brought even without evidence that the seller intended to commit fraud. That could prove problematic for those who recruited investors for Mr Madoff but say they did not know of his alleged fraud.
Mr Cuomo’s predecessor, Eliot Spitzer, was often accused of using his Martin Act powers to frighten his corporate targets into paying large settlements.
So far, Mr Madoff is the only person charged by federal prosecutors in connection with the alleged $50bn Ponzi scheme.
Andrew Levander, Mr Merkin’s lawyer, said yesterday: “We will fully co-operate with any investigation by the New York attorney-general’s office.”
He has previously said: “Mr Merkin is as shocked and pained as any of the investors who are his fellow victims of the Madoff fraud . . . Needless to say, Mr Merkin shares the sorrow of all the investors who have been cheated by Madoff.”
Mr Merkin recently stepped down as chairman of GMAC as part of conditions set under a $6bn government aid package extended to GMAC.
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