Vienna Banker in Spotlight as Madoff Fallout Spreads Article

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Vienna Banker in Spotlight as Madoff Fallout Spreads Article

Since the Madoff scandal erupted, attention has turned to the woman behind much of Bernard Madoff's European business.

Now, Sonja Kohn, chairwoman of Bank Medici AG in Vienna, is speaking up, answering questions about how her bank ended up in Mr. Madoff's alleged $50 billion Ponzi scheme.

"It is a shattering experience to be thoroughly taken," Ms. Kohn, who has been working in her office with a government-appointed official over the past 10 days, said in emailed statements. "Mr. Madoff has duped a literal 'Who's Who' of international business and finance."

A former Wall Street penny-stock broker, Ms. Kohn turned a 19-person firm called Bank Medici into a major hub of interrelated funds for Mr. Madoff's investments. Now, $3.5 billion of Bank Medici client funds have been lost in Madoff's alleged $50 billion Ponzi scheme, and the bank's management is being overseen by an official appointed by the Austrian government.


This week, Ms. Kohn was named, together with Mr. Madoff and others, in a lawsuit by an investor who lost at least $700,000. The lawsuit, filed in New York federal court by a British Virgin Islands corporation called Repex Ventures SA, says that Ms. Kohn didn't disclose that the client's money was being funneled to Mr. Madoff and that the Bank Medici chairwoman didn't do enough due diligence on behalf of her clients.

A spokesman for Bank Medici declined to comment on the complaint.

No information has surfaced to suggest that Ms. Kohn or anyone at Bank Medici, which is 75%-owned by Ms. Kohn, was aware of Madoff's alleged fraud.

Ms. Kohn, in her email statement, said: "When I first heard word [Mr. Madoff] had been arrested ... I thought it was some sort of bizarre practical joke. When it became obvious that it was true, I felt as if a huge tsunami had hit me. ... It is still beyond belief and I still am in a state of shock."

Within the bank, Ms. Kohn ran the funds largely unchecked, people who worked with her say. Though funds that invested in the Madoff firm made up the bulk of Bank Medici's business, board members never discussed the New York investment manager until the scandal broke, according to two board members.

Ms. Kohn said in a written statement that her board was kept informed about Bank Medici's operations. The bank, in a statement, said that is going to work on a new business model.

Ms. Kohn, who was raised in Vienna, spent the 1970s and 1980s between Milan and Zurich. Her official U.S. stock brokerage employment history states that during that time Ms. Kohn was a "domestic engineer, or housewife"; Ms. Kohn has confirmed that information.

From 1985, Ms. Kohn began working at a patchwork of small securities firms that traded penny stocks, many now defunct, as well as Merrill Lynch & Co. before landing at New York City-based securities firm Windsor IBC Inc., according to official documents and Ms. Kohn.

She pitched herself as an authority on European stocks. "To really know what's going on in Europe, you've got to be part of the establishment," Ms. Kohn was quoted as saying in a 1990 article in The Wall Street Journal on investing in Europe.

Around the same time, Ms. Kohn first met Mr. Madoff. "I was introduced to Mr. Madoff years ago" when he was a fund manager, Ms. Kohn said in her emailed response to questions. "In the 1990s, he was one of the few hedge funds with any liquidity. ... His firm looked solid and was endorsed by people and companies who were the gold standard of the financial community."

A lawyer for Mr. Madoff declined to comment.

In 1994, Ms. Kohn founded Bank Medici together with an Austrian state-owned bank. After a series of acquisitions, Bank Medici today is 25%-owned by Italy's UniCredit SpA.

A spokesman for UniCredit, which in December disclosed that the bank's stake in Bank Medici had a book value of €1.5 million, declined to comment on Medici.

Bank Medici launched its first fund, called Herald USA in 2004. Herald USA pitched solid steady returns, according to investment presentations made by the fund and seen by the Journal. According to an October 2008 investment presentation, Herald USA projected "unique yield-risk profile" with "yields of 5-12% per year."

When talking about Bank Medici, Ms. Kohn would sometimes play up its name, which is borrowed from the famed Florentine Renaissance family. In a recent interview with Diplomat, a Russian publication, Ms. Kohn alluded to the Medici family's patronage of Renaissance art, saying her bankers were often called "artists of finance" given the bank's strong returns.

As Herald's business grew, Ms. Kohn sought new investors in emerging markets, including Russia and Ukraine.

Bank Medici also played a key role in multiplying Madoff's business indirectly across the Continent, through other marketing firms and by linking up with other funds. In 2005, for example, Ms. Kohn was looking in London for marketing firms to help tap new investors, according to one person tapped by Ms. Kohn.

Another key partnership was forged by Bank Medici in 2006 when it agreed to be the manager of another fund, called Thema International Fund PLC, which is today incorporated in Dublin. Genevalor, Benbassat & Cie., a Geneva firm that distributes the fund, said in a Jan. 9 statement it has dispatched legal counsel to federal court hearings and is working in the best interests of investors.

—Sabrina Cohen in Milan contributed to this article.
Write to David Crawford at david.crawford@wsj.com, Carrick Mollenkamp at carrick.mollenkamp@wsj.com and Charles Forelle at charles.forelle@wsj.com