Andrew Cuomo, who sat back in the weeds while Massachusetts assembled a civil fraud case against Madoff feeder funds, has now charged Ezra Merkin and his feeder fund, Ascot, with the same claim. Connecticut’s courageous Attorney General, Dick Blumenthal, now has a pretty good feel for which way the wind’s blowing and we can expect him to join in the fray any month now – probably after his betters get past the initial court hurdles. But he’ll be there at the end to claim credit, in front of the cameras, I promise you.
The Ascot fund was formed by Mr. Merkin in 1992 exclusively as “feeder” fund for Mr. Madoff, says the Attorney General. It grew to hold $1.7 billion from 300 investors by the end of December, 2008. Mr. Madoff then used the money in a massive Ponzi scheme.
About 85% of the investors in the Ascot fund did not know their money was siphoned to Mr. Madoff, the complaint says. For those that knew, the truth about the size and scope of the investment was obfuscated, says Mr. Cuomo. Mr. Merkin collected an annual fee from Ascot’s investors amounting to 1% to 1.5% of the total assets in the fund – a fee that included the fictitious Madoff returns, says the complaint. By 2008, Mr. Merkin was collecting about $25.5 million a year from managing Ascot.
And if you think that set up was similar to Walter’s, try this:
Mr. Merkin was not personally heavily invested in his own Ascot fund. He did not reinvest his $169 million in management fees for the years 1995 to 2007 back into his own fund, says the complaint. All told, Mr. Merkin invested personally and through family trusts and foundations $7 million in Ascot in its first six years, and less than $2 million over the following 10 years.
I’m waiting for criminal fraud charges to compliment the civil ones but I expect those will come from out-of-state, rather than Hartford. Tough to put your golfing buddy in jail, I guess.