Madoff feeder funds subject to criminal investigation

With Bernie put away for good and Ruthie out on the street (without her fur coat) prosecutors are turning their attention to the feeder funds that made so much off of Bernie while their clients earned so little. Today it’s former penny-stock fraudster Sonja Kohn and her Austrian operation with the deceiving name of Bank Medici (Kohn is no Medici and barely a banker), but the allegations: $20 million payments for “research” and still more payments for funneling investors into the Madoff maw  sounds like what might turn up during an investigation of Fairfield Greenwich Group. I have every hope that that investigation is proceeding as I write this.

As for the remnants of the Madoff family, a source tells me that he spoke with one of the boys and the two of them are convinced their lives are over and they’re facing a life of destitution. For what it’s worth, this source believes the boys were just doofs who play acted at running Daddy’s business and never learned or even questioned how it was that they could get so rich when their company turned no profits. Oh well, that’s too bad, but I’ll reserve my sympathy for more deserving victims.

Here’s what prosecutors are looking at in Austria:

U.S., U.K. and Austrian prosecutors are investigating a former Austrian fund manager they believe was paid more than $40 million in kickbacks to funnel billions of dollars of investments to Bernard Madoff.

Prosecutors from all three investigations believe Mr. Madoff paid kickbacks to Sonja Kohn while she was chairwoman of Austria’s Bank Medici AG via separate companies she controlled, according to affidavits detailing the investigations and hundreds of documents collected by Austrian prosecutors that were reviewed by The Wall Street Journal.

In exchange for the kickbacks, prosecutors allege, Ms. Kohn turned three Bank Medici funds into “feeder funds” that supplied Mr. Madoff with an estimated $3.5 billion from European investors
The three investigations, which are separate and at an early stage, offer a picture of how Mr. Madoff may have persuaded fund managers abroad to find investors for Mr. Madoff. The investigations don’t claim that Ms. Kohn knew the nature of Mr. Madoff’s $65 billion Ponzi scheme.

“I am actually the greatest Madoff victim. It is a tragedy for my family, my company and for me personally,” Ms. Kohn said by phone on Wednesday. She declined to discuss details of the allegations against her.

Ms. Kohn, a 60-year-old Viennese former Wall Street penny-stock broker, has repeatedly denied prior knowledge of Mr. Madoff’s $65 billion fraud or any wrongdoing. A judge sentenced Mr. Madoff to 150 years in prison on Monday.

According to an April affidavit from the Justice Department filed with Vienna prosecutors, Ms. Kohn is under investigation in the U.S. for potential criminal charges of conspiracy, fraud and wire fraud in connection with the alleged kickbacks.

Regulators have filed civil, but not criminal, charges against several fund managers who steered their clients’ money to the Madoff firm.

Two streams of alleged payments are under investigation. Early this year, U.S. investigators noticed a flow of payments totaling about $32 million over 10 years from Mr. Madoff’s advisory firm, Bernard L. Madoff Investment Securities LLC, to Infovaleur Inc., a New York company that was “owned by Sonja Kohn personally,” according to a U.S. affidavit filed on April 6.

The U.S. affidavit said U.S. prosecutors were unable to locate a registration for Infovaleur Inc.

“It does not appear that Kohn, or Bank Medici, ever disclosed to investors in the feeder fund that Kohn was personally receiving payments from Madoff at the same time as she was investing the feeder funds with [Mr. Madoff's fund],” the affidavit says. Mr. Madoff was “actually in full control” of Bank Medici’s investments, according to the affidavit.

Prospectuses for the Bank Medici funds that Ms. Kohn oversaw claimed they were investing in a basket of 35 to 50 Standard & Poor’s 100-stock index shares, as well as in U.S. Treasurys, the affidavit says.

The prospectuses didn’t mention Mr. Madoff or his company, when in fact all of the funds’ money was being forwarded to Mr. Madoff, the affidavits say.

Meanwhile, Grant Thornton U.K. LLP, the accounting firm liquidating Mr. Madoff’s London-based unit, Madoff Securities International Ltd., discovered a bank receipt that triggered a U.K. investigation, according to a March 24 affidavit filed with Austrian prosecutors by the Serious Fraud Office, a U.K. government agency responsible for prosecuting complex fraud cases.

The bank receipt referenced a check that Madoff International paid to a company called Erko Inc. and which was deposited in a Vienna bank account, according to the U.K. affidavit.

The affidavit said the Serious Fraud Office had determined that both Erko and the bank account were controlled by Ms. Kohn. The fraud office also said in the affidavit it was unable to locate a registration for Erko.

The U.K. affidavit alleges that Mr. Madoff’s London subsidiary paid about £7 million ($11.5 million) over five years to Erko. A British prosecutor alleges in the document that Mr. Madoff attempted to hide payments to Ms. Kohn by “falsely” declaring them in his company accounts as payment for research reports.

“It is suspected that the research papers were completely worthless and that the reports were never in fact used by [Madoff Securities International] for business decisions,” the affidavit said.

The Serious Fraud Office is investigating Ms. Kohn in connection with potential criminal charges of money laundering and falsifying documents to receive kickbacks, according to the affidavit.

U.S. prosecutors say Mr. Madoff depended on feeder funds run by investment advisers such as Ms. Kohn to recruit the large numbers of new investors needed to sustain the fraud.

4 Comments

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4 responses to “Madoff feeder funds subject to criminal investigation

  1. Jessica From Brooklyn

    It must feel like a ticking time-bomb in certain parts of Greenwich these days. That is, if any of the Noel clan (Klan?) is still in Greenwich….or America for that matter. Again, note how the Noel sightings have just evaporated. With all the bad press, no wonder. One does wonder how the glass ring(s) sale went…..you know….the “relevant” jewelry. It seems Ruth lost hers. Yep, the calm before the storm………..

  2. mrs p

    “The U.S. affidavit said U.S. prosecutors were unable to locate a registration for Infovaleur Inc.”

    Infovaleur, Inc. was registered in NYS in February 1996 by Sonja Kohn, CEO at 767 Fifth Ave. NYC. The corporation is still active.

    In 1990, Kohn registered Eurovaleur in NYS to 767 Fifth Ave.

  3. The Housekeeper

    This news is is all so sad and confusing. How can such big rich people do such bad things. At least where I come from (before the Noels discovered me and brought me to Greenwich), you can spot the bad guys very easily because they wear bandoliers and carry guns.

    I know the Noels have no part in this. They are such nice people. Every year they send me on a trip to their vacation house with 3 or 4 locked steamer trunks. Once I ask Mrs. what is inside, and she tell me that is many used books for orphans on Mustique. I say to her, “Why don you let me look through them, maybe take some to my granchilren in Honduras so they can learn to read?” and she laugh and say to me, “Oh Consuela, there is no reason for you grandchildren to read; as long as I’m alive and rich, they will always have jobs in one of my sweatshops!” I figure that’s good, since the sweatshops pay in rice gruel and day-old bagels so they will never go hungry.
    On my last trip I took 12 steamer trunks, and the man on the truck picking us up could hardly lift them. I really wish I could see some of those books…

  4. johnny

    Mrs. P,

    Where did you get the Infovaleur registration information?

    Thanks,

    Johnny