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NEW YORK A federal judge said the trustee
liquidating Bernard Madoff’s firm may pursue nearly all of his
lawsuit to recoup hundreds of millions of dollars stemming from
New York money manager J. Ezra Merkin’s ties to the
U.S. Bankruptcy Judge Stuart Bernstein in Manhattan said
trustee Irving Picard can keep trying to recover $280 million of
alleged fraudulent transfers to Ascot Partners LP in the two
years prior to Madoff’s December 2008 arrest and hold Merkin
liable in his former capacity as Ascot’s general partner.
Bernstein dismissed a separate claim covering other Ascot
Andrew Levander, a lawyer for Merkin, in a statement said he
was disappointed with the judge’s decision, but “confident that
when he hears all of the evidence he will conclude that Mr.
Merkin was duped by Madoff and never even remotely suspected
that Madoff was operating a Ponzi scheme.”
A lawyer for Ascot’s receiver did not immediately respond to
requests for comment. A lawyer for Picard declined to comment.
Merkin once ran “feeder funds” that sent client money to
Bernard L. Madoff Investment Securities LLC.
Picard accused him of doing this and generating large fees,
despite knowing Madoff was a fraud.
Lawyers for Merkin countered that the money manager and his
family lost about $110 million in Madoff’s fraud, and that
Merkin did not willfully blind himself to Madoff’s failure to
actually trade securities for customers.
In Monday’s decision, Bernstein said the “most compelling
piece of evidence” offered by Picard that Merkin turned a blind
eye to Madoff’s fraud was Merkin’s warning to colleagues about
signs of fraud reflected in a Ponzi scheme exposed in 2005 at
Connecticut’s Bayou Group.
“Merkin knew that several of the red flags he identified
applied to BLMIS, but there is no evidence that he did anything
to confirm that BLMIS was a legitimate operation and not a Ponzi
scheme like Bayou,” Bernstein wrote.
“Despite the knowledge that Madoff was likely operating a
fraudulent enterprise,” Bernstein added, “the evidence supports
the inference that Merkin did nothing to allay his suspicions.”
Bernstein had narrowed Picard’s lawsuit in 2014. The next
year, Picard reached separate settlements with two other Merkin
funds, Ariel and Gabriel Capital.
Merkin also reached a $410 million settlement in 2012 with
the New York attorney general’s office.
Madoff, 78, is serving a 150-year prison term.
The case is Picard v. Merkin et al, U.S. Bankruptcy Court,
Southern District of New York, No. 09-ap-01182.
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