N.Y. Court Denies Merkin Bid To Dismiss Suit Stemming From Madoff Fraud
A N.Y. state judge has denied a motion by Ezra Merkin to dismiss a complaint filed against him by N.Y. Attorney General Andrew Cuomo stemming from the Bernard Madoff Ponzi scheme. The complaint alleges that Merkin and his investment management company made misrepresentations and omissions to investors, including many charities, who entrusted him with their money. The complaint further alleges that Merkin “blindly fed the investors’ funds into a Ponzi scheme orchestrated by” Madoff “while claiming that Merkin was actively management those funds.” Moreover, according to the complaint, Merkin “failed to conduct adequate due diligence of Madoff’s activities, despite information given to him indicating that Madoff may have been engaged in misconduct.” According to the complaint, Merkin’s investors lost over $1.2 billion, while he collected more than $470 million in management and incentive fees.
There were a number of significant statements in the court’s 23 page decision. One that stands out: the court declared "misplaced" Merkin’s reliance on a provision in an offering document that stated that he might delegate investment management duties to independent money managers without first providing notice to, or obtaining the consent of, investors.
The ruling is in Cuomo v. Merkin, No. 450879/2009 (Sup. Ct. N.Y. Co. Feb. 17, 2010).