Madoff Bankruptcy Trustee Seeks $500 Million Clawback

Noeleen G. Walder

New York Law Journal

J. Ezra Merkin, a sophisticated investment manager who "enjoyed unusually intimate access" to Bernard L. Madoff, should hand back about $558 million of "non-existent principal" he withdrew from his friends' firm before its collapse, according to a suit brought Thursday by Irving H. Picard, the court-appointed trustee for the liquidation of Bernard L. Madoff Investment Securities LLC.

The suit was filed less than a week after Picard filed a $1 billion action against Stanley Chais, a well-known California philanthropist, who allegedly profited from Madoff's massive Ponzi scheme for over 30 years.

In the 34-page complaint against Merkin, Picard says that Merkin, the former GMAC chair, "knew or should have known" that Madoff's investment advisory business was a fraud. From 1995 to 2008, Merkin, personally or though his company, Gabriel Capital Corporation, made tens of millions of dollars in management and performance fees as a result of investments with Madoff and received "unrealistically high and consistent annual returns" on these investments.

But Merkin, who sat on the board of trustees of Yeshiva University with Madoff and had an "almost unique opportunity to gain access to extensive information about the operations" of his firm, failed to exercise reasonable due diligence, the complaint alleges.

Merkin's ties with Madoff have also caught the attention of New York Attorney General Andrew Cuomo, who last month accused the financier in Manhattan Supreme Court of steering $2.4 billion to Madoff.

In an e-mail, Andrew J. Levander of Dechert, who represents Merkin, vowed to vigorously defend his client, saying the complaint failed to offer "any support for the contention that Mr. Merkin should have detected Madoff's fraud" and that the trustee's "unprecedented theory of liability" has no legal basis.

For more coverage of the Bernard Madoff case, see the Law.com Madoff Watch page.