Apr 6, 2009 7:57 pm US/Eastern
Fund Manager Hit With Civil Charge In Madoff Fraud
Reporting
Lou Young
NEW YORK (CBS) ―
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Financier Bernard Madoff arrives at Manhattan Federal court on March 12, 2009, in New York City.
Stephen Chernin/Getty Images
New York's attorney general filed civil fraud charges Monday against a hedge fund manager who funneled $2.4 billion to Wall Street swindler Bernard Madoff without telling clients where their money was going.
The complaint accuses J. Ezra Merkin, the former chairman of GMAC Financial Services, of concealing his links to Madoff and lying to investors about what he was doing with their money, telling most he was personally investing their cash in things like distressed debt.
Over the years, Merkin collected $470 million in fees and performance bonuses from his clients, the suit said. Many of those customers, which included several large charities and colleges, had no idea where their money really was until December, when Madoff was arrested.
"Merkin duped individual investors, non-profits, and charities into believing he was responsibly managing their investments, when in actuality he was dumping them into history's largest Ponzi scheme," Attorney General Andrew Cuomo said in a statement.
The complaint also accused Merkin of mingling his personal funds with the accounts of his management company, Gabriel Capital Group, and using some of the company's funds for personal purchases, including $91 million worth of artwork for his apartment.
Merkin's lawyer did not immediately return a phone message and e-mail Monday.
He handed a check to Ehud Barak and Arial Sharon only three years ago, but in the court of public opinion, Merkin's good works do not give him a pass.
"I think if you've misused people's money and you're dishonest, the fact that you've done good in the past doesn't help you at all," said Lauren Foster, Upper West Side resident.
Merkin was president of the prestigious Fifth Avenue Synagogue on the Upper East Side. He served on the boards of both NYU and Yeshiva university.
Both institutions are suing him over their Madoff investments.
Up to this point he's insisted he didn't know it was a fraud but now with this indictment there's reason to question that assertion.
"It makes you wonder how he could've operated with Bernie Madoff as being his kind of cash cow, without knowing what was going on inside of Bernie Madoff's operation," Andrew Kirtzman said.
Kitzman is addressing that question in his upcoming book about the Madoff scandal.
Merkin's attorney continues to claim he's a victim. "Mr. Merkin's due diligence was thwarted by the intricate, fraudulent scheme perpetrated by Mr. Madoff," he said.
One of Merkin's funds, Ascot Partners, sunk nearly every penny of its more than $1.7 billion in assets into Madoff's scheme.
Cuomo's suit, filed in a state court in Manhattan, demands that Merkin repay all of the fees he collected from his clients over the years, plus damages.
Madoff is in jail awaiting sentencing after pleading guilty to swindling thousands of investors of billions of dollars. He faces a maximum sentence of 150 years behind bars.
(© 2009 CBS Broadcasting Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.)
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