On June 22, 2012, a New York judge approved a settlement between Wall Street hedge fund manager J. Ezra Merkin and the New York Attorney General’s office, putting an end to the civil fraud case filed back in April 2009. The New York Attorney General’s office alleged that Merkin deceived his clients by collecting hundreds of millions of dollars in management fees, when in fact he was giving the money to Bernard Madoff to invest in Madoff’s Ponzi scheme, rather than manage the investments himself. Based on the terms of the settlement, Merkin has agreed to pay $405 million over three years to investors who lost money in connection with the Ponzi scheme, and has agreed to pay an additional $5 million to the New York Attorney General’s office to cover fees and costs.
At the collapse of Madoff’s fraud in 2008, Merkin’s losses were estimated at $1.2 billion. It is reported that the $405 million payment will benefit investors in the following four private funds: Ariel Fund Ltd.; Gabriel Capital L.P.; Ascot Fund Ltd.; and Ascot Partners. According to the attorney general, more than 10 percent of the money invested in these four funds represents money invested by several charities and nonprofit organizations, including, but not limited to: Bard College; New York Law School; the Harlem Children’s Zone; and the Metropolitan Council on Jewish Poverty in New York.
The $405 million settlement is expected to face legal challenges from Madoff Trustee, Irving Picard, whom currently has a lawsuit pending against Merkin in the U.S. Bankruptcy Court for the Southern District of Manhattan seeking to recover $500 million. A spokesperson for Picard stated that “[t]o the extent any third-party settlement seeks to divert funds [sought by the trustee], we will have to consider taking appropriate steps.” Picard considers the fees paid to Merkin to come from the pool of money that Madoff stole from other people, and accordingly, Picard believes that any settlement with Merkin should benefit all eligible Madoff victims rather than just clients of Merkin. As the settlement stands now, the funds will be distributed by the receivers overseeing the liquidation of the Merkin funds with final oversight being provided by the New York judge that approved the settlement, Richard B. Lowe III. (“Hedge Fund Manager to Pay $405 Million in Madoff Settlement,” The New York Times, June 24, 2012).