In 1960, Bernard Madoff founded Bernard L. Madoff Investment Securities LLC. He served as the firm’s chairman until December 11, 2008 when he was arrested by the Federal Bureau of Investigation (“FBI”) on criminal charges of securities fraud. The criminal complaint alleges that investors lost $50 billion dollars. Besides individual investors, ERISA plans may have also lost money resulting from a customer relationship with Bernard L. Madoff Investment Securities LLC, either directly or through an investment advisor.
As a result of these potential losses and in response to requests from plan fiduciaries, investment managers and other investment service providers, the U.S. Department of Labor’s Employee Benefits Security Administration (“EBSA”) released guidance for plan fiduciaries who believe that they may have exposure to losses as a result of plan assets being invested with Madoff entities.
The EBSA guidance states that, “fiduciaries should address any Madoff-related events consistent with their duties of prudence and loyalty to the plan’s participants and beneficiaries.” More specifically, the guidance provides that, “if a plan fiduciary determines that plan assets were invested with Madoff’s entities and material losses are likely, appropriate steps should be taken to assess and protect the interests of the plan and its participants and beneficiaries. Such steps may include: (1) requesting disclosures from investment managers, fund managers, and other investment intermediaries regarding the plan’s potential exposure to Madoff-related losses; (2) seeking advice regarding the likelihood of losses due to investments that may be at risk; (3) making appropriate disclosures to other plan fiduciaries and plan participants and beneficiaries; and (4) considering whether the plan has claims that are reasonably likely to lead to recovery of Madoff-related losses that should be asserted against responsible fiduciaries or other intermediaries who placed plan assets with Madoff entities, as well as claims against the Madoff bankruptcy estate.”
Frank Del Barto recommends that plan sponsors review the plan’s investment options and investment objectives. Plan sponsors should request written disclosures from investment managers, fund managers, and other investment intermediaries regarding the plan’s potential exposure to Madoff-related entities. Several lawsuits have already been filed against fund managers and investment intermediaries for a breach of fiduciary duty for allowing the plan to invest with a Madoff entity.