4.6.2009 The State of New York brought suit against Ezra Merkin and Gabriel Capital Corporation alleging that they betrayed hundreds of investors who entrusted them with their savings by recklessly feeding their funds into the Bernard L. Madoff-advised funds, which were part of the largest Ponzi scheme in history. The complaint stated that Merkin held himself out to investors as an investing guru, collecting more than $470 million in management and incentive fees from his Ascot, Gabriel and Ariel funds. In reality, Merkin according to the complaint was but a master marketer, his efforts substantially directed only at convincing investors, including charities, to invest in his funds. The complaint stated that Merkin’s deceit, recklessness, and breaches of fiduciary duty have resulted in the loss of approximately $2.4 billion to investors.  

The Ascot funds, Ascot Partners, L.P., and Ascot Fund Limited (together, “Ascot Funds”) were formed in 1992 to be, and always were, “feeder” funds that entrusted Madoff with virtually all of their assets. The State of New York alleges that Madoff then stole, dissipated or lost those funds in a massive Ponzi scheme. The State of New York further alleges that Merkin deceived Ascot investors into believing Merkin, not a third party, was actively managing their investments. In fact, it is alleged that Merkin did little work for Ascot other than routine bookkeeping and engaging in occasional telephone conversations with Madoff.

The complaint further states that Merkin falsely marketed his funds Gabriel Capital, L.P. (“Gabriel Fund”) and Ariel Fund Limited (“Ariel Fund”) as vehicles for investing in distressed debt and bankruptcy-related securities. However, beginning in or around 2000, the complaint stated that Merkin surreptitiously handed over up to a third of the assets of Gabriel Fund and Ariel Fund to Madoff, even though Madoff’s purported strategy had nothing to do with distressed debt or investments in bankruptcies, and Merkin hid this shift of his funds’ assets from his funds’ investors. Indeed, even when investors told Merkin that they did not want to invest with Madoff, Merkin, according to the complaint, failed to disclose that the investors were already invested with Madoff through the Ariel Fund or Gabriel Fund.

The State of New York further states that charities and non-profit organizations were particularly susceptible to and victimized by Merkin’s deceptive tactics. It adds that Merkin actively marketed his funds to such organizations, and lured many other investors to invest using his affiliations with those highly respected institutions.

Click http://www.oag.state.ny.us/media_center/2009/apr/pdfs/merkin%20summons20complaint.pdf%20-%20Adobe%20Acrobat%20Professional.pdf  to access the complaint.