Let the Noel Schadenfreude Begin

Walter Noel is having a particularly bad April Fool's Day.

Massachusetts Secretary of State William Galvin has charged Noel's hedge fund firm, Fairfield Greenwich Group, with fraud in connection with its relationship with Bernard Madoff's Ponzi scheme. The administrative complaint filed today accuses Fairfield of breaching its fiduciary duties by marketing Madoff's fund to investors without performing the proper due diligence it claimed to do.

The firm also misrepresented its "degree of knowledge and comfort with respect to Madoff's operations." The charges are not criminal.

Fairfield, which claimed to have $14 billion in assets under management, had $7.2 billion in the Sentry Funds, which were more than 95 percent invested in Madoff. Investors paid Fairfield one percent of their assets and 20 percent of their returns in exchange for what was purported to be significant due diligence into the fund's investments. This amounted to an estimated hundreds of millions in fees for Fairfield and its principals each year.

The firm's literature claimed to maintain tight risk controls according to documents cited in the complaint:

"Once FGG begins a relationship with a manager and brings their fund to market, FGG's due diligence process evolves into a similarly multi-faceted risk monitoring function."

Another document even claimed that Fairfield would never invest in a fraudulent manager like the Bayou Management fund that imploded in 2005 because "We would question Bayou's obscure auditing firm."

Of course, no auditing firm was more obscure than Madoff's. And considering Madoff may not have executed any trades at all in decades, it's difficult to imagine how such a multi-faceted risk monitoring system earned its keep.

Walter Noel and his family have garnered a lot of attention since the Madoff scheme surfaced. Four of his five daughters married men who worked for Fairfield, and their larger than life personalities along with their significant newfound wealth made them easy targets.

The Noel family claims it was just as much a victim of the Madoff fraud as anyone else. "We are victims of the biggest fraud in the world, as have been major banks and the most important families in the world," one son-in-law, the charming Andrés Piedrahita, recently told the Wall Street Journal.

But few tears have been shed for the Noels. Piedrahita once told a friend his real job was "to live better than any of my clients," according to the Journal. And a recent profile of the family in Vanity Fair depicted the family as ostentatious and embarrassingly nouveau-riche in their old-school wealthy communities.

by Megan Barnett