Merkin Strangled by His Ascot

Slowly but surely, some accountability is being called for in the Madoff affair. Last week, Massachusetts Secretary of State William Galvin charged Madoff marketer Walter Noel's Fairfield Greenwich Group with civil fraud. And today, New York attorney general Andrew Cuomo steps into the ring with civil charges against J. Ezra Merkin.

Cuomo filed a 54-page complaint against Merkin in New York State Supreme Court today, on the same day that real estate magnate Mort Zuckerman filed a lawsuit against Merkin over his charity's $40 million loss on Madoff investments.

According to Cuomo's complaint, Merkin betrayed hundreds of investors by funneling $2.4 billion of their money into Madoff's funds and reaping $470 million in fees in the process.

While Cuomo doesn't accuse Merkin of being in on the Ponzi scheme, he goes after him for the misleading marketing of his hedge funds Ascot Partners, Gabriel Capital, and Ariel Fund. "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," Cuomo said.

The complaint alleges that Merkin held himself out as an investing guru when all he did was funnel funds to third party money managers like Madoff. Many of Merkin's investors were unaware their funds were even being managed by Madoff at all. Moreover, Merkin was allegedly aware of the suspicions that the Madoff firm was just a Ponzi scheme which was a breach of the fiduciary duties for his clients.

One such client, Mort Zuckerman, appears to agree with the allegations. "Merkin represented that he 'exercised reasonable care' in selecting managers and made 'periodic reviews,'" Zuckerman said in a complaint filed today in New York. "There is no way Merkin could make such a representation without learning basic facts about Madoff's operation, including the fact that Madoff had not made any stock purchases for at least 13 years."

by Megan Barnett