Merkin seeks to dismiss Madoff feeder fund lawsuit

NEW YORK Wed Aug 4, 2010 4:54am EDT

Related Topics

NEW YORK (Reuters) - Hedge fund manager J. Ezra Merkin asked a U.S. judge to dismiss a class-action lawsuit accusing him of recklessly funneling millions of dollars in client funds to now-imprisoned Ponzi schemer Bernard Madoff.

In a filing late Monday in Manhattan federal court, Merkin said the plaintiff investors cannot show that he and his Gabriel Capital Corp investment advisory affiliate "knew about, much less participated in, the Madoff fraud."

Rejecting the contention that he should have performed better due diligence, Merkin said he had no motive to commit fraud, and himself lost more than $100 million with Madoff.

"Prior to December 11, 2008, Madoff had been a well-respected money manager and broker dealer," Merkin's lawyers said, referring to the date Madoff was arrested.

Nothing in the complaint "gives rise to any inference, let alone the requisite strong inference, that the defendants acted with a fraudulent intent," the lawyers added.

Madoff once controlled substantially all assets in Merkin's Ascot fund and smaller amounts of his Gabriel and Ariel funds.

In April 2009, New York Attorney General Andrew Cuomo sued Merkin, accusing him of steering $2.4 billion of investor money to Madoff without their knowledge.

The investors in the class-action lawsuit are seeking compensatory and punitive damages, among other remedies. Lead plaintiffs include New York Law School, individual investor Scott Berrie and the Nephrology Associates PC Pension Plan.

"It's a desperate effort by Merkin and others to dismiss a well-pleaded complaint that demonstrates their abject malfeasance," said Gregory Nespole, a lawyer for the pension plan, about the Merkin filing.

Karin Fisch, a lawyer for the law school, and Berrie. Neil Steiner, a lawyer for Merkin, declined to comment.

BDO USA LLP and affiliates, which audited the Merkin funds, on Friday also asked for dismissal of the lawsuit.

Mort Zuckerman, the real estate investor and publisher of the Daily News in New York, has also sued Merkin for about $40 million of Madoff-related losses.

Madoff, 72, pleaded guilty to running an estimated $65 billion Ponzi scheme in March 2009. He is serving a 150-year sentence in a North Carolina federal prison.

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see
Comments (1)
paulthorgan wrote:
To quote Mandy Rice-Davis, “He would, wouldn’t he”

What else could he do? say “It’s a fair cop”? It is in his current best interests to fight the case.


If he had been an innocent victim, why did he resign from various organisations?

Also how did some sophisticated investors find themselves investing twice with Madoff, once directly and again unwittingly through Merkin?

What, exactly, did Merkin do to justify his fees?

I don’t think the case is about his intent, fraudulent or otherwise, but about his activity, or lack thereof.

Aug 05, 2010 3:38am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.