* Lawsuits alleged funds were part of Madoff fraud
* Judge's ruling finds no misrepresentations by funds
(Adds Merkin lawyer statement)
By Grant McCool
NEW YORK, Sept 26 Three hedge funds run by New
York financier and philanthropist Ezra Merkin won dismissal of
civil lawsuits accusing them of being part of swindler Bernard
Madoff's massive fraud.
In an order dated Friday and made public on Monday, U.S.
District Judge Deborah Batts in Manhattan threw out 2008
lawsuits alleging fraud and misrepresentation by the Ascot
Fund, the Gabriel Fund and the Ariel Fund. Another defendant
was BDO Seidman LLP, the auditor of the Ascot Fund.
"No misrepresentation was made when defendants relied on
Madoff, as a third-party manager, to follow the investment
strategies that aligned with the stated investment strategies
of the funds," the judge's order said.
Batts also said allegations that the funds should have
recognized "red flags" alerting them to Madoff's fraud "are
unavailing given the opposing considerations of Madoff's
immense reputation and deep deception."
Madoff, 73, was arrested in December 2008 and pleaded
guilty in March 2009 to running a multibillion-dollar fraud
over decades. He is serving a 150-year prison term.
In the wake of the Madoff scandal, Merkin, a money manager,
philanthropist and art collector, resigned as nonexecutive
chairman of GMAC LLC, the financing unit of General Motors.
GMAC is now Ally Financial.
The plaintiffs in the lawsuit included New York Law School,
a pension fund and two other investors. They invested a total
of $18 million in Merkin's hedge funds, money that was in turn
invested in Madoff's firm.
Lawyers for the plaintiffs could not immediately be reached
to comment on the ruling.
Merkin's lawyer, Andrew Levander, said his client "did not
deceive the sophisticated investors in his hedge funds" and
that the judge agreed. "In fact, investors overwhelmingly knew
that Mr. Merkin worked with third-party managers and that
substantially all of Ascot's assets were invested with Madoff,"
Levander said in a statement.
Madoff ran a classic Ponzi scheme: When investors needed to
be paid, he used money deposited by other investors, including
so-called feeder funds such as those run by Merkin.
Sometime in the early 1990s, Merkin met Madoff and raised
money to invest in Bernard L. Madoff Investment & Securities
LLC. By the time the fraud was revealed, Merkin and Gabriel
Capital Corp had entrusted almost all of the Ascot Fund with
Madoff and at least 25 percent of the investment capital of the
Gabriel Fund and the Ariel Fund, according to court documents.
Judge Batts, in her order, rejected allegations that Merkin
"improperly delegated investment authority to Madoff and did
not conduct proper due diligence."
She wrote that "Madoff cleverly leveraged his considerable
reputation in order to perpetrate his massive fraud, for many
years, without detection by some of the most sophisticated
entities in the financial world: the SEC, Wall Street banks,
and the like."
Batts said that in line with what other courts have done,
she would not recognize a securities fraud claim against those
who did business with Madoff "simply by imputing the suspicions
of a few (albeit, wise) people who suspected Madoff's fraud
before it was ever discovered."
Merkin had been general partner of Ascot and Gabriel. He
was the sole shareholder and director of Gabriel Capital
Corporation, which in turn was the investment adviser to the
The case is In re: J. Ezra Merkin and BDO Seidman
Securities Litigation, U.S. District Court for the Southern
District of New York, No. 08-10922.
(Reporting by Grant McCool; editing by John Wallace and