Funds tied to Madoff caught in legal vise
Published 5:00 am Thursday, April 2, 2009
As Bernard Madoff waits in jail to be sentenced, legal problems are accumulating for some of the hedge fund managers who helped him raise billions of dollars from around the world for what he now admits was a vast Ponzi scheme.
Massachusetts regulators have sued the Fairfield Greenwich Group, one of the earliest of these so-called feeder-fund managers, for fraud, saying it had repeatedly misled investors about how diligently it checked out Madoff’s operations over the years.
“Fairfield’s complete disregard of its fiduciary duties to its investors and its flagrant and recurring misrepresentations to its investors rises to the level of fraud,” said lawyers for William Galvin, the secretary of state for Massachusetts and its top securities regulator, in an administrative complaint filed Wednesday.
Walter Noel Jr., a founder of the Fairfield Greenwich Group, his partner Jeffrey Tucker and his son-in-law Andres Piedrahita were also among the fund managers hit with a temporary asset freeze imposed Tuesday by a state judge in Connecticut.
The freeze was ordered by Judge Arthur Hiller of Connecticut Superior Court in response to a civil lawsuit filed Monday by the town of Fairfield and two of its pension plans, which lost money in several feeder-fund investments. That lawsuit claims that Fairfield Greenwich and two other feeder-fund managers had long been aware that Madoff was enhancing his track record through illegal activity — although they mistakenly thought he was front-running, a form of insider trading, not that he was operating a Ponzi scheme.
The defendants in that case also include Tremont Partners, which sponsored the Rye Select funds, and Maxam Capital Management, whose founder, Sandra Manzke, worked at Tremont before starting her own Madoff-invested account, the Maxam Absolute Return fund.
Manzke denounced the lawsuit as “an outrageous publicity stunt” and denied knowledge of any wrongdoing by Madoff, as did a spokesman for Tremont Partners.
Seth Faison, a spokesman for Fairfield Greenwich, said that the firm had no dealings with the Fairfield pension funds, but had been dragged into the case on the theory that its failure to scrutinize Madoff carefully allowed him to continue the fraud, which trapped the pension funds.
Faison called the complaint filed by Galvin “false and misleading,” saying it would be fought vigorously by the firm.
The complaint, he added, “is based on nothing more than 20-20 hindsight that supposes that anyone familiar with Madoff’s operations should have determined that it was a Ponzi scheme.”
These new cases citing the feeder funds follow on the heels of a temporary restraining order obtained last week in a state court in New York, freezing the assets of Madoff’s brother, Peter, who was trustee of a college fund set up for an old friend’s grandson.