J. Ezra Merkin Charged With Civil Fraud [Updated]

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Not to be outdone by the state of Massachusetts, which last week charged Bernie Madoff feeder fund Fairfield Greenwich group with "flagrant and recurring misrepresentations to its investors [that rise] to the level of fraud," New York Attorney General Andrew Cuomo today charged J. Ezra Merkin, the founder of Bernie's second-largest feeder fund, Ascot Partners, with civil fraud. The complaint, filed in the New York Supreme Court, is typically dramatic, in the Cuomoian style.

Through his misrepresentations, concealment, self-dealing, reckless conduct, and gross negligence, Merkin abused the trust of investors in Ascot, Ariel, and Gabriel, and breached the fiduciary duties he owed them. Merkin collected hundreds of millions of dollars in fees for managing investors’ funds, while turning all, or a substantial portion, of those funds over to Madoff and others, whose identity and strategy were not known to, understood by, or approved by the investors, and whom Merkin failed to adequately oversee, audit, or investigate. As a result, investors in Ascot, Gabriel, and Ariel have lost approximately $2.4 billion.


As with the Massachusetts secretary's complaint against the Noels, Cuomo doesn't allege that Mr. Merkin was aware of Mr. Madoff's scheme, although he notes that

In his files, Mr. Merkin kept two 2001 news articles questioning Mr. Madoff's returns — one published in Barron's and one by a hedge fund newsletter called MARHedge, according to the complaint.


That's awkward.

Update: Mort Zuckerman, real estate magnate and owner of the Daily News, also sued Merkin today in an effort to recoup some of the $40 million had been invested, without his knowledge, with Madoff. [Bloomberg]

[Merkin Complaint via WSJ]
Related: The Monster Mensch [NYM]