Crain's Parses J. Ezra Merkin's Downfall

His synagogue rabbi offers feint praise of Ezra as a, "very loyal friend." Jewish community expert Gary Tobin says he will be "ruined." Sister/writer Daphne Merkin speaks of her brother in the past tense. A Bard colleague says he's not as smart as he once seemed. And Crain's calls Ezra, "Bernie's Bagman."

Not the sort of mid-career plateau he aspired to.

Meanwhile Mail Online paints a vivid picture of Ezra's real rabbi, Bernie Madoff, who loved pork sausage, had a private jet and displayed a wide panoply of affectations and idiosyncrasies. [Hat tip to RZS.] Madoff's London office manager described Bernie, "...two of his vices are cigars and pork sausages. Even though he is Jewish, he loves pork sausages. When he came to London, he'd always visit a particular greasy-spoon in Mayfair."

Back to Crain's and Mr. J. Ezra (the Bagman) Merkin, who as far as we know today, does not love pork sausages, but hasn't been completely kosher in his business dealings, to say the least:
Bernie's bagman: Merkin sucked into maelstrom of Madoff's scheme; suits expected from faithful clients who lost billions
Aaron Elstein

J. Ezra Merkin had it all. He managed nearly $7 billion out of a plush Park Avenue office. He was chairman of one of the nation's largest lenders, GMAC, and he served on the boards of prominent nonprofits. He is a trustee of Carnegie Hall and heads one of New York's most prestigious synagogues.

“Ezra has been a very loyal friend to me and so many others,” says Rabbi Yaakov Kermaier of the Fifth Avenue Synagogue, where Mr. Merkin serves as president.

Last month, the world learned that Mr. Merkin played another role altogether: He was the second-largest source of cash for Bernard Madoff and his alleged $50 billion Ponzi scheme.

In a fax sent to his clients on Dec. 12 at 4:30 a.m., Mr. Merkin revealed that for many years, he had been investing billions of dollars—raised from New York's wealthiest citizens and nonprofits—with Mr. Madoff. For 55-year-old Mr. Merkin, the nightmare had begun.

“My guess is he's going to be ruined,” says Gary Tobin, president of the Institute for Jewish and Community Research. “The number of lawsuits to be filed will be too many to count. The rest of his personal and financial life will be consumed by fighting them.”

It's a fate that those who knew him had never imagined.

“This was a man who you wanted to be with,” says Dimitri Papadimitriou, president of Bard College's Levy Economics Institute, which lost more than $3 million investing through Mr. Merkin. “He seemed like a smart guy, and in hindsight, that turns out to be false.”

Mr. Merkin was smart enough to graduate from Columbia magna cum laude in 1976 and from Harvard Law School in 1979. Six years later, after a stint as a corporate lawyer, he switched to finance, opening Gabriel Capital.

Daphne Merkin, a writer for The New Yorker and other publications, says that her brother was eager in part to mimic the success of their father. Hermann Merkin, a refugee from Nazi Germany, made a fortune in the shipping business and gave millions to charities.

The younger Mr. Merkin quickly made his mark. His specialty was the high-stakes game of merger arbitrage, betting on the likelihood that proposed deals would get done. In 1991, he scored a big hit wagering on General Cinema's takeover of Harcourt Brace Jovanovich.

Inside job

He also was an early investor in Cerberus Capital Management. When Cerberus acquired giant lender GMAC from General Motors, he was installed as chairman.

Mr. Merkin shared his good fortune, serving on the boards of numerous nonprofits, and even chairing the investment committees of Yeshiva University and the UJA-Federation of New York.

He also spent lavishly on himself. He bought a palatial duplex at 740 Park Ave., where his neighbors include financier Stephen Schwarzman, and decorated it with a dozen Mark Rothko paintings estimated to be worth $150 million.

“He was in a league that my father was not in,” Ms. Merkin says.

As it turned out, much of Mr. Merkin's success sprang from a single source: his close relationship with Mr. Madoff.

Within a few years of coming to Wall Street, Mr. Merkin started a fund called Ascot Partners. He began funneling money to Mr. Madoff, according to Gregory Ho, president of Spring Mountain Capital, another firm in which Mr. Merkin invested.

Over time, Ascot raised $1.8 billion from New York Daily News owner Mort Zuckerman, financier Marc Rich and others, and nearly all of it went to Mr. Madoff. Mr. Merkin's $5 billion Gabriel Capital arm also invested with Mr. Madoff, as did another vehicle called Ariel Fund.

Mr. Merkin was famed for bringing a deeply personal touch to fund-gathering.

“He was a schmoozer,” says Harry Susman, a lawyer representing a Merkin investor. “He'd come by people's homes to discuss investing.”

Stylistic coup

Part of what sold Bard College on Mr. Merkin was his seemingly conservative investment style. He initially told the school that 25% of its investments with him were in cash. It turned out they were with Mr. Madoff, according to Mr. Papadimitriou.

Mr. Merkin's world crashed with Mr. Madoff's Dec. 11 arrest. Hours later, Mr. Merkin faxed clients to tell them that they were the victims of a massive Ponzi scheme. A week later, he told them that their money was gone.

“We are all suffering deep wounds, emotional as well as financial,” Mr. Merkin wrote.

Most clients say they had no idea that Mr. Merkin, who charged them fees of 1% of the value of their investments and 20% of any profits, turned around and invested their money with Mr. Madoff.

In fact, New York University says that it refused to invest with Mr. Madoff after Mr. Merkin suggested in October that it do so. In a lawsuit, the school says that Mr. Merkin had already sent its money to Mr. Madoff without its consent, and that it suffered losses of more than $24 million as a result. Mr. Merkin's lawyer denies the charge, but investors are angry.

While the charges swirl, Mr. Merkin's world is crumbling. On Friday afternoon, he resigned as chairman of GMAC. Mr. Merkin was not available for comment.

“Many others were fooled,” says Mr. Papadimitriou. “But as a professional money manager, you have to do due diligence, and I'm not sure what it was he did.”
An apt postscript to this dreary post comes from Seeking Alpha where Greg Newton proclaimed yesterday that, It's Schadenfreude Saturday! Amidst his revelry in the fall of others we found this reflection of sympathy,
Among all the allegedly professional money managers hit by the Madoff fraud, Merkin has been the most egregiously self-pitying, whimpering, in his Dec. 11 letter to his Ascot Partners LP hedge fund investors, that “As one of the largest investors in our fund, I have also suffered major losses from this catastrophe.”

At least with GMAC off his plate, he’ll have plenty of time for the deposition hell that awaits.

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