The complaint contains 11 counts and is based in part on the New York Fraudulent Conveyance Act. What continues to be disconcerting is the fact stated in the lawsuit that, "Merkin has been closely associated with Madoff on both a business and social level since at least the 1990’s, and among other things sat on the Board of Trustees of Yeshiva University with Madoff. "
As an aside, The Wall Street Journal account has some good news for some good people that we know, namely, "Even if Mr. Picard, of Baker & Hostetler LLP, wins the lawsuit, he may have trouble collecting much of that amount, because some of it has already been distributed to Mr. Merkin's clients. If Mr. Merkin's clients, which ranged from wealthy individuals to charities and universities, had no knowledge of the Madoff fraud, Mr. Picard couldn't seek to grab the funds they withdrew, according to lawyers familiar with the case."
Of course, this is just a newspaper report and not a definitive legal opinion by any means.
Another sidelight, the Jewish Week reports that The Fifth Avenue will not clawback Merkin's shul honors. He gets to remain in the leadership as chairman of the shul and his wife Lauren will take the position of secretary of the board of directors. We wonder if perhaps the shul property is deeded to Merkin.
Here is how Bloomberg presents the case.
Madoff Trustee Sues Ezra Merkin for $557.8 Million
By Erik Larson
May 7 (Bloomberg) -- The trustee liquidating Bernard Madoff’s defunct money-management firm sued New York financier J. Ezra Merkin for $557.8 million, claiming he withdrew the money from Madoff’s firm when it was already insolvent.
Gabriel Capital LP and two other Merkin funds withdrew the “non-existent principal” from New York-based Bernard L. Madoff Investment Securities LLC from at least 1995 through 2008, according to a complaint filed today by trustee Irving Picard in U.S. Bankruptcy Court in Manhattan.
Merkin, 56, “was a close business and social associate of Madoff,” according to the complaint. The financier “earned tens of millions of dollars in management and performance fees, even though he knew or should have known that BLMIS was engaged in fraud.”
Merkin’s so-called feeder funds directed investor money to Madoff. The relationship triggered a lawsuit against Merkin last month by New York Attorney General Andrew Cuomo and a deposition by the U.S. Securities and Exchange Commission. Gabriel Capital, once a $1.5 billion hedge fund, is now being liquidated due to its Madoff-related losses.
Victor Teicher, who managed Merkin’s Ariel Fund Ltd., told Merkin that Madoff’s results were “inconsistent with what could possibly take place in reality,” according to the complaint, which also names Ariel and another Merkin fund, Ascot Partners LP...
Picard seeks the so-called clawback of Merkin’s investment in order to pay back creditors in the bankruptcy case of BLMIS.
Madoff, 71, pleaded guilty March 12 to running the biggest Ponzi scheme in history, using money from new investors to pay off old ones. He faces a prison sentence of as many as 150 years when he is sentenced next month.
Picard claims Madoff’s monthly account statements showing trades made on behalf of Merkin provided enough information for Merkin to know there was a fraud. Picard cited a 2003 financial statement that showed a purchase of 641,718 shares Intel Corp. for $27.63 a share executed on Oct. 2, 2003. The price for Intel on that day ranged from $28.41 to $28.95, “which made the purported price impossible,” Picard said.
“Similar impossibilities were reported in connection with purported sales of securities in all of the defendants’ accounts,” Picard said in the filing. “Merkin knew or should have known that BLMIS was engaged in fraud based on these facts and the numerous other indicia of fraud.”
In the earlier lawsuit by Cuomo, Merkin and Gabriel Capital are accused of secretly placing $2.4 billion of client funds with Madoff in exchange for $470 million in fees.
Merkin was also sued Dec. 23 by New York University. The largest private university in the U.S. by enrollment said in its complaint it lost at least $24 million invested with Madoff by Merkin and his funds.
Unsealed testimony in the NYU case shows Merkin provided testimony on Madoff to Cuomo and the SEC. Merkin, who has denied any wrongdoing, told NYC lawyers that Madoff started providing services to Merkin’s Ariel Fund in the late 1980s or 1990.
Picard is also going after smaller investors who withdrew funds before Madoff’s firm collapsed. The trustee last month told 223 investors to return as much as $735 million or face legal action. The trustee “has the job of recovering and paying out customer property,” and is “vested with powers to avoid transfers,” he said in a letter.
The case is Irving H. Picard v. J. Ezra Merkin, 09-01182, U.S. Bankruptcy Court, Southern District of New York (Manhattan).