Ponzi Scheme Debacle Has Spawned Two More Lawsuits. The Bernard Madoff Ponzi scheme debacle has spawned two more lawsuits. The Wall Street Journal reported that two funds and their fund managers have been separately sued over allegations that the managers breached “their fiduciary duties in entrusting client money” with Madoff.
Meridian Capital Partners and its investment manager, Meridian Diversified Fund Management LLC, were sued Monday in Manhattan’s U.S. District Court; on Friday, in U.S. District Court in White Plains, N.Y., fund managers J.P. Jeanneret Associates Inc. and Ivy Asset Management Corp. and Ivy’s parent Bank of New York Mellon Corp. (BK) were sued, reported the Journal.
According to the Journal, the Meridian lawsuit claims that six-to-eight percent of Meridian client funds were invested in Madoff-managed investments. “This was contrary to the duties Meridian Diversified had made regarding its processes for selecting fund managers…. As a result of defendants’ breaches of fiduciary duty and false statements, investors made additional investments in the funds and/or held shares they would have redeemed,” quoted the Journal, citing the lawsuit. That complaint is looking to gain class-action status clients who invested in that fund from January 2, 2008 to December 11, 2008, as well as a “sub-class of employee benefit plans invested during that period, said the Journal.
The J.P. Jeanneret lawsuit claims that both J.P. Jeanneret and Ivy Asset Management “failed to conduct minimal due diligence regarding Madoff’s investment strategy, failed to follow a sustainable investment strategy, and failed to conduct ongoing due diligence in order to identify and avoid massive fraud,” said the Journal. This case concerns alleged Madoff investments in the Jeanneret Associates-managed Income-Plus Investment Fund. That lawsuit is also seeking class-action status.
Blindly Entrusted a Substantial Part of Plaintiff’s Capital to Madoff.
“During the class period, defendant Jeanneret Associates Inc. neglected its professional and fiduciary duties to manage the capital that plaintiff and other members of the proposed class invested in the fund…. Instead, Jeanneret Associates blindly entrusted a substantial part of plaintiff’s capital to Madoff and BMIS, who used that capital in a massive Ponzi scheme,” said the lawsuit, quoted the Journal.
Earlier this week, a federal judge blocked Madoff’s assets from being moved into bankruptcy, reported CNN, saying that the court found probable cause that the “assets should be forfeited to the government.” Earlier this month, investors petitioned a federal judge to rescind an order preventing forced bankruptcy. Federal prosecutors and the Securities and Exchange Commission (SEC) indicated they intend to seek forfeiture and disgorgement of Madoff’s assets in both the criminal and civil cases. But, according to the attorney representing the investors behind the bankruptcy petition, it is unclear if they intend to distribute any such funds to Madoff’s customers and what rules would govern such distribution. The five investors were seeking nearly $64 million.
On March 12, Madoff pleaded guilty to 11 fraud counts in what is believed to be the largest Ponzi scheme in history. Last November, Madoff told his investors that his fund held more than $65 billion, but in reality, he only had a fraction of that amount. Since his guilty plea, Madoff has been held at the Manhattan Correctional Center and faces a June sentencing and up to 150 years in prison.
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