Skip to comments.Fairfield Greenwich Fund Plans to Sue Madoff
Posted on 12/15/2008 2:55:41 AM PST by CutePuppy
Fairfield Greenwich Fund Plans to Sue Madoff
Posted By: Charlie Gasparino | On-Air Editor
Fairfield Greenwich, one of the big feeder funds, is planning a lawsuit against Bernard Madoff, the New York money manager accused of running what prosecutors say was a $50 billion Ponzi scheme.
In the lawsuit, Fairfield is expected to say it was a victim of fraud and that Bernard L. Madoff Investment Securities didn't do enough due diligence when it marketed Madoff's investment business to clients.
Fairfield did its own due diligence, hiring auditors and checking trade confirmations.
Madoff had produced the confirmations but Fairfield claims it went to third parties to make sure trades took place and found out they did.
That could mean that this scandal is much bigger than previously thought.
Part of the defense of the feeder funds will be the extent of the involvement the Securities and Exchange Commission had with Madoff's investment activity that goes beyond what the SEC stated on Friday.
Fairfield will claim that when the SEC recently looked into whether Madoff should be registered as an investment adviser, they made some inquiry into Madoff's investment activities and were fooled as were the feeder funds.
Madoff sold himself as a solid investor who didn't shoot for huge returns, just stable returns.
He was able to capitalize on several converging forces: the tremendous amount of wealth created during the 1990s and into the current decade, how investors got burned in 1998 during the blow up of Long Term Capital Management and the implosion of dot-com stocks in 2001.
His 8 percent to 12 percent returns were a stark contrast to high-flying returns, which later blew up.
He used that as a marketing play, as well as the fact that his funds were technically closed the exclusivity added to the appeal. Madoff would let people in, but only only after some consultation.
The more he did that, the more people wanted to get in.
Madoff complained to officials at Tremont, another feeder fund, about mass redemptions from Europe two weeks ago according to sources. It was around that time that he began contemplating hiring an attorney, the source adds.
According to people close to Madoff he contacted Ike Sorkin after his arrest when he was in FBI custody.
There is a rumor among Madoff investors that he has $1 billion stashed in an overseas bank account. Sorkin, Madoff's lawyer, would not comment on this.
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Keywords: BERNARD MADOFF, $50 BILLION, SEC, FBI, FRAUD, CRIME, WALL STREET TRADER, PONZI SCHEME, FAIRFIELD GREENWICH, FUND, FEEDER FUND, LAWSUIT
From Barrons Madoff's Scam: Simply Amazin':
Both the SEC and, later, my former Barron's colleague Erin Arvedlund challenged Madoff's operation. In 1991, the SEC charged two Florida accountants with raising $440 million in unregistered investment pools run by an unnamed broker who ultimately turned out to be Madoff. The funds were shut down. In 2001, Erin raised questions about Madoff possibly front-running trades, which means putting the broker's interest ahead of his customers'. He denied the allegation.
Fund consultants expect redemptions from hedge funds generally to accelerate as a result of this nasty incident. Three feeder funds have been instrumental in keeping money flowing to Madoff in recent years. The three oversee about $15 billion in money invested with him. Fairfield Greenwich Group funds run $7.3 billion of that, Kingate Global has $2.8 billion, and the Tremont funds, known as Rye Select Broad Market, handled $4.5 billion. The latter was formerly known as the Tremont Broad Market Fund.
Feeder funds tend to have a long reach in the opaque, global world of hedge funds. In September, Fairfield Greenwich joined with Banque Benedict Hentsch, a Geneva-based private bank, to sell Madoff's investment funds in Europe.
Funds of funds that either sold Madoff vehicles under another name or used Madoff as part of a multi-strategy product presumably will have to revalue their investments downward considerably.
Two Madoff feeder funds are components of the market-neutral categories of the Credit Suisse Tremont Hedge Fund index. It's likely that results from the index, and a financial index product that tracks it, could have been overstated for years based on Madoff's consistent double-digit returns.
Reuters via CNBC | 15 Dec 2008
More foreign financial institutions disclosed their exposure to an investment fund run by Bernard Madoff, the U.S. investor accused of running a $50 billion "Ponzi" scheme.
HSBC Holdings is one of the largest victims of Bernard Madoff's alleged fraud, with potential exposure of about $1 billion to investment manager Madoff's collapsed venture, the Financial Times reports, citing unnamed people close to the situation.
HSBC's exposure stemmed from loans it provided to institutional clients, mainly hedge funds of funds, that wanted to invest with Madoff, the newspaper reported on its Web site. HSBC's direct exposure is believed to be about $1 billion in loans provided to clients, who invested about $500 million of their funds in Madoff's venture, the FT reports.
Under the typical terms of these deals, if U.S. authorities recover any funds from Madoff, HSBC will be paid first, with its clients suffering the first tranche of losses, the newspaper said. HSBC said it was "carefully reviewing" its position but expected its final exposure to Madoff's firm not to be "material," the newspaper reported.
Nomura Holdings , Japan's biggest brokerage, also disclosed it had a 27.5 billion yen ($303 million) exposure related to Madoff, but added impact on the firm's capital was limited.
The largest banks of both Spain and France, Santander and BNP Paribas, and Swiss private bank Reichmuth & Co detailed possible losses over investments made with Madoff, who was arrested in New York on Thursday in the alleged fraud.
Santander put its client exposure at over 2.33 billion euros ($3.09 billion). BNP Paribas said it could face a potential loss of 350 million euro from exposure to Madoff-linked investments. And Swiss private bank Reichmuth & Co said it had about 385 million Swiss francs at stake, around $325 million.
U.S. prosecutors and regulators have accused the 70-year-old Madoff, the founder of Bernard L. Madoff Investment Securities LLC and a former chairman of the Nasdaq Stock Market, of masterminding a fraud through his investment advisory business, which managed at least one hedge fund.
A Ponzi scheme is a swindle offering unusually high returns, with early investors paid off with money from later investors.
Hundreds of people, investing with him through the firm's clients, entrusted Madoff with billions of dollars, industry experts have said.
Santander, which has to date emerged unscathed from the global financial crisis, said in a statement on Sunday that its investment fund Optimal had exposure to Madoff Securities of 2.33 billion euros, 2.01 billion of which were funds invested for institutional investors and private banking clients outside Spain.
The remaining 320 million euros were part of the investment portfolios of private banking clients in its home country, which are qualifying investors, the bank said in a statement.
"Optimal will undertake legal actions to defend the interests of the shareholders of the subfund," the bank said in a statement on Sunday evening.
Santander said its exposure came from an investment company managed by Optimal called Optimal Multiadvisors Ireland, which was authorized by the Irish Financial Services Regulatory Authority.
The Irish-based company had a subfund called Optimal Strategic US Equity which had used Madoff Securities to carry out its investments. The custodian of Optimal Multiadvisors and Optimal Strategic is HSBC Institutional Trust Services in Ireland, which belongs to HSBC, said Santander.
It said the Santander group also had 17 million euros invested in Madoff-related investments through another fund.
In its statement, BNP Paribas said it had no investments of its own in Madoff funds but had risk exposure through its trading business and collateralized lending to funds of hedge funds.
Switzerland's Reichmuth wrote to clients in a letter dated Dec. 13, posting the letter on its website over the weekend.
The Lucerne-based bank said Reichmuth Matterhorn, a fund of hedge funds, had investments in instruments linked to Madoff.
"The affected funds amount to roughly 3.5 percent of our assets under management of approximately 11 billion Swiss francs," the letter said. The announcements are likely to be followed by others across Europe. On Saturday, French-language newspaper Le Temps said Geneva-based private banks and asset managers could lose more than 5 billion Swiss francs.
According to Spanish newspaper El Mundo, the Bank of Spain and Spain's stock exchange regulator CNMV are assessing the impact on Spanish investors of the alleged fraud.
The two regulators are confident the impact will be "limited," sources close to the investigations were quoted as saying.
Spain's second largest bank, BBVA, told Reuters on Saturday that no BBVA customers in Spain were exposed to the alleged fraud, but the bank has so far not commented on whether clients outside Spain are exposed.
And why isn't the media treating Madoff like the leper Ken Lay? I guess there is NO obvious connection to George Bush with Madoff as there was the media hype connection with Ken.
Madoff has nary a dime left to his name.
All the money is gone, you can’t get blood from a stone.
Madoff, just another left-wing socialist, but I repeat myself.
You can bet your boots Madoff's got plenty stashed offshore---and so do some of his "investors." As the bard of Avon wrote: tis better to be thought a hapless victim of a Ponzi scheme than to admit to tax evasion.
EXCERPT Madoff was single-handedly managing billions of dollars in offices he kept separate from the rest of his firm........The only oversight was conducted in a Rockland County accounting office only slightly larger than a cubicle. The firm's main office was in NYC.
Madoff made his fortune embracing the latest and best technology, BUT he forbade investors to get online access to their accounts, insisting instead on paper printouts....
For well over a decade, competitors and experts said they found Madoff's track record suspicious. He seemed immune to any volatility in the market and, no matter what was happening in the economy at large, managed to finish each month with almost identical profits. . Madoff dismissed attacks as envy and said critics simply did not understand the complexities of his strategies.
Aksia LLC was hired to investigate Madoff several years ago, said principal Jake Walthour. The probe only increased the concerns about the fund. Madoff's returns were "abnormally smooth" from month to month, and it seemed impossible to replicate his investment strategy or verify his track record.
Madoff claimed to be moving as much as $13 billion in and out of the market every month, but "no one on the street could verify it or even see his footprints," Walthour said. "That organization was incredibly secretive." When they staked out the tiny accounting firm no one had ever heard of, investigators concluded something was amiss. "We decided there are several scenarios here, one of which is, this could be a Ponzi scheme," Walthour said.
Those who have invested in the fund have told investigators that withdrawing cash from it was an arduous process that involved faxes and inexplicable delays. That's because in a Ponzi scheme, money from new investors is used to pay those seeking to withdraw their money.
SOURCE Bloomberg and NY Post wire reports
Emphatic "NO". TARP (idea and program) was never meant to "bail out" investors in failed financial institutions, only to inject liquidity to banks to unfreeze credit markets and loan activity, and protect depositors and assets in them from "run on the bank" - sort of like oversized FDIC, because FDIC had no authority or resources to do anything of the sort.
Fed could have just "printed" $700B to do the same, with the same results for the taxpayers, but without rules and regulations and flexibility to buy assets or invest in institutions, and it would be the subject of constant criticism from Congress for doing so, with no responsibility by Congress for adverse consequences of doing nothing - Bush and Paulson had to get Congress to take a "co-ownership" of the plan to prevent that.
And why isn't the media treating Madoff like the leper Ken Lay?
Madoff is a big Democrat donor, and most individual investors in his closed, i.e. selective, fund are big name rich and politically connected Democrats. Also, many of his investors are Jewish and, as we know, media are "owned by Jews" (/sarcasm). So media for now are concentrating on the "sexy" Blago story to minimize the impact of this [much bigger] story, or hoping to find one or two Republican names involved with Madoff - else, how do you explain to "poor" and "little people" who vote for Democrats that they are the ones who are truly rich and corrupt?
Additionally, these greedy people didn't bother to find out how they were getting these large returns... due diligence...
And, now that they've lost all their money because of stupidity, they are crying foul.
Madoff is a criminal but these people did not check the situation out.
I would like to know what Hillary Clinton knew and when did she know it. Some years back she predicted a coming Bush/Hoover economy to her CT investor class. And she is having the most difficult time fund raising herself out of campaign debt. Seems this particular big time loss explains a whole lot about her debt.
Now wouldn’t big time campaign debt be cause for concern for anyone entering the office of Secretary of State? It will be interesting to watch big spender liberals be forced to downsize.
I can also see why that New School gal’s idea to fold in retirement accounts into Social Security at August 2008 levels might get some heavy traction.
That is a scary thought ----suggests working class taxpayers are going to have to bailout more of the filthy rich---this time those who were stupid enough to believe this crook Madoff.
If they were stupid enough to give Madoff $100-500 million, thats too damn bad.
Besides, I do not believe the so-called "investors" sob stories for a nanosecond. Impossible to believe astute businessman who made fortunes in competitive businesses would allow themselves to be scammed unless......these elites were in collusion with Madoff to engage in a massive tax evasion scheme.
Tax evasion would explain why savvy, astute businessmen were giving this guy huge sums ---$100-500 million--- to invest.
Keep in mind, at the end Madoff was left with some $300 million out of $50 billion. That much money does not just evaporate.
Apparently Madoff kept a cut of the investment and wire-transferred the bulk offshore to friendly money laundering havens.
The whole scam crashed b/c Madoff probably wanted a bigger cut but the "investors" refused.
Will they summon the same rage for Madoff that they had for Ken Lay?
And yet that bail out fund is now going to be tapped to bail out unions, I mean auto companies... It does NOT matter what the claim was for TARP they got their grubby hands on 700 billion dollars and power to guide and control economy. For whatever reason this bunch as already changed their minds in how they will USE the money.
Now come on campaign 2010 and 1012 are already in the works and LIBERALS are the top of the intellectual charts in getting 'government' dollars to fund their campaigns.
Wishful thinking----PLUS "projection" (planting the scenario one most desires into the public consciousness).
Ahh, I see, thanks.
Liberals have always found a way to game any system to fund their lofty ideas and pay for their political campaigns. They devised claimed scientific methods to create systems that always keep themselves funded. They are Bama's educated voters that were turned off by the commonness of Sarah Palin.
This guy Madoff is really going to be missed in liberal circles with all he donates to the liberal cause. There will be another way devised to keep liberal campaigns funded, even if they pass legislation for universal tax payer funded campaign reform... I would NOT be surprised to hear lord McCain pushing that charge.
Now remember after the big money crisis lord McCain started to refer to 'evil' greedy Wall Street, and promised to name names? What did lord McCain know and when did he know it and was this his ploy to entice those formerly rich liberals to vote for him?
But now lord McCain is demanding Republicans to unify and get behind liberals, so I fully expect him to be once again the liberals front man in taking it directly to the middle class. Right now all that seems to be left regarding huge sums of money are retirement funds and after what we have seen over the past 6 months, I have no doubt these greedy lofty liberals have their eyes set on taking that pot of money.
Not Hillary, she knew what was coming, because of the actions she and her hubby took while in office. But see they could not get algore elected thus Bush tax cuts prolonged for a time what these manipulators were putting in place. Fannie and Freddy were the Clintons personified.
So would I
When politicians get a hold of a pot of money, they'll find ways to use it for the unintended purposes. That doesn't mean that the money was not needed for what was intended in the first place. Congress can just as easily "create" / spend "new money" for UAW bailout by voting to spend any amount, whether TARP was there to take it from or not - they just use TARP because it's easy to use class warfare and tell people that they are taking it from "fat cat Wall Street bailout fund" to help save American hard-working union jobs... would not be the first time Democrats misrepresent or misname something?
He had been asked when he might make an anticipated announcement about tapping a $700 billion financial industry bailout fund to aid General Motors , Ford Motor and Chrysler LLC.
Asked whether he was leaning toward using financial bailout funds, Bush said: "I signaled that that's a possibility."
In any case, I don't see how any of this would apply to "investors" in Madoff or any of these funds, in any way, shape or form. They are not part of banking system that is regulated by or has to borrow from Fed to make consumer or commercial loans.
Something doesn’t add up here..Articles speak about Maddoff earning consistent, stable returns.8-12%, year in year out..the fund of funds group, like Fairfield, charge what, annually, 2% management fees if not more, plus Maddoff’s own funds have a hefty charge...2%, minimum, if not more, plus maybe 20-30% of any profits.. so the net return to investors would be about the same as Treasuries..
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