Parties Seek Approval of $80M Settlement in Madoff Feeder Fund Suit

NEW YORK - (Mealey's) Investors on Nov. 6 asked a federal judge in New York to preliminarily approve a potential $80.25 million settlement of claims that defendants concealed that the investors' funds were being placed in accounts that were part of Bernard L. Madoff's massive Ponzi scheme (Pasha S. Anwar, et al. V. Fairfield Greenwich Ltd., et al., No. 09-0118, S.D. N.Y.; See September 2010, Page 30).

Under the terms of the partial settlement, which is subject to court approval, 10 officers and directors of FG or one of its subsidiaries will pay "$80,250,000, including a minimum of $50,250,000 that will be distributed to the Settlement Class (the 'Settlement Fund') upon final approval and an additional $30,000,000 that will be distributed if not used to resolve other claims."

"In addition to this guaranteed recovery of $50,250,000, the Settling Defendants, funded by the FG Defendants, also will transfer $30,000,000 into a separate account (the 'Escrow Fund'), which will be distributed to the Settlement Class to the extent it is not used to pay certain other claims or judgments against the FG Defendants.  In the event that the Escrow Fund is used to settle claims against the Settling Defendants that have been brought by the Trustee in the liquidation of BLMIS [Bernard L. Madoff Investment Securities LLC], the Settling Defendants must make an additional payment to the Settlement Fund of up to $5,000,000, measured by 50% of the amount, if any, by which such a settlement exceeds $50,125,000," the investors say.

"As additional consideration, the Settling Defendants have agreed to waive (i) indemnification claims they hold against the Funds for the $80,250,000 payments that they will make under the Settlement; and (ii) $20,000,000 of indemnification claims they hold against the Funds for legal fees and expenses incurred in defending the Action."

Not Subject To Settlement

Claims against defendants PricewaterhouseCoopers (PwC) International Ltd. and member firms PwC LLP and PwC Accountants Netherlands N.V. (collectively, PwC defendants); Citco Group Ltd., five of its subsidiaries (collectively, Citco) and directors Brian Francoeur and Ian Pilgrim; and GlobeOp Financial Services LLC (collectively, nondismissed defendants) are not subject to the stipulation of settlement.

The stipulation of settlement also contains provisions barring the nondismissed defendants "from asserting claims against the FG Defendants for contribution and indemnification and providing for reduction of any judgment that may be entered against the Non-Dismissed Defendants to account for Plaintiffs' recovery under the instant Settlement."

"The Stipulation is subject to additional terms, including terms contained in a Supplemental Agreement dated as of November 6,2012, which provides that if class members representing a Net Loss of principal in excess of a certain amount seek exclusion from the Settlement Class, the Settling Defendants may terminate the Settlement.  In the event the Settling Defendants elect to terminate, but the Net Loss of opt-outs does not exceed a separate threshold specified in the Supplemental Agreement, the Settling Defendants shall incur a break-up fee in the amount of $1,000,000, which shall remain in the Settlement Fund," the investors state.

Class Certification

Moreover, the investors seek certification of a class of "All Beneficial Owners of shares or limited partnership interests in the Funds as of December 10, 2008 (whether as holders of record or traceable to a shareholder or limited partner account of record), who suffered a Net Loss of principal invested in Fairfield Sentry Limited, Fairfield Sigma Limited, Fairfield Lambda Limited, Greenwich Sentry L.P. or Greenwich Sentry Partners, L.P."

FG, which managed several funds that invested in Madoff and BLMIS, was sued by a number of investors who lost money in the scheme and now are seeking to recover under various tort and contract theories.  The cases were consolidated in the U.S. District Court for the Southern District of New York under Judge Victor Marrero.

The investors filed an amended complaint in the District Court, alleging that FG, five of its subsidiaries, 10 officers and directors of FG or one of the subsidiaries (collectively, the FG defendants); 13 FG partners (the fee defendants); the PwC defendants; Citco; Francoeur; Pilgrim; and GlobeOp Financial violated Sections 10(b) and 20(a) of the Securities Exchange Act and Securities and Exchange Commission Rule 10b-5 by concealing FG's exposure to the Madoff Ponzi scheme.

Additional Claims Made

Additional claims for fraud, negligent misrepresentation, negligence, breach of fiduciary duty, third-party beneficiary breach of contract, constructive trust, mutual mistake, gross negligence, aiding and abetting breach of fiduciary duty, aiding and abetting fraud and unjust enrichment were made.

On July 29, 2010, Judge Marrero ruled that the investors' state law claims are not preempted by New York's Martin Act (Anwar I), and in an Aug. 18, 2010, ruling (Anwar II), Judge Marrero held that the investors have properly stated a claim against the FG defendants and the fee defendants and have properly pleaded their securities law claims under the group pleading doctrine.

The investors are represented by David Boies of Boies, Schiller & Flexner in Armonk, N.Y.; David A. Barrett and Howard L. Vickery of Boies Schiller in New York; Stuart H. Singer, Carlos M. Sires and Sashi Bach Baruchow of Boies Schiller in Fort Lauderdale, Fla.; Robert C. Finkel, Carl L. Stine and James A. Harrod of Wolf Popper in New York; Christopher Lovell and Victor E. Stewart of Lovell Stewart Halebian in New York; Robert S. Schachter and Hilary Sobel of Zwerling Schachter & Zwerling in New York; Steven J. Toll and S. Douglas Bunch of Cohen Milstein Sellers & Toll in Washington, D.C.; Daniel W. Krasner and Gregory M. Nespole of Wolf Haldenstein Adler Freeman & Herz in New York; and David A Gehn of Gusrae, Kaplan, Bruno & Nusbaum in New York.


PwC Accountants N.V. is represented by William R. Maquire, Sarah L. Cave, Savvas A. Foukas and Gabrielle S. Marshall of Hughes Hubbard & Reed in New York.  Francoeur is represented by Kenneth A. Zitter of New York.  GlobeOp is represented by Jonathan D. Cogan and Michael S. Kim of Kobre & Kim in New York and Grant B. Rabenn of Kobre & Kim in Washington, D.C.

The Citco defendants are represented by Lewis N. Brown and Amanda M. McGovern of Gilbride, Heller & Brown in Miami and Eliot Lauer and Michael Moscato of Curtis, Mallet-Prevost, Colt & Mosle in New York.  Lion Fairfield Capital Management Ltd. is represented by Lawrence P. Eagel, Paul D. Wexler and Jeffrey A. Carpenter of Bragar Wexler Eagel & Squire in New York.  PwC International is represented by Howard M. Shapiro, Fraser L. Hunter Jr., Anne K. Small and Brad E. Konstandt Wilmer Cutler Pickering Hale and Dorr in New York.

PwC LLP is represented by Andrew M. Genser of Kirkland & Ellis in New York and Emily Nicklin and Timothy A. Duffy of Kirkland & Ellis in Chicago.  The fee defendants are represented by Edward M. Spiro of Morvillo, Abramowitz, Grand, Iason, Anello & Bohrer in New York and Mark G. Cunha, Michael J. Chepiga and Peter E. Kazanoff of Simpson Thacher & Bartlett in New York.

The FG defendants are represented by Cunha, Chepiga and Kazanoff of Simpson Thacher in New York; Marc E. Kasowitz and Daniel J. Fetterman of Kasowitz Benson Torres & Friedman in New York; Andrew Levander and David Hoffner of Dechert in New York; Glenn Kurtz and Andrew Hammond of White & Case in New York; and Mark Goodman and Helen Cantwell of Debevoise & Plimpton in New York.

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