Not a Lexis Advance subscriber? Try it out for free.

Financial Fraud Law

Madoff’s Feeder Funds: What’s Happening with Merkin?

 Perhaps no feeder funds to Bernard Madoff are more well known than those run by J. Ezra Merkin. Five years after the fall of Madoff, the actions by Madoff Trustee Irving Picard and his primary counsel, Baker & Hostetler LLP, against Merkin and his entities continue to take up a significant amount of time and resources – on both sides.

The most recent request for fees filed by Baker & Hostetler (B&H) explains the status. Note that references to the “Compensation Period” mean from May 1, 2013 through and including July 31, 2013. Here are excerpts:

70. This matter categorizes time spent by the Trustee and B&H attorneys pursuing the avoidance action against sophisticated money manager and Madoff associate J. Ezra Merkin (“Merkin”), Gabriel Capital Corporation, and Merkin’s funds: Gabriel Capital, L.P., Ariel Fund, Ltd., Ascot Partners, L.P., and Ascot Fund Limited (together, the “Merkin Defendants”) alleging that Merkin knew or was willfully blind to the fact that Madoff’s investment advisory business was predicated on fraud, and seeking the return of nearly $560 million under SIPA, the Bankruptcy Code, the New York Fraudulent Conveyance Act, and other applicable law for preferences and fraudulent conveyances in connection with certain transfers of property by BLMIS [Bernard L. Madoff Investment Securities LLC] to or for the benefit of the Merkin Defendants. Picard v. J. Ezra Merkin, Adv. No. 09-01182 (BRL) (Bankr. S.D.N.Y.).

71. During the Compensation Period, B&H attorneys continued to advance the litigation of the Merkin case. Following favorable rulings by the court-appointed discovery arbitrator, including an order in March 2013, the Trustee’s counsel continued to press the Merkin Defendants to comply with all aspects of the arbitrator’s rulings through written demand letters, as well as multiple meet and confers.

72. B&H attorneys also analyzed the flow of funds from BLMIS to the Merkin Defendants and pursued [Bankruptcy Rule of Civil Procedure] Rule 2004 discovery from Lauren Merkin who, along with her husband, received subsequent transfers of funds or was the beneficiary of subsequent transfers to Merkin and other third parties.

73. During the Compensation Period, B&H attorneys continued preparing for fact witness depositions and expert discovery by conducting extensive and ongoing analysis of documents produced by the Merkin Defendants and from other third parties. B&H attorneys’ tasks included identification of, preparation for and conducting interviews and depositions of potential fact witnesses, including financial industry representatives, and other third parties and defendant witnesses. The Trustee continued to issue additional document requests to the Merkin Defendants. B&H attorneys also issued additional subpoenas for documents from other third parties.

74. During the Compensation Period, B&H attorneys devoted significant time and effort to preparing the third amended complaint, which alleges that Merkin had knowledge of, or was willfully blind to the fraud at BLMIS. The third amended complaint was filed on August 30, 2013 in accordance with an agreed schedule among the Trustee and the Merkin Defendants, and approved by the Court.

75. Following a June 25, 2012 announcement by the New York Attorney General (“NYAG”) of a settlement among the NYAG and the receivers for the Merkin Funds, the Trustee filed a complaint, extensive memorandum of law and related papers seeking an injunction seeking to enjoin the NYAG and the Merkin Defendants from consummating the settlement, and from transferring or otherwise dissipating any assets. Picard v. Schneiderman (In re Bernard L. Madoff), Adv. No. 12-01778 (BRL) (Bankr. S.D.N.Y.), ECF Nos. 1–3. The NYAG and other Merkin Defendants thereafter filed a joint motion to withdraw the reference of the injunction application, which the District Court granted. Picard v. Schneiderman, 12 Civ. 06733 (S.D.N.Y.), ECF Nos. 1, 12. Following oral argument on March 25, 2013, the District Court denied the Trustee’s application on April 15, 2013. (ECF No. 53).

76. During the Compensation Period, the Trustee appealed the District Court’s decision to the Second Circuit. Picard v. Schneiderman, 13-1785 (2d. Cir. May 7, 2013). The Trustee filed his opening appellate brief on June 6, 2013, the Merkin Defendants and the receivers for the funds filed their responses on July 19, 2013, and the Trustee filed his reply brief on August 7, 2013. Oral argument before the Second Circuit took place on October 10, 2013, and the matter is awaiting decision.

According to the trustee’s fee request, B&H spent 5,591.00 hours on Merkin matters alone during the three month period from May 1, 2013 through and including July 31, 2013, and it is seeking $2,870,135.50 in fees for that time.

It certainly is not clear that the ongoing Merkin dispute is going to resolve in the near future.

More discussion of Madoff developments will appear in upcoming posts on the Financial Fraud Law Blog.

 Contact the author at

For more information about LexisNexis products and solutions connect with us through our corporate site.