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The saga of Ponzi scheme
king Bernard Madoff continues with the
filing of a new action by New York Attorney General Andrew Cuomo against an
investment adviser who is alleged to have had information of the fraud by
the late 1990s. The complaint suggests that millions of dollars in investor
losses could have been avoided if the defendants had complied with their
fiduciary obligations. The People of the
State of New York v. Ivy Asset Management LLC (N.Y.S.Ct. Filed May
Mr. Cuomo's action is
against New York investment adviser Ivy Asset Management, now owned by Bank of
New York Mellon, and its two principals, Lawrence Simon and Howard Wohl.
Beginning in the late 1990s and continuing up through 2008 when Madoff's scheme
collapsed, Ivy, a 1940 Act registered investment adviser, and its principals
facilitated the investment of large sums of advisory client money with Madoff's
scheme. Those clients included John P. Jeanneret and entities he controlled,
Joel Danziger and Harris Makhoff and entities they controlled, the Trustees of
the Engineers Joint Pension Fund, Local Unions Nos. 17, 106, 410, 463, 545 and
832 of the International Union of Operating Engineers, AFL-CIO.
By the time the Madoff
Ponzi scheme collapsed, Ivy had caused its clients to invest, reinvest and
maintain at least $227 million with the Ponzi king. The firm had been paid at
least $40 million in advisory fees. During the years of those investments,
according to the complaint, the defendants failed to tell any of those clients
that beginning as early as 1997 they had leaned material facts demonstrating
that funds should not be invested with Madoff including:
Based on these concerns, in
1998 Ivy's Chief of Investment Management recommended total withdrawal of its
proprietary money from the Madoff fund. Those investments were small.
Defendants concluded at the same time, however, that they could not withdraw
the significant client positions they had placed with Madoff. A 2001 e-mail
from Mr. Simon to Mr. Wohl explained the reason client funds were left with
Madoff - it helped build their assets under management and there were large
fees generated. Rather, clients whose funds were paced with Madoff were told by
the defendants that they had no reason to believe there was anything improper
in the claimed investment fund. In fact, Ivy told clients its only concern was
the large amount of money Madoff had under management.
Prospective clients were
told a different story. They were advised that because of Ivy's fiduciary
duties, the firm could not recommend investments with Madoff. Other potential
clients were simply told not to invest with Madoff. None of this advice was
shared with those whose funds were already with Madoff.
The complaint which claims
fraud, failure to disclose and breach of fiduciary duty, is based on alleged
violations of New York's Martin Act and Executive Law. It seeks an injunction,
accounting, restitution, disgorgement, damages, punitive damages and attorney
fees and costs.
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