NEW YORK - Four Bernard L. Madoff Investment Securities
LLC feeder funds and several of their current and former owners and officers
have agreed to pay nearly $220 million to settle claims that they breached
their fiduciary duties under the Employee Retirement Income Security Act by
"recommending, making and maintaining investments with" BLMIS and losing
hundreds of millions of dollars of investor monies in the process, according to
a press release issued by the U.S. Department of Labor yesterday (In
re: Beacon Associates Litigation, No. 09-0777, S.D. N.Y.; See October
2010, Page 20).
Under the terms of the settlement, which are subject to
court approval, BLMIS feeder funds Ivy Asset Management LLC, J.P. Jeanneret
Associates Inc., Beacon Associates Management Corp., Andover Associates
Management Corp. and their current and former owners and officers will each pay
a portion of the nearly $220 million settlement.
In particular, according to the press release, Ivy and
its principals will pay $210 million to settle their claims, while Jeanneret
and owners John P. Jeanneret and Paul Perry will pay $3 million. In
addition, Beacon and Andover
and their owners, Joel Danziger and Harris Markoff, will pay $3.5 million and
will relinquish a claim of more than $3.3 million for management fees.
Labor Department Secretary Hilda L. Solis brought the
ERISA claims against the defendants in the U.S. District Court for the Southern
District of New York, and the settlement resolves not only the Labor Department
claims but also those brought by the attorney general of the State of New York
and several securities class action lawsuits brought by investors injured by
the defendants' alleged fraud.
According to the press release, Ivy, which served as
investment adviser to Jeanneret, Beacon and Andover, "misrepresented and concealed doubts
and suspicions about Madoff, including the belief that no investment with
Madoff was justified. The suit further alleged that Ivy concealed its
suspicions because the investments made by Jeanneret, Beacon, and their plan
clients and other investors generated enormous fees for Ivy and contributed
significantly to the assets under Ivy's management."
The Labor Department also contended that Jeanneret, which
served as the investment manager for more than 70 plans that invested in BLMIS,
and its principals "made material misrepresentations and failed to disclose
material facts to their ERISA-covered plan clients that invested with
Madoff. These included failing to disclose that Ivy had informed
Jeanneret that it was unable to perform due diligence on Madoff.
Jeanneret also allegedly failed to disclose to its clients that it had entered
into a new agreement with Ivy in 2007 that eliminated Madoff from Ivy's due
diligence responsibilities, and failed to disclose that Ivy recommended
Jeanneret reduce plan client and investor exposure to Madoff."
According to the press release, "Additionally, the suit
alleged that Jeanneret largely ignored Ivy's recommendations to reduce its
clients' Madoff investments and failed to take prudent steps to investigate
irregularities about Madoff and his purported trading, while taking substantial
amounts in fees as the investment manager for the plans. Finally,
Jeanneret and its owners and officers allegedly violated ERISA based on their
fee arrangement, which provided for higher fees for Madoff investments than for
other types of investments. This arrangement gave them the ability to set
their own compensation by exercising their discretion to recommend and make
Madoff investments for plans."
Moreover, with regard to Beacon and Andover, which served
as investment managers for the Beacon and Andover funds, respectively, the
Labor Department averred that, like Jeanneret, they "largely ignored Ivy's
recommendations to reduce their Madoff investments and failed to take prudent
steps to investigate Madoff, while still taking substantial amounts in fees as
the investment managers for the Beacon and Andover funds."
According to the press release, "[t]he suit also charged
Beacon, Andover and their principals with making misrepresentations and failing
to disclose to their plan investors that Ivy had informed them it was unable to
perform due diligence on Madoff, and that Beacon and Andover had entered into
agreements with Ivy that eliminated Madoff from Ivy's due diligence
The Labor Department is represented by Stephen A.
Silverman, Elizabeth Goldberg and Thomas Tso of the Department of Labor in Washington, D.C.
The Ivy defendants are represented by Lewis J. Liman and
Jeffrey A. Rosenthal of Cleary Gottlieb Steen & Hamilton in New York.
The Jeanneret defendants are represented by Brian E.
Whiteley and Carolyn A. Marcotte of Hiscock & Barclay in Boston
and John D. Cook of Hiscock in Syracuse,
The Beacon and Andover
defendants are represented by Tab K. Rosenfeld and Steven M. Kaplan of
Rosenfeld & Kaplan in New York.
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