A class of Madoff investors has settled with Fairfield
Greenwich and its related entities for up to $80.25 million.
These entities were Madoff feeder funds that had invested
over $4.5 billion with Madoff. In their second amended complaint, the investors
asserted claims of common law fraud federal securities fraud and control person
liability negligent misrepresentation gross negligence breach of fiduciary duty,
third-party beneficiary breach of contract constructive trust, mutual mistake
and unjust enrichment See Anwar v. Fairfield Greenwich Ltd., 728
F. Supp. 2d 354 (S.D.N.Y. 2010), and Anwar
v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010).
The defrauded investors specifically alleged that the Fairfield
- Made false representations and omissions regarding Madoff's
split-strike conversion strategy.
- Made false representations and omissions regarding the
funds' track record of profitability.
- Made false representations and omissions in fund reports
to investors and concerning due diligence and oversight of Madoff.
- Ignored red flags of Madoff's fraud.
- Falsely reassured investors who made inquiries.
- Assisted Madoff in thwarting an SEC investigation.
- Attempted to raise money to keep Madoff afloat in late
- Earned massive fees from funneling plaintiffs' assets
into the Madoff fraud.
Fairfield's response to the allegations is explained in
the motion to approve the settlement as follows:
[T]he FG Defendants vigorously maintain that they did not
know about wrongdoing at BLMIS until it was revealed to the public in December
2008, lost more than $72 million of their own and family members' money in the
fraud, maintained a full-time professional staff to perform due diligence and
risk monitoring, and were among many financial firms and regulators that were
fooled by Madoff including the Securities and Exchange Commission. They also
point to the efforts to conceal the fraud by Madoff and seven others who
pleaded guilty to crimes, including creating false trade blotters, trade
confirmations and DTC reports which they were shown, and aspects of Madoff's
activities that were not typical of a Ponzi scheme, including refusing new
investments and redeeming billions of dollars upon request over many years.
The settlement calls for a guaranteed recovery of $50.25
million upon the court's approval of the settlement agreement, plus an
additional amount up to $30 million "to the extent it is not used to pay
certain other claims or judgments against the FG Defendants."
The settlement agreement was apparently hard fought,
following substantial discovery. The defendants produced more than six million
pages of documents, while plaintiff's produced more than 75,000 pages of
documents. The parties took about 50 depositions.
The settlement will be funded by the founding shareholders
of Fairfield - Walter Noel, Jeffrey Tucker and Andres Piedrahita. The
settlement motion explains that "the settlement consideration represents a
substantial portion of the assets that might be recovered" if the plaintiffs were
The plaintiffs' claims against co-defendants PricewaterhouseCoopers,
Citco and GlobeOp are not settled and will continue to be litigated. The memorandum
states that the Citco Defendants acted as administrators of the Funds and
custodians of the Funds' assets and were responsible for monitoring BLMIS as
subcustodian of those assets. PwC Netherlands and PwC Canada were the auditors
of the Funds' financial statements. Interestingly, the settlement proposes to
bar these defendants from asserting claims for contribution against the
The settlement agreement, filed on November 6, 2012, is here.
The memorandum in support of the motion to approve the agreement is here. The plaintiff's second amended complaint is here.
Read additional articles at The Ponzi Scheme
Kathy Bazoian Phelps is the co-author of The Ponzi Book: A Legal
Resource for Unraveling Ponzi Schemes (LexisNexis 2012), along with
Hon. Steven Rhodes. The Ponzi Book, recently reviewed by Commercial Crime International, is
available for purchase at www.lexisnexis.com/ponzibook, and more information about
the book can be found at www.theponzibook.com.
For more information about LexisNexis
products and solutions connect with us through our corporate site.