NEW YORK - (Mealey's) 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 Nov. 13 (In re: Beacon Associates Litigation, No. 09-0777, S.D. N.Y.).
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 responsibilities."
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, N.Y.
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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