Hedge Fund Manager Charged With Funneling Billions to Madoff Ponzi Scheme

A New York City hedge fund manager has been charged with funneling $2.4 billion of investor funds to the Ponzi scheme run by Wall Street con man Bernard Madoff and not telling clients what he was doing with their money.

J. Ezra Merkin, formerly chairman of GMAC Financial Services, was charged today by New York state authorities and accused of hiding his connection to Madoff while telling his clients that their money was being invested in distressed debt. Merkin’s clients included many large charities and colleges who were kept in the dark until December 2008, when Madoff was arrested after admitting his scam.

Madoff, 70, now faces up to 150 years in prison when he is sentenced after pleading guilty to orchestrating the largest fraud in Wall Street history.

With Madoff now behind bars, authorities have turned their attention to others allegedly involved in running the scam, including Madoff’s relatives, business associates, and others who brought investors to him.

Investigators Now Going After Madoff Associates

According to the New York Attorney General’s office, which filed the charges, Merkin was paid about $470 million in fees and performance bonus by clients. Merkin also is charged with comingling his personal funds with investor accounts and those of his management company, Gabriel Capital Group, and using some of the funds to purchase $91 million worth of artwork for his apartment and other personal expenses.

“Merkin duped individual investors, non-profits, and charities into believing he was responsibly managing their investments, when in actuality he was dumping them into history’s largest Ponzi scheme,” said Attorney General Andrew Cuomo said in announcing the charges.

Merkin has previously said, through his lawyer, that he was totally unaware that Madoff was carrying out an investment fraud that he was, in fact, a victim of the crime, not an accessory to it.

One fund managed by Merkin, called Ascot Partners, had nearly all of its $1.7 billion in assets in Madoff accounts. New York authorities want Merkin to repay all of the fees he collected from his clients over the years, plus damages.

A New York City law student is suing Madoff’s brother, Peter Madoff, for allegedly mishandling the student’s inheritance by investing the funds in Madoff’s Ponzi scheme. Madoff’s wife, sons, accountant, and other business associates also are being investigated or have been charged with wrongdoing in the financial fraud.

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