Federal Court Rules That A.G. Schneiderman's $410 Million Merkin Settlement May Proceed

Schneiderman: Ruling Is A Victory For Justice & Accountability For Many Victims Of Madoff’s Ponzi Scheme

NEW YORK – U.S. District Court Judge Jed Rakoff issued a ruling today that paves the way for New York State to distribute $410 million to victims of J. Ezra Merkin, who invested over $2 billion with Bernard M. Madoff on behalf of hundreds of investors, including many New Yorkers and charitable organizations. Attorney General Eric T. Schneiderman secured the multi-million dollar settlement with Merkin last year.

Judge Rakoff’s decision, which dismisses Madoff Trustee Irving Picard’s entire lawsuit seeking to block Schneiderman’s settlement that recovered million of dollars to Merkin’s victims, comes on the heels of another recent ruling that rejected Picard’s effort to block a settlement to victims of a separate Madoff feeder fund.

“This ruling is a victory for justice and accountability. Many New Yorkers entrusted their investments to Mr. Merkin, who then steered the money to Madoff and received millions of dollars in management and incentive fees,” said Attorney General Schneiderman. “By paving the way for my office to disburse over $400 million to the investors and charities that were harmed by Mr. Merkin’s actions, this ruling will help bring justice for these people and institutions that lost millions of dollars.”

In June, 2012, A.G. Schneiderman announced a $410 million settlement with Merkin, who controlled four funds that invested over $2 billion with Bernard M. Madoff on behalf of hundreds of investors, including many New Yorkers and charitable organizations. As a result of Madoff’s Ponzi scheme, the investors in the funds, Ariel Fund Ltd., Gabriel Capital L.P., Ascot Fund Ltd. and Ascot Partners L.P. Madoff brokerage liquidator Irving Picard had sought to block A.G. Schneiderman’s settlement with Merkin, delaying disbursement of the funds.

Under the agreement secured by Attorney General Schneiderman, Merkin will pay $405 million to compensate investors over a three-year period, and $5 million to the State of New York to cover fees and costs. This is the first settlement resulting from a government action against Merkin.

Judge Rakoff wrote in today’s opinion, “The Trustee . . . having for more than three years issued empty threats to seek a halt to the Attorney General’s suit, has lost his right to complain.  Even on the merits, moreover, his bluster proves to be without substance. Accordingly, not only this motion but this entire action seeking to derail the Attorney General’s settlement must be dismissed.”

In April 2009, the Office of Attorney General charged Merkin with violations of the Martin Act, General Business Law § 352; and Executive Law § 63(12) for concealing Madoff’s control of the Merkin Funds and for breaches of his fiduciary duty to manage the funds prudently. The lawsuit sought damages, disgorgement of all fees by Merkin, and injunctive relief.

Depending on the size of their losses, eligible investors will be entitled to receive over 40 percent of their cash losses from the Settlement. Pursuant to a claims process, investors who were not aware of Merkin’s delegation to Madoff will receive a defined percentage of their losses, while those who were aware of Madoff’s role will be eligible to receive a smaller recovery. In addition, all investors may receive additional payments at a future date when the Madoff Estate is able to distribute moneys recovered by Irving Picard, the Securities Investor Protection Corporation Trustee for the liquidation of Madoff’s Estate, who is not involved in Attorney General Schneiderman’s settlement.

This case is handled by Senior Trial Counsel David N. Ellenhorn, under the supervision of Karla G. Sanchez, Executive Deputy Attorney General for Economic Justice.

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