J. Ezra Merkin
Encyclopedia
Jacob Ezra Merkin is a former money manager and financier
. He was a close business associate of Bernard Madoff
, and is alleged to have played a significant part in the Madoff fraud. He served as the Non-executive Chairman of GMAC until his resignation on January 9, 2009, at the insistence of the U.S. government. He was the general partner of Gabriel Capital LP, a $5 billion group of hedge fund
s which was dissolved in 2008 after heavy losses in the Madoff fraud.
On April 6, 2009, Merkin was charged with civil
fraud
by the State of New York, for "secretly steering $2.4 billion in client money into Bernard Madoff
's Ponzi fraud without their permission." On May 18, 2009, Merkin agreed to New York
Attorney General
Andrew Cuomo
's demands to step down as manager of his hedge funds and place them into receivership.
, a prominent banker, philanthropist
, and Ursula Merkin
. He is the brother of Daphne Merkin
, a writer. He and his wife, Lauren, have four children.
On May 20, 2009, he resigned as President of Fifth Avenue synagogue
, which was founded by his father in 1959. Members include some of his largest Madoff-related investors, losing in total, more than $ 1 billion.
Merkin attended Ramaz
, an Upper East Side
Modern Orthodox prep
school, Yeshiva Keren B'Yavneh and Gush Etzion yeshivas in Israel
, then Columbia University
and Harvard Law School
.
In 1995, he paid $11 million for an 18-room duplex formerly owned by Ron Perelman, a member of his synagogue, at 740 Park Avenue
, "the world's richest apartment Building," In 2003, he began to collect 12 Mark Rothko
paintings, the largest private collection in the world, worth an estimated $150 million. The Rothkos were sold in 2008, under an agreement with the receiver, for $320 million dollars.
Merkin also owns a home in Atlantic Beach, New York
, valued at $1.7 million, and a property in Eagle County, Colorado
, worth $506,000.
From 1979–82, he worked for the law firm, Milbank Tweed
, and worked at Halcyon Investments from 1982 to 1985. He moved on to Wall Street
finance, his father’s business, working at a hedge fund run by Alan Slifka, his father's friend. There he met Joel Greenblatt, who founded Gotham Capital in 1985, where Merkin worked until 1988, as an analyst and a managing partner in Gotham Capital LP and Ariel Capital LP.
In 1988, he started Gabriel Capital to raise capital, and funnel it to managers in exchange for a fee. By 1992, Merkin was raising money and co-managing securities with and for Stephen A. Feinberg
, a manager whose private-equity firm Cerberus Capital Management, later bought controlling shares in Chrysler
(80%) and GMAC (51%, at a cost of $ 6.4 billion), the financing arm of General Motors
. Merkin invested his funds into Cerberus and its portfolio companies. His Gabriel fund invested $79 million in Chrysler, $66 million in GMAC, and $67 million in Cerberus partnerships, according to year-end statements.
On March 30, 2009, it was announced that Cerberus would lose its controlling stake in Chrysler.
In 2005, Cerberus and Gabriel bought a 9.9% combined interest in Bank Leumi
, but in April 2009, decided to sell in order to boost liquidity due to their substantial financial losses in 2008.
Merkin manages Ascot Partners LP, a hedge fund which was valued at $1.8 billion prior to the collapse of Bernard L. Madoff Investment Securities LLC
.
In a statement, on December 10, 2008, GMAC said, "GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company's outstanding debt and raise capital hasn’t attracted enough participation." This was in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers' inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC.
GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. GMAC's exposure to the gap in residual values is around $3.5 billion.
As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it couldn’t pay back all of its debt.
In January 2009, Merkin resigned from his chairmanship as a condition of the U.S. government.
Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could obtain access to bailout money.
On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).
, convicted in 1990, and in 1994 jailed for a year.
In August 1998, Merkin again hired Teicher to manage about $1 billion as an independent operator, paying him $1 million a year plus incentives. In 1988 Merkin began putting a substantial portion of the money he raised for Gabriel Capital with Teicher. From 1988 to 1998, Teicher actually managed Merkin’s off-shore, Ariel fund and Gabriel Capital.
Merkin “occupied himself primarily with raising money for the funds using his extensive social and professional network.”
While in jail, Teicher was running about $375 million from Merkin's investors. In January 1995, Merkin took over Teicher's staff, put Gabriel Capital’s name on the door, and hired Nathan Leight to manage the money.
Teicher had told Merkin not to invest with Madoff because such steady returns were impossible.
After Madoff's arrest, Teicher immediately sent some emails to Merkin:
.
In the early 1990s Jack Nash
, former chairman of Oppenheimer
& Company and a pioneer of the modern hedge fund industry, had briefly invested with Madoff, but pulled his cash out after a closer look. He told Merkin numerous times over the years that he was suspicious of Madoff's steady profits. Madoff had given vague answers to questions about his investment strategy in meetings with Nash and his son Joshua, also a successful investor. In 1982, Nash co-founded the hedge fund Odyssey Partners after selling Oppenheimer for $163 million. He and his partner, Leon Levy, built Odyssey into a $3.3 billion investment firm before closing the fund in 1997. During its 14 years, the firm earned an average return of 22.4 percent a year for its investors.
Merkin's sister, Daphne has opined in writing, that investors considered Madoff as being part of an extended Jewish family, giving the appearance he was trustworthy, having their best interests at heart, and a nice guy.
By 1992, Bernie Madoff began underwriting Merkin's lifestyle. Merkin collected an annual fee of 1 – 1.5% of the funds' total assets. By 2005, Merkin earned about $35 million a year simply for funneling money to Madoff. Merkin invested personally and through family trusts and foundations $7 million in Ascot in its first six years, and less than $2 million over the following 10 years. He did not reinvest his $169 million in management fees for the years 1995 to 2007 back into his Ascot.
On December 11, 2008, Federal Bureau of Investigation
agents arrested Bernard Madoff
on a tip-off from his sons, Andrew and Mark, and charged him with one count of securities fraud. On the day prior to his arrest, Madoff told his senior executives at the firm that the management and advisory segment of the business was "basically, a giant Ponzi scheme
."
In an official letter distributed to alumni, students, faculty, and administration, Yeshiva University
President Richard Joel stated that Merkin, who was Chairman of the University Investment Committee, managing its endowment of almost $1.8 billion (as of about 2 years ago), had invested about $112 million in his own hedge fund, Ascot Partners, which was almost solely invested with the Madoff fund. In actuality, it was an initial investment of $14 million that became falsely inflated to $112 million over time. As such, Merkin collected an initial fee of one percent and later 1.5 percent, standard for all of Yeshiva’s money managers on whose Board of Trustees he sat. He collected over $2 million in fees, almost $1 million for Ascot alone. In fourteen years, the fund grew 9 percent a year, even after subtracting losses for Madoff and expenses. He made at least $10 million from Yeshiva over his tenure.
Although Joel implicitly acknowledged that the university's charter lacked a conflict of interest
restriction on the management of school funds, Merkin resigned from all of his positions at Yeshiva that day.
Over 30 charities invested with Ezra, many of them with a Jewish affiliation.
According to the New York Post
, as a result of the alleged fraud, members of Manhattan
's Fifth Avenue Synagogue
, for which Merkin served as president, "suffered a $2 billion bloodbath." Through introductions by President Merkin, Madoff, a non-member, gained access to some of the wealthiest Jews
in America
.
They include: Ronald O. Perelman, the financier and corporate raider; Ira Rennert
, who made a fortune in junk bonds and the Hummer
; Mort Zuckerman, the real estate magnate who owns The New York Daily News, and as a Madoff intermediary with Elie Wiesel
, the Nobel Peace Prize
winner, who lost much of his personal wealth and the endowment of the Elie Wiesel Foundation for Humanity.
Spring Mountain Capital LP, invested in three Merkin-led funds. $35 million in Madoff investments amounted to 4.4 percent of Spring Mountain's $800 million in hedge-fund fund-of-funds investments, but Madoff represented as much as 7 percent of at least one fund.
John "Launny" Steffens, former executive of Merrill Lynch
, managing director of Spring Mountain Capital LP], invested about $40 million with Merkin’s Ascot Partners LP and was aware of their heavy Madoff exposure. Daniel Tully, 77, and David Komansky
, 69, each a former chairman and chief executive officer
, and colleague, Barry Friedberg, also lost money in the Merkin fund.
Andrew Cuomo
issued subpoenas to three investment funds run by Merkin, and 15 nonprofits which say they lost money due to Merkin and Madoff. The investigation examined
whether Merkin had properly disclosed where the money was being invested. The nonprofits are being asked how they were affected by the Madoff scandal, and if the nonprofits exercised due diligence
to protect themselves from losses. Merkin reportedly collected over $40 million a year in fees.
On April 6, 2009, New York Attorney General Andrew Cuomo
filed civil fraud charges
against J. Ezra Merkin alleging he "betrayed hundreds of investors" by moving $2.4 billion of clients' money to Bernard Madoff without their knowledge. The complaint states, he lied about putting the money with Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds, Ascot Partners LP with Ascot Fund Ltd., Gabriel Capital Corp. and Ariel Fund Ltd. He promised he would actively manage the money, but instead, he misguided investors about his Madoff investments in quarterly reports, in investor presentations, and in conversations with investors. "Merkin held himself out to investors as an investing guru.... In reality, Merkin was but a master marketer."
In addition, the complaint accused Merkin of improperly commingling his personal funds with his hedge fund accounts and using some of the money to buy artwork worth more than $91 million. Mr. Cuomo’s office is seeking restitution and unspecified damages from Mr. Merkin.
Madoff depended on feeder funds to funnel investor deposits directly to him. In 2000, Merkin told investors in his Gabriel and Ariel funds that he was investing in distressed assets and bankruptcies when he actually transferred more than one third of each of those funds' money to Madoff.
Merkin's Ascot Partners formed in 1992, held $1.7 billion from 300 investors, and earned him $25.5 million per year by the end of December, 2008. He advised investors that only 15% of the fund was invested with Madoff.
"Substantially all" of its assets went to Madoff,
although he represented the contributions as only a 15% investment.
On December 11, 2008, Merkin informed investors in his $1.8 billion Ascot Partners fund that he was among those who suffered substantial personal losses, since all of the fund's dollars were invested with Madoff. Many of them were not aware or told of the connection to Madoff, and Merkin denied any connection to Madoff when asked by an investor. Merkin lied to a client that his investment was with Morgan Stanley
, and protected.
filed a lawsuit against Merkin, Ascot Partners, and its auditor BDO Seidman, LLP
after losing its $3 million investment in Ascot. The lawsuit charged Merkin with recklessness, gross negligence
, and breach of fiduciary duties. Merkin has been sued for his role in running a "feeder fund" for Madoff.
On December 23, 2008, New York University
filed a lawsuit to recover $24 million lost in the Ariel Fund, Ltd. and the Gabriel Capital Corp. It claims that the university was unaware Merkin was actually turning NYU’s money over to Madoff. NYU states that in 1994 Merkin was warned by then-manager of the Ariel Fund, Victor Teicher, that Madoff was delivering impossible returns. Teicher worked for Merkin while serving time in federal prison in New Jersey for insider trading
. The substance of Merkin's due diligence
was to ask Madoff directly, if Teicher was correct. Attorney Andrew J. Levander represents both Merkin and Teicher; the latter is petitioning the SEC for reinstatement.
Justice Richard Lowe in the Manhattan
State Court unsealed documents which detail manager conversations including Teicher, client disclosures, and fee arrangements with Merkin.
The case is New York University v. Ariel Fund Ltd. 603803/2008 in New York State Supreme Court (Manhattan
).
In December 2008, the Calibre Fund, which invested $10 million with Merkin’s Ascot Partners LP, and other Merkin investors claimed in federal suits that he misled them by claiming he invested in a “diverse portfolio of securities.”
On March 4, 2009, Nephrology Associates PC Pension Plan filed a class action
lawsuit in district court.
On March 10, 2009, Howard Schiffman, attorney for the Ariel Fund requested that New York State Supreme Court Justice Richard Lowe III lift an order prohibiting assets from being transferred out of the Ariel Fund, because Merkin wanted to wind down the fund. The order prevents the Ariel Fund from engaging counsel to file claims against the estate of Bernard Madoff
's firm; from paying its lawyers in the NYU lawsuit; and from paying attorneys to assist in its efforts to cooperate with government probes into Madoff's fraud. The Ariel Fund is a Cayman Islands
fund, with an independent board of directors and administrator located in the Cayman Islands.
On April 6, 2009, Mort Zuckerman, chairman of Boston Properties
Inc. and publisher of the New York Daily News
, filed a lawsuit against Merkin and his Gabriel Capital LP. The lawsuit claims fraud and negligent representation and seeks unspecified punitive damages
. Merkin had a “huge incentive not to disclose Madoff’s role, especially to investors like Zuckerman,” because he charged clients “substantial fees” to manage both his Ascot Partners LP and Gabriel Capital. The lawsuit claims over $40 million in losses for placing his assets with Bernard L. Madoff Investment Securities LLC without his knowledge. Zuckerman invested $25 million with Merkin’s Ascot Fund in 2006 through his Charitable Remainder Trust, or CRT Investments Limited, and personally invested $15 million with Merkin’s Gabriel Capital. Merkin charged Zuckerman a 1.5% fee and imposed significant “lock-up restrictions on redemptions,", but his agreement with Gabriel Capital contains an arbitration
clause against Merkin for his lost personal $15 million investment. The lawsuit also named the accounting firm BDO Seidman LLP, and a related entity called BDO Tortuga, as defendants.
The case is CRT Investments Ltd. v. J. Ezra Merkin, 601052/2009, filed in New York State Supreme Court (Manhattan
).
The reasoned award issued in this case is available on-line. In the award, the two arbitrators in the majority found that both Mr. Merkin and the investor "were victims," but that Mr. Merkin "did not make [the investor] an informed investor with regard to how his $1,462,040 would be invested. Mr. Merkin did not disclose material information to [the investor] about how he, the Managing Partner, 'managed' Ascot and why he was due 1.5% of assets under management." According to the majority: "Mr. Merkin should have acknowledged what the Panel concludes were his limitations to truly understand the options trading that was [allegedly] taking place and, because his fiduciary duties demanded it, he should have had someone in his office (or even outsourced services) ... do more than just accept what was being mailed to Ascot by Madoff Securities." The majority found that Merkin was "negligent" in his due diligence of Madoff but not "grossly negligent" (the contractual standard for the imposition of liability). While making an award on the pediatrician's non-disclosure and misrepresentation claims (and ordering complete restitution of the amounts invested), the majority denied the investor's claims for damages for emotional suffering, punitive damages, and attorneys' fees.
In dissent, the third panelist found, among other things, that the investor was aware of Mr. Madoff's role in Ascot and that Mr. Merkin had a right to rely on the documentation received from Madoff Securities as genuine, as so many other investors, and regulators, apparently did. The dissenter also found that the investor did not prove that Mr. Merkin acted with scienter, or an intent to defraud or mislead.
On May 17, 2010, the investor filed a special proceeding in state court in New York to convert the arbitral award into an enforceable judgment, a process known as confirmation. Mr. Merkin opposed the special petition. In August, 2010, Justice Richard B. Lowe granted the investor's petition to confirm and denied all relief to Mr. Merkin and his management company, Gabriel Capital Corporation. Mr. Merkin has disclosed that he intends to appeal Justice Lowe's rulings.
In September, 2010, it was disclosed that two New Jersey based fund-of-funds, Sandalwood Partners Funds A and B, won an arbitral award of $12.74 million from Mr. Merkin. These investors have also filed for confirmation in state Supreme Court in New York. The arbitral panel did not issue a reasoned award in the case. The Sandalwood investors invested in Mr. Merkin's Gabriel Capital, L.P., a fund which had entrusted approximately 30% of its assets to Mr. Madoff as of December 2008.
filed a lawsuit
against Merkin seeking to recover almost $500 million withdrawn from Madoff accounts in the last six years. The complaint alleges that since 1995, Merkin steered more than $1.0 billion to Madoff through three private hedge fund
s, Ascot Partners, Ariel Fund, and Gabriel Capital. Since 2002, the funds withdrew at least $494 million from Madoff — returns that Merkin “knew or should have known” were fraudulent. There were at least 500 instances in the last 10 years when his Madoff account statements showed large blocks of stock bought or sold at prices that did not match the stock’s trading range for the day when the transactions supposedly occurred.
The case number is 08-01789 (BRL): IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, v. J. EZRA MERKIN, GABRIEL CAPITAL, L.P., ARIEL FUND LTD., ASCOT PARTNERS, L.P., GABRIEL CAPITAL CORPORATION.
for liquidation
by Guidepost Partners. One receiver will be responsible for managing the remaining money, nearly $1 billion, in the Gabriel and Ariel funds, and another will be responsible for overseeing Ascot, whose entire $1.8 billion in assets was lost to Madoff's Ponzi scheme. New York University has been given until the end of May, 2009 to review the agreement.
. Merkin collected over $470 million for managing three funds, Ariel, Gabriel and Ascot Partners, over the last decade. The three funds have about $1.4 billion in assets remaining with about $700 million in Ariel.
while others are busy getting rich. Wall Street
, moreover, is constitutionally predisposed to overdo things. The stereotype imagines a Wall Street populated by bulls and bears. In reality, the Street itself is neither bull nor bear but shark, constantly shifting direction in an eternal search for food. This feeding process involves massive shifts of capital, which inevitably, is sometimes misallocated." – J. Ezra Merkin, writing in an introduction to a chapter in the 75th anniversary version of Graham and Dodd's Security Analysis.
"As long as investors remain human, and thus subject to greed, fear, pressure, doubt, and the entire range of human emotions, there will be money to be made by those who steel themselves to overcome emotion. Think of Graham and Dodd as embodying the spirit of Hamlet
, Prince of Denmark, who declared: 'Blest are those/Whose blood and judgement are so well commingled,/that they are not a pipe for Fortune's finger/to sound what stop she please.'"
Financier
Financier is a term for a person who handles typically large sums of money, usually involving money lending, financing projects, large-scale investing, or large-scale money management. The term is French, and derives from finance or payment...
. He was a close business associate of Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
, and is alleged to have played a significant part in the Madoff fraud. He served as the Non-executive Chairman of GMAC until his resignation on January 9, 2009, at the insistence of the U.S. government. He was the general partner of Gabriel Capital LP, a $5 billion group of hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
s which was dissolved in 2008 after heavy losses in the Madoff fraud.
On April 6, 2009, Merkin was charged with civil
Civil law (common law)
Civil law, as opposed to criminal law, is the branch of law dealing with disputes between individuals or organizations, in which compensation may be awarded to the victim...
fraud
Fraud
In criminal law, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation...
by the State of New York, for "secretly steering $2.4 billion in client money into Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
's Ponzi fraud without their permission." On May 18, 2009, Merkin agreed to New York
New York
New York is a state in the Northeastern region of the United States. It is the nation's third most populous state. New York is bordered by New Jersey and Pennsylvania to the south, and by Connecticut, Massachusetts and Vermont to the east...
Attorney General
Attorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...
Andrew Cuomo
Andrew Cuomo
Andrew Mark Cuomo is the 56th and current Governor of New York, having assumed office on January 1, 2011. A member of the Democratic Party, he was the 64th New York State Attorney General, and was the 11th United States Secretary of Housing and Urban Development...
's demands to step down as manager of his hedge funds and place them into receivership.
Personal
He is the son of Hermann MerkinHermann Merkin
Hermann Merkin was a Jewish-American businessman and philanthropist.-Biography:...
, a prominent banker, philanthropist
Philanthropist
A philanthropist is someone who engages in philanthropy; that is, someone who donates his or her time, money, and/or reputation to charitable causes...
, and Ursula Merkin
Ursula Merkin
Ursula Merkin was a German-born, American-Jewish philanthropist.-Biography:She was born in Frankfurt, Germany to Isaac Breuer, a noted German Rabbi, as Ursula Breuer...
. He is the brother of Daphne Merkin
Daphne Merkin
Daphne Miriam Merkin is a literary critic, essayist and novelist. Merkin is a graduate of Barnard College. She also attended Columbia University's graduate program in English literature....
, a writer. He and his wife, Lauren, have four children.
On May 20, 2009, he resigned as President of Fifth Avenue synagogue
Fifth Avenue Synagogue
The Fifth Avenue Synagogue is an Orthodox Jewish synagogue located at 5 East 62nd Street between Fifth and Madison Avenues in the Upper East Side neighborhood of Manhattan, New York City.-Founding:...
, which was founded by his father in 1959. Members include some of his largest Madoff-related investors, losing in total, more than $ 1 billion.
Merkin attended Ramaz
Ramaz School
The Ramaz School is a coeducational, private Modern Orthodox Jewish prep school located on the Upper East Side of the New York City borough of Manhattan. It consists of a lower school , a middle school , and an upper school .The Ramaz Upper School is a college preparatory school...
, an Upper East Side
Upper East Side
The Upper East Side is a neighborhood in the borough of Manhattan in New York City, between Central Park and the East River. The Upper East Side lies within an area bounded by 59th Street to 96th Street, and the East River to Fifth Avenue-Central Park...
Modern Orthodox prep
University-preparatory school
A university-preparatory school or college-preparatory school is a secondary school, usually private, designed to prepare students for a college or university education...
school, Yeshiva Keren B'Yavneh and Gush Etzion yeshivas in Israel
Israel
The State of Israel is a parliamentary republic located in the Middle East, along the eastern shore of the Mediterranean Sea...
, then Columbia University
Columbia University
Columbia University in the City of New York is a private, Ivy League university in Manhattan, New York City. Columbia is the oldest institution of higher learning in the state of New York, the fifth oldest in the United States, and one of the country's nine Colonial Colleges founded before the...
and Harvard Law School
Harvard Law School
Harvard Law School is one of the professional graduate schools of Harvard University. Located in Cambridge, Massachusetts, it is the oldest continually-operating law school in the United States and is home to the largest academic law library in the world. The school is routinely ranked by the U.S...
.
In 1995, he paid $11 million for an 18-room duplex formerly owned by Ron Perelman, a member of his synagogue, at 740 Park Avenue
740 Park Avenue
740 Park Avenue is a luxury apartment building on Park Avenue in Manhattan, which has been the home to many wealthy and famous residents. The building also carries the address 71 East 71st Street.-History:...
, "the world's richest apartment Building," In 2003, he began to collect 12 Mark Rothko
Mark Rothko
Mark Rothko, born Marcus Rothkowitz , was a Russian-born American painter. He is classified as an abstract expressionist, although he himself rejected this label, and even resisted classification as an "abstract painter".- Childhood :Mark Rothko was born in Dvinsk, Vitebsk Province, Russian...
paintings, the largest private collection in the world, worth an estimated $150 million. The Rothkos were sold in 2008, under an agreement with the receiver, for $320 million dollars.
Merkin also owns a home in Atlantic Beach, New York
Atlantic Beach, New York
Atlantic Beach is an affluent village off the South Shore of Long Island in the Town of Hempstead, Nassau County, New York. It is located on Long Beach Barrier Island, one of the outer barrier islands which it shares with Long Beach, East Atlantic Beach, Atlantic Beach Estates, Lido Beach and Point...
, valued at $1.7 million, and a property in Eagle County, Colorado
Eagle County, Colorado
Eagle County is the thirteenth most populous of the 64 counties of the State of Colorado in the United States. The county is named for the Eagle River. The county population was 41,659 at U.S. Census 2000. The county seat is the Town of Eagle...
, worth $506,000.
Business background
“It’s very, very difficult for Ezra to make decisions. He worried about the big picture, fretted over allocations. His gift was that he was a world-class salesman. He recognized that many people didn’t have (investment decision) confidence, that if people had confidence in him, then he could give them confidence,” said one money manager who worked with him over the years.From 1979–82, he worked for the law firm, Milbank Tweed
Milbank, Tweed, Hadley & McCloy
Milbank, Tweed, Hadley & McCloy LLP is a United States law firm headquartered in New York City. It also has offices in Washington, D.C., Los Angeles, London, Frankfurt, Munich, Tokyo, Hong Kong, São Paulo, Singapore and Beijing.Milbank is a global law firm, with approximately 550 lawyers who...
, and worked at Halcyon Investments from 1982 to 1985. He moved on to Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
finance, his father’s business, working at a hedge fund run by Alan Slifka, his father's friend. There he met Joel Greenblatt, who founded Gotham Capital in 1985, where Merkin worked until 1988, as an analyst and a managing partner in Gotham Capital LP and Ariel Capital LP.
In 1988, he started Gabriel Capital to raise capital, and funnel it to managers in exchange for a fee. By 1992, Merkin was raising money and co-managing securities with and for Stephen A. Feinberg
Steve Feinberg
Stephen A. Feinberg is an American businessman active in the field of private equity. He is the founder and head of Cerberus Capital Management.-Early life:...
, a manager whose private-equity firm Cerberus Capital Management, later bought controlling shares in Chrysler
Chrysler
Chrysler Group LLC is a multinational automaker headquartered in Auburn Hills, Michigan, USA. Chrysler was first organized as the Chrysler Corporation in 1925....
(80%) and GMAC (51%, at a cost of $ 6.4 billion), the financing arm of General Motors
General Motors
General Motors Company , commonly known as GM, formerly incorporated as General Motors Corporation, is an American multinational automotive corporation headquartered in Detroit, Michigan and the world's second-largest automaker in 2010...
. Merkin invested his funds into Cerberus and its portfolio companies. His Gabriel fund invested $79 million in Chrysler, $66 million in GMAC, and $67 million in Cerberus partnerships, according to year-end statements.
On March 30, 2009, it was announced that Cerberus would lose its controlling stake in Chrysler.
In 2005, Cerberus and Gabriel bought a 9.9% combined interest in Bank Leumi
Bank Leumi
Bank Leumi is an Israeli bank. It was founded in London as the Anglo Palestine Company on February 27, 1902, by members of the Zionist movement to promote the industry, construction, agriculture, and infrastructure of Palestine.-History:...
, but in April 2009, decided to sell in order to boost liquidity due to their substantial financial losses in 2008.
Merkin manages Ascot Partners LP, a hedge fund which was valued at $1.8 billion prior to the collapse of Bernard L. Madoff Investment Securities LLC
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
.
GMAC
In 2006, Cerberus appointed Merkin as nonexecutive Chairman.In a statement, on December 10, 2008, GMAC said, "GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company's outstanding debt and raise capital hasn’t attracted enough participation." This was in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers' inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC.
GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. GMAC's exposure to the gap in residual values is around $3.5 billion.
As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it couldn’t pay back all of its debt.
In January 2009, Merkin resigned from his chairmanship as a condition of the U.S. government.
Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could obtain access to bailout money.
On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).
Victor Teicher
Victor Teicher specialized in merger-related investments. In 1988 he was indicted for insider tradingInsider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
, convicted in 1990, and in 1994 jailed for a year.
In August 1998, Merkin again hired Teicher to manage about $1 billion as an independent operator, paying him $1 million a year plus incentives. In 1988 Merkin began putting a substantial portion of the money he raised for Gabriel Capital with Teicher. From 1988 to 1998, Teicher actually managed Merkin’s off-shore, Ariel fund and Gabriel Capital.
Merkin “occupied himself primarily with raising money for the funds using his extensive social and professional network.”
While in jail, Teicher was running about $375 million from Merkin's investors. In January 1995, Merkin took over Teicher's staff, put Gabriel Capital’s name on the door, and hired Nathan Leight to manage the money.
Teicher had told Merkin not to invest with Madoff because such steady returns were impossible.
After Madoff's arrest, Teicher immediately sent some emails to Merkin:
“You, however, took a brilliant career and actively, willingly, wiped your ass with it when it was obvious that you (knew what you) were doing.”
“The Madoff news is hilarious; hope you negotiate out of this mess as well as possible ....Unfortunately, you’ve paid a big price for a lesson on the cost of being greedy.”
"I guess you did such a good job in fooling a lot of people, you ultimately fooled yourself...a man's name tells you who he is; Madoff made off with the money.
Bernard Madoff scandal
Merkin kept two 2001 news articles questioning Madoff's returns – one published in Barron's and one by a hedge fund newsletter called MARHedgeMarHedge
MARHEDGE is a semi-monthly financial newsletter. It was first circulated in 1994, originally under the name HEDGE. The journal has also gone by the name Managed Account Reports LLC....
.
In the early 1990s Jack Nash
Jack Nash (businessman)
Jack Nash was a German-American businessman who was an innovator in hedge funds.-Biography:Born in Germany on April 10, 1929, he fled Nazi Germany with his family when he was 12. He attended Stuyvesant High School in Manhattan, New York and graduated from City College in 1953.He joined Oppenheimer...
, former chairman of Oppenheimer
Oppenheimer Holdings
Oppenheimer Holdings is an investment bank and full-service investment firm offering investment banking, financial advisory services, capital markets services, asset management, wealth management, and related products and services worldwide...
& Company and a pioneer of the modern hedge fund industry, had briefly invested with Madoff, but pulled his cash out after a closer look. He told Merkin numerous times over the years that he was suspicious of Madoff's steady profits. Madoff had given vague answers to questions about his investment strategy in meetings with Nash and his son Joshua, also a successful investor. In 1982, Nash co-founded the hedge fund Odyssey Partners after selling Oppenheimer for $163 million. He and his partner, Leon Levy, built Odyssey into a $3.3 billion investment firm before closing the fund in 1997. During its 14 years, the firm earned an average return of 22.4 percent a year for its investors.
Merkin's sister, Daphne has opined in writing, that investors considered Madoff as being part of an extended Jewish family, giving the appearance he was trustworthy, having their best interests at heart, and a nice guy.
By 1992, Bernie Madoff began underwriting Merkin's lifestyle. Merkin collected an annual fee of 1 – 1.5% of the funds' total assets. By 2005, Merkin earned about $35 million a year simply for funneling money to Madoff. Merkin invested personally and through family trusts and foundations $7 million in Ascot in its first six years, and less than $2 million over the following 10 years. He did not reinvest his $169 million in management fees for the years 1995 to 2007 back into his Ascot.
On December 11, 2008, Federal Bureau of Investigation
Federal Bureau of Investigation
The Federal Bureau of Investigation is an agency of the United States Department of Justice that serves as both a federal criminal investigative body and an internal intelligence agency . The FBI has investigative jurisdiction over violations of more than 200 categories of federal crime...
agents arrested Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
on a tip-off from his sons, Andrew and Mark, and charged him with one count of securities fraud. On the day prior to his arrest, Madoff told his senior executives at the firm that the management and advisory segment of the business was "basically, a giant Ponzi scheme
Ponzi scheme
A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation...
."
In an official letter distributed to alumni, students, faculty, and administration, Yeshiva University
Yeshiva University
Yeshiva University is a private university in New York City, with six campuses in New York and one in Israel. Founded in 1886, it is a research university ranked as 45th in the US among national universities by U.S. News & World Report in 2012...
President Richard Joel stated that Merkin, who was Chairman of the University Investment Committee, managing its endowment of almost $1.8 billion (as of about 2 years ago), had invested about $112 million in his own hedge fund, Ascot Partners, which was almost solely invested with the Madoff fund. In actuality, it was an initial investment of $14 million that became falsely inflated to $112 million over time. As such, Merkin collected an initial fee of one percent and later 1.5 percent, standard for all of Yeshiva’s money managers on whose Board of Trustees he sat. He collected over $2 million in fees, almost $1 million for Ascot alone. In fourteen years, the fund grew 9 percent a year, even after subtracting losses for Madoff and expenses. He made at least $10 million from Yeshiva over his tenure.
Although Joel implicitly acknowledged that the university's charter lacked a conflict of interest
Conflict of interest
A conflict of interest occurs when an individual or organization is involved in multiple interests, one of which could possibly corrupt the motivation for an act in the other....
restriction on the management of school funds, Merkin resigned from all of his positions at Yeshiva that day.
Over 30 charities invested with Ezra, many of them with a Jewish affiliation.
According to the New York Post
New York Post
The New York Post is the 13th-oldest newspaper published in the United States and is generally acknowledged as the oldest to have been published continuously as a daily, although – as is the case with most other papers – its publication has been periodically interrupted by labor actions...
, as a result of the alleged fraud, members of Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
's Fifth Avenue Synagogue
Fifth Avenue Synagogue
The Fifth Avenue Synagogue is an Orthodox Jewish synagogue located at 5 East 62nd Street between Fifth and Madison Avenues in the Upper East Side neighborhood of Manhattan, New York City.-Founding:...
, for which Merkin served as president, "suffered a $2 billion bloodbath." Through introductions by President Merkin, Madoff, a non-member, gained access to some of the wealthiest Jews
Jews
The Jews , also known as the Jewish people, are a nation and ethnoreligious group originating in the Israelites or Hebrews of the Ancient Near East. The Jewish ethnicity, nationality, and religion are strongly interrelated, as Judaism is the traditional faith of the Jewish nation...
in America
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
.
They include: Ronald O. Perelman, the financier and corporate raider; Ira Rennert
Ira Rennert
Ira Leon Rennert is a American investor and businessman. Using junk bonds to finance his acquisitions of companies, often in bankruptcy, Rennert has amassed significant holdings in basic, cyclical industries, such as mining and metals, including lead smelters, coal mines, magnesium producers and...
, who made a fortune in junk bonds and the Hummer
Hummer
Hummer was a brand of trucks and SUVs, first marketed in 1992 when AM General began selling a civilian version of the M998 Humvee. In 1998, General Motors purchased the brand name and marketed three vehicles: the original Hummer H1, based on the Humvee; and the H2 and H3 models that were...
; Mort Zuckerman, the real estate magnate who owns The New York Daily News, and as a Madoff intermediary with Elie Wiesel
Elie Wiesel
Sir Eliezer "Elie" Wiesel KBE; born September 30, 1928) is a Hungarian-born Jewish-American writer, professor, political activist, Nobel Laureate, and Holocaust survivor. He is the author of 57 books, including Night, a work based on his experiences as a prisoner in the Auschwitz, Buna, and...
, the Nobel Peace Prize
Nobel Peace Prize
The Nobel Peace Prize is one of the five Nobel Prizes bequeathed by the Swedish industrialist and inventor Alfred Nobel.-Background:According to Nobel's will, the Peace Prize shall be awarded to the person who...
winner, who lost much of his personal wealth and the endowment of the Elie Wiesel Foundation for Humanity.
Spring Mountain Capital LP, invested in three Merkin-led funds. $35 million in Madoff investments amounted to 4.4 percent of Spring Mountain's $800 million in hedge-fund fund-of-funds investments, but Madoff represented as much as 7 percent of at least one fund.
John "Launny" Steffens, former executive of Merrill Lynch
Merrill Lynch
Merrill Lynch is the wealth management division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets it is the world's largest brokerage. Formerly known as Merrill Lynch & Co., Inc., prior to 2009 the firm was publicly owned and traded on the New York...
, managing director of Spring Mountain Capital LP], invested about $40 million with Merkin’s Ascot Partners LP and was aware of their heavy Madoff exposure. Daniel Tully, 77, and David Komansky
David Komansky
David H. Komansky is the former chairman and CEO of Merrill Lynch & Company.Komansky grew up in a family of Russian Jewish immigrants and Irish Catholics. He joined the U.S. Coast Guard before getting a degree from the University of Miami in 1965...
, 69, each a former chairman and chief executive officer
Chief executive officer
A chief executive officer , managing director , Executive Director for non-profit organizations, or chief executive is the highest-ranking corporate officer or administrator in charge of total management of an organization...
, and colleague, Barry Friedberg, also lost money in the Merkin fund.
Civil fraud charge
On January 15, 2009, New York State Attorney GeneralNew York State Attorney General
The New York State Attorney General is the chief legal officer of the State of New York. The office has been in existence in some form since 1626, under the Dutch colonial government of New York.The current Attorney General is Eric Schneiderman...
Andrew Cuomo
Andrew Cuomo
Andrew Mark Cuomo is the 56th and current Governor of New York, having assumed office on January 1, 2011. A member of the Democratic Party, he was the 64th New York State Attorney General, and was the 11th United States Secretary of Housing and Urban Development...
issued subpoenas to three investment funds run by Merkin, and 15 nonprofits which say they lost money due to Merkin and Madoff. The investigation examined
whether Merkin had properly disclosed where the money was being invested. The nonprofits are being asked how they were affected by the Madoff scandal, and if the nonprofits exercised due diligence
Due diligence
"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations...
to protect themselves from losses. Merkin reportedly collected over $40 million a year in fees.
On April 6, 2009, New York Attorney General Andrew Cuomo
Andrew Cuomo
Andrew Mark Cuomo is the 56th and current Governor of New York, having assumed office on January 1, 2011. A member of the Democratic Party, he was the 64th New York State Attorney General, and was the 11th United States Secretary of Housing and Urban Development...
filed civil fraud charges
against J. Ezra Merkin alleging he "betrayed hundreds of investors" by moving $2.4 billion of clients' money to Bernard Madoff without their knowledge. The complaint states, he lied about putting the money with Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds, Ascot Partners LP with Ascot Fund Ltd., Gabriel Capital Corp. and Ariel Fund Ltd. He promised he would actively manage the money, but instead, he misguided investors about his Madoff investments in quarterly reports, in investor presentations, and in conversations with investors. "Merkin held himself out to investors as an investing guru.... In reality, Merkin was but a master marketer."
In addition, the complaint accused Merkin of improperly commingling his personal funds with his hedge fund accounts and using some of the money to buy artwork worth more than $91 million. Mr. Cuomo’s office is seeking restitution and unspecified damages from Mr. Merkin.
Madoff depended on feeder funds to funnel investor deposits directly to him. In 2000, Merkin told investors in his Gabriel and Ariel funds that he was investing in distressed assets and bankruptcies when he actually transferred more than one third of each of those funds' money to Madoff.
Merkin's Ascot Partners formed in 1992, held $1.7 billion from 300 investors, and earned him $25.5 million per year by the end of December, 2008. He advised investors that only 15% of the fund was invested with Madoff.
"Substantially all" of its assets went to Madoff,
although he represented the contributions as only a 15% investment.
On December 11, 2008, Merkin informed investors in his $1.8 billion Ascot Partners fund that he was among those who suffered substantial personal losses, since all of the fund's dollars were invested with Madoff. Many of them were not aware or told of the connection to Madoff, and Merkin denied any connection to Madoff when asked by an investor. Merkin lied to a client that his investment was with Morgan Stanley
Morgan Stanley
Morgan Stanley is a global financial services firm headquartered in New York City serving a diversified group of corporations, governments, financial institutions, and individuals. Morgan Stanley also operates in 36 countries around the world, with over 600 offices and a workforce of over 60,000....
, and protected.
Lawsuits
On December 16, 2008, the New York Law SchoolNew York Law School
New York Law School is a private law school in the TriBeCa neighborhood of Lower Manhattan in New York City. New York Law School is one of the oldest independent law schools in the United States. The school is located within four blocks of all major courts in Manhattan. In 2011, New York Law School...
filed a lawsuit against Merkin, Ascot Partners, and its auditor BDO Seidman, LLP
BDO Seidman, LLP
BDO USA, LLP is the United States Member Firm of BDO International, the largest global accounting and consulting network outside of the Big Four.-History:...
after losing its $3 million investment in Ascot. The lawsuit charged Merkin with recklessness, gross negligence
Gross negligence
Gross negligence is a legal concept which means serious carelessness. Negligence is the opposite of diligence, or being careful. The standard of ordinary negligence is what conduct one expects from the proverbial "reasonable person"...
, and breach of fiduciary duties. Merkin has been sued for his role in running a "feeder fund" for Madoff.
On December 23, 2008, New York University
New York University
New York University is a private, nonsectarian research university based in New York City. NYU's main campus is situated in the Greenwich Village section of Manhattan...
filed a lawsuit to recover $24 million lost in the Ariel Fund, Ltd. and the Gabriel Capital Corp. It claims that the university was unaware Merkin was actually turning NYU’s money over to Madoff. NYU states that in 1994 Merkin was warned by then-manager of the Ariel Fund, Victor Teicher, that Madoff was delivering impossible returns. Teicher worked for Merkin while serving time in federal prison in New Jersey for insider trading
Insider trading
Insider trading is the trading of a corporation's stock or other securities by individuals with potential access to non-public information about the company...
. The substance of Merkin's due diligence
Due diligence
"Due diligence" is a term used for a number of concepts involving either an investigation of a business or person prior to signing a contract, or an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary investigations...
was to ask Madoff directly, if Teicher was correct. Attorney Andrew J. Levander represents both Merkin and Teicher; the latter is petitioning the SEC for reinstatement.
Justice Richard Lowe in the Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
State Court unsealed documents which detail manager conversations including Teicher, client disclosures, and fee arrangements with Merkin.
The case is New York University v. Ariel Fund Ltd. 603803/2008 in New York State Supreme Court (Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
).
In December 2008, the Calibre Fund, which invested $10 million with Merkin’s Ascot Partners LP, and other Merkin investors claimed in federal suits that he misled them by claiming he invested in a “diverse portfolio of securities.”
On March 4, 2009, Nephrology Associates PC Pension Plan filed a class action
Class action
In law, a class action, a class suit, or a representative action is a form of lawsuit in which a large group of people collectively bring a claim to court and/or in which a class of defendants is being sued...
lawsuit in district court.
On March 10, 2009, Howard Schiffman, attorney for the Ariel Fund requested that New York State Supreme Court Justice Richard Lowe III lift an order prohibiting assets from being transferred out of the Ariel Fund, because Merkin wanted to wind down the fund. The order prevents the Ariel Fund from engaging counsel to file claims against the estate of Bernard Madoff
Bernard Madoff
Bernard Lawrence "Bernie" Madoff is a former American businessman, stockbroker, investment advisor, and financier. He is the former non-executive chairman of the NASDAQ stock market, and the admitted operator of a Ponzi scheme that is considered to be the largest financial fraud in U.S...
's firm; from paying its lawyers in the NYU lawsuit; and from paying attorneys to assist in its efforts to cooperate with government probes into Madoff's fraud. The Ariel Fund is a Cayman Islands
Cayman Islands
The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...
fund, with an independent board of directors and administrator located in the Cayman Islands.
On April 6, 2009, Mort Zuckerman, chairman of Boston Properties
Boston Properties
Boston Properties, Inc. is a self-managed real estate investment trust based in Boston, Massachusetts. Its primary focus is "Class A" office space which it acquires, develops, and manages in the major markets of Boston, New York City, Washington, D.C., and San Francisco...
Inc. and publisher of the New York Daily News
New York Daily News
The Daily News of New York City is the fourth most widely circulated daily newspaper in the United States with a daily circulation of 605,677, as of November 1, 2011....
, filed a lawsuit against Merkin and his Gabriel Capital LP. The lawsuit claims fraud and negligent representation and seeks unspecified punitive damages
Punitive damages
Punitive damages or exemplary damages are damages intended to reform or deter the defendant and others from engaging in conduct similar to that which formed the basis of the lawsuit...
. Merkin had a “huge incentive not to disclose Madoff’s role, especially to investors like Zuckerman,” because he charged clients “substantial fees” to manage both his Ascot Partners LP and Gabriel Capital. The lawsuit claims over $40 million in losses for placing his assets with Bernard L. Madoff Investment Securities LLC without his knowledge. Zuckerman invested $25 million with Merkin’s Ascot Fund in 2006 through his Charitable Remainder Trust, or CRT Investments Limited, and personally invested $15 million with Merkin’s Gabriel Capital. Merkin charged Zuckerman a 1.5% fee and imposed significant “lock-up restrictions on redemptions,", but his agreement with Gabriel Capital contains an arbitration
Arbitration
Arbitration, a form of alternative dispute resolution , is a legal technique for the resolution of disputes outside the courts, where the parties to a dispute refer it to one or more persons , by whose decision they agree to be bound...
clause against Merkin for his lost personal $15 million investment. The lawsuit also named the accounting firm BDO Seidman LLP, and a related entity called BDO Tortuga, as defendants.
The case is CRT Investments Ltd. v. J. Ezra Merkin, 601052/2009, filed in New York State Supreme Court (Manhattan
Manhattan
Manhattan is the oldest and the most densely populated of the five boroughs of New York City. Located primarily on the island of Manhattan at the mouth of the Hudson River, the boundaries of the borough are identical to those of New York County, an original county of the state of New York...
).
Arbitrations
On May 17, 2010, it was reported that, in the first case to reach verdict or award, an individual investor in Merkin's Ascot Partners L.P. hedge fund, Noel Wiederhorn MD, was awarded approximately $1.75 million by two members of a three-person arbitral panel, who found that "Merkin intentionally breached his fiduciary duty by not disclosing Madoff’s role in the fund". The arbitrators ordered Mr. Merkin to pay the investor, a New Jersey pediatrician, damages equal to 100% of his investments in Ascot, plus close to $300,000 in pre-award interest.The reasoned award issued in this case is available on-line. In the award, the two arbitrators in the majority found that both Mr. Merkin and the investor "were victims," but that Mr. Merkin "did not make [the investor] an informed investor with regard to how his $1,462,040 would be invested. Mr. Merkin did not disclose material information to [the investor] about how he, the Managing Partner, 'managed' Ascot and why he was due 1.5% of assets under management." According to the majority: "Mr. Merkin should have acknowledged what the Panel concludes were his limitations to truly understand the options trading that was [allegedly] taking place and, because his fiduciary duties demanded it, he should have had someone in his office (or even outsourced services) ... do more than just accept what was being mailed to Ascot by Madoff Securities." The majority found that Merkin was "negligent" in his due diligence of Madoff but not "grossly negligent" (the contractual standard for the imposition of liability). While making an award on the pediatrician's non-disclosure and misrepresentation claims (and ordering complete restitution of the amounts invested), the majority denied the investor's claims for damages for emotional suffering, punitive damages, and attorneys' fees.
In dissent, the third panelist found, among other things, that the investor was aware of Mr. Madoff's role in Ascot and that Mr. Merkin had a right to rely on the documentation received from Madoff Securities as genuine, as so many other investors, and regulators, apparently did. The dissenter also found that the investor did not prove that Mr. Merkin acted with scienter, or an intent to defraud or mislead.
On May 17, 2010, the investor filed a special proceeding in state court in New York to convert the arbitral award into an enforceable judgment, a process known as confirmation. Mr. Merkin opposed the special petition. In August, 2010, Justice Richard B. Lowe granted the investor's petition to confirm and denied all relief to Mr. Merkin and his management company, Gabriel Capital Corporation. Mr. Merkin has disclosed that he intends to appeal Justice Lowe's rulings.
In September, 2010, it was disclosed that two New Jersey based fund-of-funds, Sandalwood Partners Funds A and B, won an arbitral award of $12.74 million from Mr. Merkin. These investors have also filed for confirmation in state Supreme Court in New York. The arbitral panel did not issue a reasoned award in the case. The Sandalwood investors invested in Mr. Merkin's Gabriel Capital, L.P., a fund which had entrusted approximately 30% of its assets to Mr. Madoff as of December 2008.
Bankruptcy case
On May 7, 2009, Madoff Bankruptcy Trustee, Irving PicardIrving Picard
Irving H. Picard is a partner in the law firm Baker Hostetler. He graduated from the Wharton School, University of Pennsylvania, with a B.S. degree , from Boston University School of Law with a J.D. degree , and from the New York University School of Law with an LL.M. degree in 1967, and was...
filed a lawsuit
against Merkin seeking to recover almost $500 million withdrawn from Madoff accounts in the last six years. The complaint alleges that since 1995, Merkin steered more than $1.0 billion to Madoff through three private hedge fund
Hedge fund
A hedge fund is a private pool of capital actively managed by an investment adviser. Hedge funds are only open for investment to a limited number of accredited or qualified investors who meet criteria set by regulators. These investors can be institutions, such as pension funds, university...
s, Ascot Partners, Ariel Fund, and Gabriel Capital. Since 2002, the funds withdrew at least $494 million from Madoff — returns that Merkin “knew or should have known” were fraudulent. There were at least 500 instances in the last 10 years when his Madoff account statements showed large blocks of stock bought or sold at prices that did not match the stock’s trading range for the day when the transactions supposedly occurred.
The case number is 08-01789 (BRL): IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, v. J. EZRA MERKIN, GABRIEL CAPITAL, L.P., ARIEL FUND LTD., ASCOT PARTNERS, L.P., GABRIEL CAPITAL CORPORATION.
Receivership
As of May 18, 2009, Merkin's control of Ascot, Gabriel and Ariel hedge funds are to be placed into receivershipReceivership
In law, receivership is the situation in which an institution or enterprise is being held by a receiver, a person "placed in the custodial responsibility for the property of others, including tangible and intangible assets and rights." The receivership remedy is an equitable remedy that emerged in...
for liquidation
Liquidation
In law, liquidation is the process by which a company is brought to an end, and the assets and property of the company redistributed. Liquidation is also sometimes referred to as winding-up or dissolution, although dissolution technically refers to the last stage of liquidation...
by Guidepost Partners. One receiver will be responsible for managing the remaining money, nearly $1 billion, in the Gabriel and Ariel funds, and another will be responsible for overseeing Ascot, whose entire $1.8 billion in assets was lost to Madoff's Ponzi scheme. New York University has been given until the end of May, 2009 to review the agreement.
. Merkin collected over $470 million for managing three funds, Ariel, Gabriel and Ascot Partners, over the last decade. The three funds have about $1.4 billion in assets remaining with about $700 million in Ariel.
Quotes
"It is not easy to stay on the sidelinesSidelines
The "sidelines" is a term commonly used to define the white or colored lines which mark the outer boundaries of a sports field. American football sidelines, for example, mark the edge of the field. Should a player pass through the sidelines, he is considered out of bounds...
while others are busy getting rich. Wall Street
Wall Street
Wall Street refers to the financial district of New York City, named after and centered on the eight-block-long street running from Broadway to South Street on the East River in Lower Manhattan. Over time, the term has become a metonym for the financial markets of the United States as a whole, or...
, moreover, is constitutionally predisposed to overdo things. The stereotype imagines a Wall Street populated by bulls and bears. In reality, the Street itself is neither bull nor bear but shark, constantly shifting direction in an eternal search for food. This feeding process involves massive shifts of capital, which inevitably, is sometimes misallocated." – J. Ezra Merkin, writing in an introduction to a chapter in the 75th anniversary version of Graham and Dodd's Security Analysis.
"As long as investors remain human, and thus subject to greed, fear, pressure, doubt, and the entire range of human emotions, there will be money to be made by those who steel themselves to overcome emotion. Think of Graham and Dodd as embodying the spirit of Hamlet
Hamlet
The Tragical History of Hamlet, Prince of Denmark, or more simply Hamlet, is a tragedy by William Shakespeare, believed to have been written between 1599 and 1601...
, Prince of Denmark, who declared: 'Blest are those/Whose blood and judgement are so well commingled,/that they are not a pipe for Fortune's finger/to sound what stop she please.'"
External links
- Deposition of J. Ezra Merkin: Madoff Charities Investigation, State of New York (January 30, 2009)
- Civil Fraud Complaint State of New York (April 6, 2009)
- Exhibits, Civil Fraud Complaint
- Continued Exhibits, Civil Fraud Complaint State of New York, (April 6, 2009)
- Complaint and Exhibits State of New York v. J. Ezra Merkin and Gabriel Capital Corp. (April 6, 2009) FindLawFindLawFindLaw is a business of Thomson Reuters that provides online legal information and online marketing services for law firms. FindLaw was created by Stacy Stern, Martin Roscheisen and Tim Stanley in 1995, and was acquired by Thomson West in 2001....
- Victor Teicher Deposition, NYU v. Ariel Fund Ltd., Gabriel Capital Corp., J. Ezra Merkin, et al. Case No. 08603803/2008
- Complaint against J. Ezra Merkin (May 7, 2009)