Hedge fund manager strikes $407m Madoff settlement

Former Wall Street high-flyer Bernie Madoff is serving a 150-year jail sentence for a massive Ponzi scheme that unravelled in late 2008. Photo: AP

Wall Street hedge fund manager Ezra Merkin, who invested his clients’ money in fraudster Bernie Madoff’s monolithic Ponzi scheme has agreed to a $US410 million ($407 million) settlement that will return funds to his investors.

Merkin’s funds lost roughly $US1.2 billion in 2008 when Madoff’s massive fraud was revealed. It’s estimated that investors in Madoff’s scheme lost up to $US17 billion in real wealth and $US64 billion on paper.

Among those affected were Merkin’s investors, who will now receive $US405 million over three years following a settlement to a civil fraud suit initially brought by now New York governor Andrew Cuomo but finalised under current NY State Attorney General Eric Schneiderman.

The deal, which also includes a payment of $US5 million to cover state feeds and investigative costs, was struck on Saturday AEST and is expected to be announced on Monday in the US, according to reports from Reuters and The New York Times.

Those likely to benefit from the settlement include investors in Merkin’s for private funds, Ariel Fund, Gabriel Capital, Ascot Fund and Ascot Partners, the NYT reported. The receivers overseeing the liquidation of the funds will distribute the settlement using a complex formula that grants more to investors who did not know their money had been pumped into Madoff’s scheme.

Merkin’s attorney, Andrew Levander, did not immediately respond to a Reuters request for comment, while the wire service also reported that a spokeswoman for Schneiderman could not be reached before publication.

The New York Attorney General’s office filed the civil fraud suit against Merkin in 2009, accusing the hedge fund manager of “recklessly” feeding about $US2.4 billion in investor funds into Madoff’s Ponzi scheme while claiming he was actively managing the money.

Madoff pleaded guilt to fraud in March 2009 and is serving a 150-year prison sentence. Merkin was forced to quit his role as non-executive chairman of General Motors’ financing arm GMAC LLC following the Madoff scandal.

According to Reuters, the Merkin settlement does not affect a separate case that the trustee seeking money for all Madoff’s victims, Irving Picard, has brought against the hedge fund manager. Picard is seeking to recover $US500 million Merkin and his funds withdrew from accounts with Madoff.

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