New York Attorney General Andrew Cuomo is investigating whether a hedge fund operator who lost big in the Bernard Madoff scandal misled schools and charities about how he invested their money.
A person familiar with the probe said authorities have subpoenaed records from three investment funds run by J. Ezra Merkin, who stepped down last week as chairman of GMAC Financial Services LLC, the financing arm of General Motors Corp.
Merkin has also been subpoenaed, said the individual, who spoke on condition of anonymity because of the sensitivity of the investigation. The attorney general has additionally asked 15 nonprofit entities with ties to the financier to turn over records and other information.
Merkin’s lawyer, Andrew Levander, said through a spokesman that his client would “fully cooperate.”
Cuomo has declined to discuss the probe in detail, but said publicly earlier this week that “We are looking at frauds in charities and people who defrauded” them. He didn’t mention Merkin by name.
Investors in hedge funds run by Merkin’s Gabriel Capital LP have complained that he never told them he was turning over their money to Madoff, his longtime friend. Madoff has confessed to losing up to $50 billion in a giant Ponzi scheme and is under house arrest.
Merkin’s key fund, Ascot Partners LP, had invested almost all of its assets with Madoff. The fund was worth $1.8 billion on paper last year.
In addition to the subpoenas, Gabriel, Ascot, and Merkin’s Ariel Management Corp., already face a string of lawsuits from investors who say they were misled.
The organizations subpoenaed for records include Yeshiva University, New York Law School, the United Jewish Appeal-Federation of New York, Carnegie Hall, the Rabbi Isaac Elchanan Theological Seminary and Bard College’s Levy Economic Institute.
Not all of the 15 organizations lost money with Madoff, but many had been advised on investments by Merkin, who was involved in many philanthropic causes.
Merkin has emerged as one of the biggest losers in the scandal. He and Madoff had served together on the board of Yeshiva University, which was among those that invested in Ascot Partners and got burned.
Among other things, state investigators are seeking information about what Merkin told investigators about how he was managing their money, and whether he disclosed that Madoff would be involved.
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