Investment Firm Pays $2.5M to Settle Allegations It Defrauded Madoff Victim Fund

The Department of Justice has settled a lawsuit against an Austin, Texas-based investment firm that allegedly fraudulently obtained payments from the Madoff Victim Fund.

Fulcrum Capital Partners, which specializes in trading distressed assets, allegedly purchased recovery rights from Madoff fraud victims who had submitted claims to the MVF, according to charges filed by the U.S. Attorney’s Office for the Southern District of New York.

The firm allegedly violated the False Claims Act when it required the Madoff fraud victims to hide the transactions from the fund, as this caused the fund to make inflated payouts to the victims, who then gave the money to Fulcrum.

“Fulcrum is a claim-buying financial firm that never lost a penny from Madoff’s conduct,” Madoff Victim Fund Special Master Richard Breeden said in a release. “After secretively buying claims from real victims, Fulcrum caused others to conceal information from the Madoff Victim Fund with the objective of gaining greater payments for itself.”

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According to SDNY attorneys, Fulcrum bought shares in a Luxembourg-based Madoff Securities feeder fund whose underlying investors incurred losses from Madoff’s fraud. From 2014 to 2019, Fulcrum acquired shares in the feeder fund, as well as Madoff-related recovery rights from three investor groups based in France and Italy.

A Fulcrum spokesperson said: “Fulcrum fulfilled a critical need for victims of Mr. Madoff’s fraud by providing immediate compensation for claims. We concluded that resolving this dispute to avoid the expense and distraction of ongoing litigation was in the best interests of Fulcrum and our limited partners, and we are glad to put this matter behind us and look toward the future. We remain focused on providing liquidity and superior execution services in distressed and special situation markets worldwide.”

The investor groups had previously filed claims with the MVF seeking remission payments for losses they claimed to have suffered from their investments in Madoff Securities through the feeder fund. SDNY attorneys said Fulcrum was aware that the MVF requires all claimants to disclose collateral recoveries received from any other source, including proceeds from the sale of recovery rights. However, the firm allegedly instructed the investor groups not to disclose the payments they had received from Fulcrum.

SDNY attorneys said that because the MVF was required to reduce the claimants’ remission payments by the amount of their collateral recoveries, hiding the payments meant the MVF made inflated remission payments to the claimants, who transferred the money to Fulcrum.

“Fulcrum obtained a fraudulent windfall from the MVF by purchasing recovery rights from Madoff fraud victims, then compelling them to conceal the sales proceeds from the MVF and transfer the resulting inflated MVF payments to Fulcrum,” U.S. Attorney Damian Williams said in a release. “This office will not tolerate lying to the MVF and will continue to pursue and hold accountable those who would use deceptive practices to obtain MVF funds.”

Under the settlement, Fulcrum will pay more than $2.5 million to the U.S., and it has admitted making factual misstatements regarding its conduct, including that it caused inaccurate statements to be submitted to the MVF and that it received amounts from the fund to which it was not entitled.

In 2013, the Department of Justice created the MVF to distribute to victims of the Madoff fraud certain of the forfeited funds through a remission process. The U.S. Attorney’s Office for the Southern District of New York has so far recovered more than $9 billion related to Madoff’s fraud through civil and criminal asset forfeitures.