US Department of Labor Sues Investment Managers and Advisors Over Madoff Investments

(October 22) — The US Department of Labor (DoL) has sued four investment firms for allegedly failing to look into fraudster Bernard Madoff’s business dealings before entrusting him with hundreds of millions of dollars in pension fund money.

In a complaint filed Thursday in US District Court in Manhattan, Ivy Asset Management, Beacon Associates Management, JP Jeanneret Associates, Andover Associates Management and their principals are accused of violating the Employee Retirement Income Security Act (ERISA) by recommending, making, and maintaining investments with Madoff, which resulted in the loss of hundreds of millions of dollars of ERISA-covered pension plan assets. Also named in the lawsuit, brought under ERISA on behalf of union-sponsored and single-employer benefit plans, are Joel Danziger and Harris Markhoff of Beacon and Andover, Lawrence Simon and Howard Wohl of Ivy, and John Jeanneret and Paul Perry of JP Jeanneret. According to the DoL, the defendants provided advice and investment services to the plans. As relief, the suit seeks to require the defendants to restore all losses suffered by the plans, return any fees and profits improperly received as a result of plan investments with Madoff, and permanently bar them from serving in a fiduciary capacity to any plan governed by ERISA in the future.

“These defendants chose their own financial interests over those of the plans whose assets they were duty bound to manage prudently. Their actions put the future benefits of thousands of workers in jeopardy,” said Secretary of Labor Hilda L. Solis in a statement. “The defendant fiduciaries caused the plans to invest with Madoff over many years, and imprudently failed to cause the plans to divest their Madoff investments, even though the defendant fiduciaries had strong indications, suspicions and red flags of Madoff’s conduct,” the lawsuit said.

The suit claims that the defendants were irresponsible in investigating and monitoring Madoff and his purported trading, failing to examine suspected “red flags” in Madoff’s business practices. Furthermore, the suit alleges that while the defendants collected tens of millions of dollars in fees for themselves as a result of the Madoff investments, they failed to guard the plans’ interests.

Madoff, who was arrested in December 2008, is currently serving a 150-year prison sentence after he admitted to heading the largest Ponzi scheme in history. The government has auctioned or sold his multi-million-dollar homes and possessions to repay investors.

Separately, former Florida hedge fund manager Arthur Nadel, dubbed the “mini-Madoff,” was sentenced to 14 years in prison in Manhattan federal court Thursday for his Ponzi scheme that persuaded 390 investors to give him more than $330 million. Similarly to Madoff, Nadel told investors that he had consistent-double-digit returns when in reality, his trading lost money. According to Reuters, the Sarasota-based fund manager deceived investors across the United States in managing six different funds, stealing about $168 million between January 1999 and January 2009. Losses to investors were approximately $168 million.