A hedge fund manager who invested billions of dollars of his clients' money with Wall Street swindler Bernard Madoff has agreed to relinquish control of his funds to court-appointed trustees in New York City.
The agreement between money manager J. Ezra Merkin and state Attorney General Andrew Cuomo is expected to be approved by a judge on Thursday.
Cuomo has accused Merkin of convincing clients he was managing their money when he was actually funneling $2.4 billion to Madoff's Ponzi scheme. Merkin's lawyer has said the investors knew exactly where their money was going.
Trustee Irving Picard already has filed several lawsuits in bankruptcy court in Manhattan to try to force other hedge funds and other large investors to return $10.1 billion in fictitious profits paid by Madoff's firm, alleging they should have known about the fraud.There were 8,848 claims from customers alleging losses, as of last week.
"I have a duty to investigate and to go to court to recover from persons and entities who received more than their share," Picard said last week. "In actual fact, persons who are subject to these recovery efforts actually received money stolen from others."
Stephen Harbeck, head of Securities Investor Protection Corp. or SIPC, also vowed to get tough with anyone else in on the scheme, including Madoff family members.
"Wrongdoers should pay for their wrongdoing," said Harbeck, who's working with Picard.
In court filings, Picard has alleged that Madoff's inner circle -- his wife, two sons, brother and key employees -- wantonly used investor money to fuel a lavish lifestyle. Madoff has claimed the others were in the dark, and their lawyers also have denied that they were complicit.
Madoff, 70, pleaded guilty in March to charges his secretive investment advisory operation was a massive Ponzi scheme -- what Picard called "the largest and most complex securities fraud in history." Merkin does not face any criminal charges.
In his plea, Madoff admitted that he never invested the billions of dollars given to him by thousands of clients. Instead, he used the money from new investors to pay returns to existing clients.
The investors were told in phony statements from last November that their accounts had grown to nearly $65 billion. Picard said last week that so far he has only identified about $1 billion in assets that can be used to help cover claims.
