Merkin’s cooperation with investigators was revealed in statements he made under oath in response to a lawsuit by New York University accusing him of investing university funds with Madoff without permission. Madoff pleaded guilty March 12 to running the largest Ponzi scheme in history.
Court papers released today also show that a former manager of one of Merkin’s funds told NYU lawyers that he voiced concerns about Madoff to Merkin in the early 1990s. Victor Teicher, who managed Merkin’s Ariel Fund Ltd., recalled that he “was negatively inclined” when Merkin first suggested using Madoff as a fund investment manager, according to a transcript.
Merkin gave sworn statements in connection with the university’s lawsuit on April 9, and was asked by Beth Kaswan, a lawyer for NYU, if he’d been questioned under oath in the last five years, according to court documents.
‘The Madoff Swindle’
“I have been deposed relatively lately in issues concerning, broadly speaking, the Madoff swindle,” Merkin said, according to a transcript released today.
“In what matter were you deposed?” Kaswan asked.
“By the Securities and Exchange Commission, testimony was taken by the U.S. Attorney’s Office and testimony was taken by the New York State Attorney General’s Office,” Merkin replied.
Merkin said he was questioned by prosecutors from the U.S. Attorney’s Office in Manhattan who were investigating Madoff, records show. He also said he didn’t know if it was pursuant to a federal subpoena. Asked if he testified before a federal grand jury, Merkin replied, “I don’t know enough to know but I -- I don’t know, I think the answer is no.”
Andrew Levander, Merkin’s lawyer, didn’t immediately return a voice-mail message left at his office seeking comment.
State Supreme Court Justice Richard Lowe in Manhattan said in an April 14 decision that Merkin’s deposition in the lawsuit brought by NYU could be disclosed. Lowe said releasing Merkin’s statements wouldn’t hinder Madoff-related probes.
NYU, the largest private university in the U.S. by enrollment, said in its Dec. 23 complaint it lost at least $24 million invested with Madoff by Merkin and his funds.
Media Requests
Lowe’s ruling stems from media requests to unseal the testimony of Merkin and Teicher. The university said it first learned of the Madoff-related investments on Dec. 12, a day after federal prosecutors charged the former investment manager with operating a Ponzi scheme.
E-mails that Teicher sent to Merkin after Madoff was arrested were also unsealed today, as was as copy of Teicher’s deposition taken by NYU lawyers on Feb. 9.
Teicher wrote to Merkin on the evening of Dec. 11, the day that federal prosecutors charged Madoff with securities fraud, saying: “The Madoff news is hilarious; hope you negotiate out of this mess as well as possible; I’m yours to help in any way I can; unfortunately, you’ve paid a big price for a lesson on the cost of being greedy.”
‘Fooled Yourself’
Teicher sent Merkin an e-mail at 3:03 a.m. on Dec. 13, saying, “I guess you did such a good job in fooling a lot of people that you ultimately fooled yourself. While the attached article details many of the obvious clues suggested fraud; more simply, a man’s name tells you who he is: Madoff made off.”
Merkin told NYU lawyers that Madoff started providing services to Merkin’s Ariel Fund “in the late 1980s, maybe 1990.”
He visited Madoff in the early 1990s at his offices, where Madoff told him about a new investment strategy. Merkin said that, before this meeting, Madoff provided Ariel “a form of option arbitrage,” according to a transcript.
Kaswan, the NYU lawyer, asked Merkin why he never mentioned Madoff in his fund reports. He replied, “Because Madoff was basically the strategy that we were using to provide liquidity for the portfolio. It was the liquidity adjusted return that I was interested in as much as it was the absolute return.”
Merkin was also asked if he ever questioned, in light of the market’s volatility, the steady returns which Madoff claimed.
“I have done, had done, lots of due diligence on Mr. Madoff’s trading strategy and on the returns and on the levels of volatility,” Merkin said. He added later, “We looked at Mr. Madoff’s returns and reached the conclusion that Mr. Madoff’s returns were achievable.”
‘Criminalize the Case’
Merkin said he and Teicher discussed hiring a lawyer after Madoff was arrested, according to the court documents.
“He suggested that while it was clear to him that I had nothing to do with the swindle itself,” Merkin said, “a prosecutor who wished to perhaps make a name for his or herself could possibly criminalize the case.”
Teicher was questioned by one of NYU’s lawyers, Joseph Gugliemo, about what he meant in his e-mail message to Merkin saying “you’ve paid a big price for a lesson on the cost of being greedy.”
“I meant that investing with Bernie Madoff was very, very easy in some sense; that it was -- the consistency of returns was such that it made it very appealing,” Teicher said, according to the transcript. “And that Ezra was able to raise a lot of money by virtue of investing with Madoff.”
Teicher Voiced Concerns
Teicher said voiced concerns about Madoff in 1992 or 1993, when Merkin first suggested investing with Bernard L. Madoff Investment Securities LLC and Madoff’s new “split-strike” strategy. Teicher said Merkin didn’t respond to his comments.
“I felt that that was just not possible,” Teicher said. “Because I’ve never seen anyone -- I mean, have such consistent returns. It’s possible to do 50 percent a year. In some years you do more and some years you do less, but just the nature of the business, you just can’t year in and year out have such low volatility in the returns.”
Merkin and lawyers for the funds sought to keep the testimony in the NYU case secret. Some of the testimony covered Ariel’s investment strategy and holdings, employees and advisers of the fund and personal information about Teicher and the government’s investigations into Madoff’s scheme, Lowe said. The judge kept under seal “names of investors in the fund and the investment strategy contemplated for those investors.”
Merkin Denied Wrongdoing
Merkin has denied any wrongdoing in the NYU case.
Merkin’s Gabriel Capital LP, once a $1.5 billion hedge fund, is now being liquidated after incurring losses on investments with Madoff.
New York Attorney General Andrew Cuomo sued Merkin and Gabriel Capital on April 6. In the complaint, Cuomo accused Merkin of secretly placing $2.4 billion of client funds with Madoff in exchange for $470 million in fees.
The case is New York University v. Ariel Fund Ltd., 603803/2008, New York State Supreme Court (Manhattan).
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