Financier J. Ezra Merkin Talked to U.S., SEC, Cuomo

Financier J. Ezra Merkin provided testimony to state and federal regulators and prosecutors investigating the $65 billion fraud by Bernard Madoff, according to court records unsealed in a Madoff-related lawsuit.

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).

Following The Madoff Money Trail

Bernard Madoff's attorneys filed an appeal to get the convicted swindler out of jail until his June 16 sentencing date. An appeals court will hear the case next Thursday. Meantime, more financial details came to light.

Court documents show that Bernie Madoff and his wife, Ruth, are worth about $823 million.

The assets include his $7 million penthouse in Manhattan, an $11 million mansion in Palm Beach and possessions such $2.6 million in jewelry, $65,000 in silverware, a $7 million yacht named “Bull” and a $39,000 Steinway piano.

The question is how much of this goes back to Madoff’s victims when the disgraced financier is claiming some of his money is legitimate and not dirty?

Fox legal consultant Peter Johnson told John Deutzman, “It's tough to separate a criminal enterprise from a legitimate business and the burden is going to be on Bernie Madoff and his wife to show that the two are not linked.”

Johnson said, “You have to take everything he says with a grain of salt.”

Meantime, Madoff’s attorneys are trying to get him out of jail before he is officially sentenced.

Madoff’s legal team is apparently contending that their client’s financial mess is so complex that they really need to talk to him at the penthouse rather than in jail.

Johnson said, ”There's nothing so complicated about going down to the federal correctional facility and speaking to your client. They've had 3 or 4 months to speak to Mr. Madoff is what the federal government is going to say.

“I expected the court of appeals are going to say to Bernie Madoff, ‘Bernie you gotta stay in prison. I don't see any movement from the federal correctional facility from here to eternity,” he added.

After Madoff goes up the river for good it doesn't mean it's all over for his family and associates. Expect investigation after investigation and lawsuit after lawsuit from all the victims.

Madoff Jailing Prompts Cheers From Investors in Courtroom

Dozens of investors, after hearing Bernard Madoff’s admission that he ran a $65 billion Ponzi scheme in which he lied and stole for decades, applauded in federal court in New York as he was handcuffed and led to jail.

Investors filled three rows of seats in Courtroom 24B, where Madoff said he was “deeply ashamed and sorry” for defrauding individuals, charities, trusts, pensions and hedge funds. At the hearing on March 12, U.S. District Judge Denny Chin asked victims to say whether he should reject Madoff’s guilty plea to 11 counts, including fraud, perjury and money laundering.

“If we go to trial, we will show people in this struggling country and the world who look to us as the global moral leader, that we will hold all people accountable,” investor Maureen Ebel told Chin. “We can show the world that all crimes, all crimes, including crimes of greed, can be dissected, ruled upon and punished.”

Ebel and two other investors spoke to Chin before he accepted Madoff’s plea and set sentencing for June 16, when he could impose a prison term as long as 150 years. The judge then revoked Madoff’s bail and ordered him to jail, prompting U.S. marshals to handcuff him and lead him out of the courtroom. Investors applauded and one said: “Bye, bye Bernie.”

At the start of the hearing, Assistant U.S. Attorney Marc Litt detailed the legal elements of each of crime, prompting a seated Madoff to interlock his fingers and look down.

‘Look at the Victims’

Chin then invited investors to speak. George Nierenberg stood at the podium and stared at Madoff, who wore a charcoal gray suit and tie, and rimless glasses.

“I don’t know whether you had a chance to turn around and look at the victims,” said Nierenberg, who took a step toward Madoff. The judge admonished Nierenberg to remain at the podium.

Madoff, whose silver hair was swept back, finally leaned back in his chair and cast a glance in Nierenberg’s direction.

Another victim, Ronnie Sue Ambrosino, said she objected to the plea, saying the judge had a chance to “find out information as to where the money is and to find out who else may be involved in this crime.”

After Ambrosino spoke, Ebel said: “At trial we can hear and bear witness to the pain that Mr. Madoff has inflicted on the young, the old and the infirm. No man, no matter who he knows or who he is able to influence, is above the law.”

Deeply Sorry and Ashamed

The judge said that victims couldn’t talk about what effect Madoff’s crimes had upon them.

“Victims will have a chance to speak at sentencing,” Chin said.

Madoff, who was arrested Dec. 11, spoke for the first time about his crimes. He stood at the defense table and spent about 12 minutes reading from a double-spaced typed statement.

“I am actually grateful for this opportunity to publicly speak about my crimes, for which I am so deeply sorry and ashamed,” Madoff told a hushed courtroom. “As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal.”

Madoff described how he “deeply hurt many, many people, including the members of my family, my closest friends, business associates, and the thousands of clients who gave me money.”

At several points as he told of his deceits, Madoff blinked his eyes rapidly. Later in the hearing, he stood as Chin asked him how he pleaded to each of 11 counts filed by the U.S. Attorney’s Office in Manhattan. Madoff pressed his thumbs and fists into the defense table as he said “guilty” 11 times.

Victims’ Laughter

Chin rejected a request by defense attorney Ira Sorkin to allow Madoff to remain confined to his Manhattan apartment on $10 million bail, with a private security firm watching him. When Sorkin began to say that Madoff’s wife, Ruth, had paid for the guards with her own money, victims burst into laughter.

“Would the audience remain quiet,” Chin said.

After Madoff was led away, investors applauded. One said: “Thank you, Mr. Litt.”

Outside the courtroom, attorney Helen Chaitman, an investor who also represents 300 Madoff customers seeking to recover money, said she was glad to see him in person.

“He doesn’t have four heads,” Chaitman said. “It’s hard to imagine swindling his best friends. You can understand someone stealing from strangers. But you can’t understand someone stealing from their friends.”

Lost Millions

Several investors said they believe Madoff couldn’t have acted alone.

“I don’t think for a minute that he has any remorse,” said Bennett Goldworth. “He’s a psychopath.”

Goldworth, 52, said he invested with Madoff for about 10 years and lost 97 percent of his investment.

“I’ve lost millions,” said Goldworth, a senior vice president at the Corcoran Group, a real estate brokerage company. “I’m happy that he went to prison.”

Outside the courtroom, another investor, Adriane Biondo, said she and her family members were angry at Madoff.

“I think it’s quite appropriate that he goes to jail,” said Biondo, 41, a concert promoter from Los Angeles. She said some family members had been denied food stamps.

Asked if the guilty plea gave her a sense of vindication, she said, “I’m more interested in restitution.”

The case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).