SAN FRANCISCO (MarketWatch) — Firms that fed client money to Bernard Madoff likely took in at least $790 million in fees over the years, said the Wall Street Journal Saturday.
The newspaper said it had reviewed lawsuits and documents that had emerged after the New York investment manager was arrested nearly four months ago.
Madoff pled guilty last month to multiple criminal charges related to a massive Ponzi scheme that he ran for at least a decade.
Investors and authorities are now trying to get some of this money back. States and groups of wiped-out investors have sued these funds in an attempt to capture some of the feeder funds’ fees. But they might not prevail. And statutes of limitations could limit recovery.
So-called feeder funds funneled more than $10 billion of investors money into Madoff’s investment firm, taking fees that could amount to 20% of profits earned. In some cases, prosecutors allege, they did not reveal to clients how much of their money was going to Madoff’s firm. And they didn’t do enough to make sure his investment operations were legitimate.
New York Attorney General Andrew Cuomo earlier this month sued financier J. Ezra Merkin, who ran feeder funds to Madoff under the Ascot name. The suit alleges the hedge fund manager directed $2.4 billion clients money to Madoff without their permission, taking in $470 million in feeds.
Massachusetts earlier this month sued Fairfield Greenwich Group, a Madoff feeder fund, for failing to do enough to spot problems with the Madoff investment firm. See related story.
Fairfield Greenwich, the largest feeder fund, may have earned at least $400 million from 2005 to 2008, according to a suit filed by Massachusetts securities regulators, said the Journal. On its Fairfield Sentry fund, the firm for many years took a management fee of 20% of profits earned by investors. Massachusetts is seeking a disgorgement of fees.
Banco Santander, one of the biggest feeder funds to Madoff, earned $52.7 million in 2007 and $43.3 million in 2006 in investment manager’s feeds from its Madoff-run Strategic U.S. Equity Series, the Journal said.
Tremont Group Holdings, another feeder fund, would have brought in $34 million in fees a year on its Rye Select Broad Market Fund LP, based on fee disclosures in fund documents. It would have brought in $23.5 million of annual fees on another fund.
View more information: https://www.marketwatch.com/story/madoff-feeder-funds-reaped-huge