Law and Politics

Madoff Victims Receive Compensation

August 18, 2014
By Neal Tepel

New York – The Second Circuit Court of Appeals has ruled that Attorney General Schneiderman’s 2012 settlement with J. Ezra Merkin, who invested over $2 billion with Bernard M. Madoff on behalf of hundreds of investors, may proceed. The decision affirms a 2013 U.S. District Court ruling that denied an effort by Irving Picard, the Madoff trustee, to block the Attorney General’s Office from distributing the proceeds of the $410 million settlement directly to Madoff’s victims. The ruling means that these victims should begin receiving the money in the coming months. 

“This ruling is a victory for justice and accountability. Many New Yorkers entrusted their investments to Mr. Merkin, who then steered money to Madoff and received millions of dollars in management and incentive fees,” said Attorney General Schneiderman. “By paving the way for my office to disburse the proceeds of this $410 million settlement to the investors and charities harmed by Mr. Merkin’s actions, this ruling will help bring justice for these people and institutions that lost millions of dollars.”

In April 2009, the Office of Attorney General charged Merkin with violations of the Martin Act, General Business Law § 352; and Executive Law § 63(12) for concealing Madoff’s control of the Merkin Funds and for breaches of his fiduciary duty to manage the funds prudently. The lawsuit sought damages, disgorgement of all fees by Merkin, and injunctive relief. 

In June, 2012, A.G. Schneiderman announced a $410 million settlement with Merkin, who controlled three funds that invested over $2 billion with Bernard M. Madoff on behalf of hundreds of investors, including many New Yorkers and charitable organizations. The institutions had entrusted Merkin with their funds but, because Merkin secretly turned all of these funds over to Madoff, the investors lost most of their money as a result of Madoff’s Ponzi scheme. Irving Picard, acting as Madoff trustee, attempted to prevent the AG’s office from returning the money to the victims. Picard contended that under Bankruptcy Laws, he had priority over Merkin’s assets and that the Attorney General should be enjoined from distributing them, pending resolution of Picard’s separate claims against Merkin. The court rejected that argument.

Under the 2012 agreement secured by Attorney General Schneiderman, Merkin agreed to pay $405 million to compensate investors over a three-year period, and $5 million to the State of New York to cover fees and costs. It was the first settlement resulting from a government action against Merkin.

August 18, 2014

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