New York University, the largest private university in the U.S. by number of students, became the latest known victim of Bernard Madoff’s alleged $50 billion Ponzi scheme when it sued a fund manager over $24 million in losses.
J. Ezra Merkin, his Gabriel Capital LP fund and Ariel Fund Ltd. invested NYU’s money with Madoff without telling investors or proper due diligence, according to a complaint filed yesterday in New York state court in Manhattan. NYU, which said it had $94 million invested in Ariel, alleged Merkin made all the investment and executive decisions for the fund.
When Merkin “proposed investing the university’s money with Mr. Madoff without telling us he had already done so, he was explicitly told this was not a proper investment vehicle,” NYU spokesman John Beckman said in a statement. Merkin didn’t “exercise reasonable judgment in investing NYU’s money.”
The claim adds NYU to a growing list of alleged victims of Madoff, including Liliane Bettencourt, the world’s wealthiest woman and the daughter of L’Oreal SA founder Eugene Schueller; Spanish billionaire Alicia Koplowitz; U.S. filmmaker Steven Spielberg; Nobel laureate Elie Wiesel; and Yeshiva University.
Madoff, 70, was arrested Dec. 11 at his Manhattan home after allegedly confessing to his sons that his business was a “giant Ponzi scheme” that may have cost investors $50 billion, according to an FBI complaint. Madoff has been charged by federal prosecutors with one count of securities fraud and faces as much as 10 years in prison if convicted. Clients of Madoff had about $36 billion with his firm, according to a Bloomberg tally that may include some double counting.
The Fallout
Since Madoff’s arrest, the fallout from the alleged fraud continues to spread. New York-based money manager Thierry Magon de La Villehuchet, who may have lost $1.4 billion of client funds invested with Madoff, was found dead in his Manhattan office on Dec. 23 in what police said was an apparent suicide.
The New York City Medical Examiner said yesterday it had completed an autopsy of De La Villehuchet, a co-founder and chief executive officer of Access International Advisors, and results will be returned next week.
Bettencourt, the L’Oreal heiress, invested part of her $22.9 billion fortune with Madoff through De La Villehuchet, according to two people familiar with the matter.
And Fairfield Greenwich Group, a hedge-fund firm that had $7.5 billion invested with Madoff, has been sued for allegedly failing to protect its clients’ assets.
$1.5 Billion Fund
Gabriel Capital, a $1.5 billion fund, plans to liquidate due to Madoff losses, Merkin said in a Dec. 18 investor letter. The fund lost 39 percent this year through Nov. 30, mirroring the drop in the S&P 500 Index. Merkin told Ariel investors it also plans to wind down in light of the losses from the Madoff fraud, according to the NYU lawsuit.
New York State Supreme Court Justice Herman Cahn in Manhattan yesterday issued a temporary restraining order barring Merkin “from taking any action to liquidate Ariel” prior to a Jan. 6 hearing before Justice Richard Lowe. Cahn is also prohibiting Merkin from taking any action to move assets of Ariel or Gabriel or to destroy any Madoff-related documents, according to the order.
Cahn’s order “will have no impact on the previously announced plans for Ariel Fund” to wind down, Merkin’s lawyer, Andrew Levander, said in a statement. “It is significant that the court rejected NYU’s request to prevent Ariel Fund from selling assets as part of its wind-down process, and we expect that process to continue.”
Yeshiva University
Merkin, the chairman of GMAC LLC, the finance arm of General Motors Corp. that is 51 percent owned by Cerberus Capital Management LLC, was also blamed by Yeshiva University for losses. The school alleged it lost about $110 million in investments tied to Madoff, most through Merkin’s Ascot Partners LP fund.
Merkin resigned as a school trustee and as its investment chairman on Dec. 12. Madoff was also a trustee. Additionally, Tufts University said last week that it lost $20 million, or less than 2 percent of its endowment, from investments through Ascot.
New York Law School sued Merkin and Ascot last week for investing in funds run by Madoff. That suit, filed in Manhattan federal court, seeks class action, or group, status on behalf of other Ascot investors. The law school allegedly had $3 million invested in Ascot.
In another lawsuit filed yesterday in Manhattan federal court, Family Management Corp. and Chief Executive Officer Seymour Zises were accused of fraud for allegedly investing most of the fund’s assets with Madoff, after claiming that no more than 35 percent of assets “would be allocated to any one investment vehicle,” according to the complaint. As of May 31, Family Management had about $1.3 billion under management, according to the complaint.
$610,000 Invested
The investor who sued, David Newman, alleged he had $610,000 invested in Zises’s New York-based fund. The suit also seeks class action status and unspecified damages. Zises declined to comment.
District Attorney Thomas Zugibe of Rockland County, New York, who had been probing Madoff’s auditors, said yesterday he had suspended his investigation of accountant David Friehling, leaving the matter to the U.S. attorney in Manhattan. Friehling & Horowitz operated out of a 550-square-foot space in New City, a northern suburb of New York City in Rockland County.
Madoff, who hasn’t formally responded to a securities fraud charge against him, is due to return to court Jan. 12, unless prosecutors indict him before then. Prosecutors and defense lawyers may also agree to postpone the court date.
In a Dec. 18 interview, Sorkin said Madoff’s company is �cooperating fully with the government. Madoff met with prosecutors earlier this month, according to people familiar with the case.
The cases are New York University v. Ariel Fund Ltd., 08- 8603803, New York State Supreme Court (Manhattan), and Newman v. Family Management, 08-cv-11215, U.S. District Court for the Southern District of New York (Manhattan).
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