(WKBW release) New York Attorney General Eric T. Schneiderman on Tuesday announced a settlement of over $210 million with the Ivy Asset Management, LLC, a Bank of New York Mellon subsidiary that advised clients to invest with Bernard Madoff.
According to a news release from Schneiderman's office:
The settlement concludes lawsuits against Ivy by the Attorney General, the United States Department of Labor, and private plaintiffs, and provides for the payment of $210 million by the firm and approximately $9 million by other defendants. When added to future amounts Madoff investors anticipate receiving from the Madoff bankruptcy proceeding, today's settlement is expected to return all or nearly all the original investment to those defrauded by the Ponzi scheme in this case.
“Today’s settlement brings accountability for one of the worst financial frauds in American history, and justice to defrauded investors. We have recovered over $210 million for the victims who were harmed as a result of the world’s most notorious Ponzi scheme,” said Attorney General Schneiderman. “Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients. An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses."
Between 1998 and 2008, Ivy was paid over $40 million to give advice and conduct due diligence for clients with large Madoff investments. Ivy's due diligence revealed that Madoff was not investing his funds as advertised. For example, Madoff's advertised strategy required him to buy and sell massive amounts of options in securities, but Ivy learned that there were insufficient options traded to support Madoff's purported trading strategy. When questioned, Madoff gave Ivy three vastly different explanations to explain the options problem, all of which Ivy knew to be false.
Internal Ivy documents reveal the firm’s deep but undisclosed reservations about Madoff. One email from an Ivy principal to his subordinate stated: "Ah, Madoff, you omitted one possibility - he’s a fraud!"
Despite its reservations, Ivy did not disclose its suspicions to clients for fear of losing the fees Ivy received through the Madoff investments. Instead, it falsely told them that "we have no reason to believe there is anything improper in the Madoff operation," and that Ivy's only concern about Madoff was the difficulty of managing the enormous pool of assets he had under management.
As a result of Ivy's deception and violation of its fiduciary duty, Ivy’s clients lost over $236 million after Madoff’s Ponzi scheme collapsed. Among the victims were hundreds of individual investors as well as dozens of New York union pension and welfare plans.
In 2010, the Office of Attorney General filed a complaint charging Ivy with violations of the Martin Act (General Business Law § 352) for fraudulent conduct in connection with the sale of securities; Executive Law § 63(12) for persistent fraud in the conduct of business; and breach of fiduciary duty. The lawsuit sought payment of restitution and damages, and disgorgement of all fees that Ivy received.
“The settlement agreement we’re announcing today provides a measure of justice for those Americans who worked hard to prepare for their retirement and then saw hoped-for stability disappear,” said Secretary of Labor Hilda L. Solis. “My department is committed to ensuring that workers and retirees receive the benefits they’ve earned and deserve. If approved by the court, this settlement, combined with expected payments from the Madoff bankruptcy estate, will allow worker benefit plans impacted by Bernard Madoff’s illegal and reprehensible scheme to recover all, or nearly all, of the money they invested with him.”
Under today’s agreement, Ivy will pay $210 million, which will be used to return money to investors, and pay the fees and expenses of the Attorney General, DOL and private plaintiffs. Investors are also expected to receive substantial additional payments at a future date from moneys recovered by Irving Picard, the SIPC Trustee for the liquidation of Madoff’s estate. Today's settlement, along with money received from Picard, is expected to compensate defrauded investors for all or nearly all of the money they invested with Madoff.