A former employee of hedge fund manager J. Ezra Merkin claims Merkin was warned about Wall Street swindler Bernard Madoff years before losing tens of millions of dollars of investors' money in Madoff's Ponzi scheme, according to court papers unsealed Friday.
New York University filed the documents as part of its lawsuit against Merkin and his Gabriel Capital fund, which gave Madoff $24 million of the school's endowment before the massive scheme collapsed and the money was lost. The court papers were filed in response to a lawsuit by the Fox Business Network cable news channel asking the documents be unsealed.
The documents unsealed by state Supreme Court Justice Richard Lowe include e-mails by Victor Teicher, a former financial analyst and convicted felon sometimes employed by Merkin in the 1990s. They also include Merkin's sworn depositions and letters from Merkin to investors telling them how well Gabriel Capital was doing.
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The university's lawyers filed the papers in an effort to show that Merkin knew Madoff's apparent investment success was a sham and that he, too, is responsible for losses suffered by NYU and other investors.
Merkin and Gabriel also were sued by state Attorney General Andrew Cuomo, who accused them of investing $2.4 billion with Madoff without their investors' knowledge. Merkin got $470 million in fees for those investments.
Teicher said in a Feb. 9 deposition, among the papers unsealed Friday, that he warned Merkin several times in the early 1990s that Madoff's consistently high profits weren't possible year after year. The claimed profits "were inconsistent with what could possibly take place in reality," he said.
Teicher also said Merkin's former accountant Andrew Gordon reported that Madoff's investment scheme "looked like a fraud to him."
Madoff was arrested in December after confessing to his sons that his private investment business was a giant fraud.
Madoff, 70, pleaded guilty in March to charges that he ripped off thousands of investors for billions of dollars. He faces up to 150 years in prison at his sentencing in June.
Teicher, in an e-mail dated Dec. 11, 2008, told Merkin: "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."
And later Teicher wrote to Merkin, "I guess you did such a good job in fooling a lot of people that you ultimately fooled yourself."
Merkin's attorney, Andrew Levander, has said his client took all the appropriate steps to confirm Madoff's trading strategy was legitimate but was fooled by the scheme just like many others. A telephone call to the lawyer's office Friday evening was not immediately returned.
The released documents also include quarterly letters to NYU in which Merkin explained his investments and reported on how the university's finances were doing in his fund.
Teicher was indicted in 1988 on charges stemming from the Yuppie Five insider trading case, in which four Wall Street professionals and a client used information stolen from a law firm to make illegal profits. He was convicted in 1990 and was sentenced to 18 months in prison and fined $200,000.