Madoff 'Feeder' Merkin: Clients Knew About Investments

J. Ezra Merkin, a former New York hedge-fund manager who is under fire for steering billions of dollars of his clients' money to Bernard Madoff, said in a Wednesday court filing that his clients were aware their money was being invested with Madoff, contrary to allegations made against him by a regulator.

In a lawsuit filed in April, New York Attorney General Andrew Cuomo alleged that Merkin "typically did not disclose, and actively obscured" that Madoff was managing some or all of his clients' money, though the suit didn't disclose the clients' names.

Cuomo's complaint alleged about 85% of investors in Merkin's Ascot fund, for example, didn't know their money was flowing largely to Madoff. Funds run by Merkin, the former chairman of GMAC Corp., reported a $2.4 billion paper loss from the Madoff fraud, including $1.8 billion from Ascot.

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On Wednesday, Merkin asked a judge to dismiss Cuomo's complaint. Merkin filed documents with that court that he says show some clients of his funds and financial advisers had knowledge of the Madoff connection. Among them: Yeshiva University, where both Messrs. Merkin and Madoff were board members; Solaris Group, which was a financial adviser to at least one Merkin investor; and Union Bancaire Privée, or UBP, the biggest investor in Ascot.

However, a spokesman for Solaris, which was a financial adviser to New York Law School, said Merkin told the firm he himself was actively managing the school's money.

Merkin said he helped arrange for some clients, including Yeshiva and UBP, to meet with Madoff to conduct their own due diligence. In the fourth quarter of 2008, Merkin says he arranged for a four-person team from UBP to inspect Madoff's operations. The fraud was publicly disclosed a short time later, on Dec. 11.

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