NEW YORK -- The court-appointed trustee hunting for money to pay investors who lost billions of dollars in Bernard Madoff's Ponzi scheme is demanding $3.6 billion from more than two dozen entities and individuals that he says "deepened the pain" of Madoff's investors by enabling him to operate his fraud for at least two decades.
Trustee Irving Picard filed papers in U.S. Bankruptcy Court in Manhattan late Tuesday against the Fairfield Greenwich Group, two dozen affiliates and its founding partners, among others, saying they represented nearly half of Madoff's billions of dollars of reported assets under management.
The recasting of a lawsuit first filed in May 2009 against three Fairfield Greenwich funds that are now being liquidated cast the widest net yet across financial entities and individuals that Picard insists had to know something was seriously wrong as the years passed and Madoff consistently hit financial targets no one else could reach.
The lawsuit said the defendants had "actual and constructive knowledge of Madoff's fraud and cannot deny their knowledge of many `red flags' indicating the likelihood of that fraud."
"The defendants were not victims. They were enablers. They were facilitators. They deepened the pain of Madoff's customers and their own investors. The effect of their actions was a catastrophic continuation of the Ponzi scheme," the lawsuit said.
Fairfield Greenwich in a statement said the lawsuit is filled with "false, misleading and rehashed accusations."
"We find it incomprehensible that it would be filed while Fairfield Greenwich is in the midst of constructive, good-faith negotiations with the trustee and other parties," the company said.
"We are outraged that Mr. Picard has chosen to characterize a number of so-called `red flags' -- warning signals apparent only in hindsight -- as evidence that Fairfield Greenwich participated in the Madoff fraud. We reject absolutely the allegation that Fairfield Greenwich or any of its executives or employees was aware of the fraud or in any way abetted it," the statement said.
The statement added that Fairfield Greenwich was victimized like other investment firms and was disappointed that Picard "grossly understated the extent to which Fairfield Greenwich principals invested alongside their clients and suffered more than $70 million dollars of losses in the Madoff fraud."
Picard said in the court papers that the defendants had an "extraordinary and lucrative" deal with Madoff that allowed them to receive more than a billion dollars in fees for selling a fund "that had returns that were so consistently positive, they were seemingly impossible."
The lawsuit said the defendants for years "looked away when faced with repeated signs that Madoff's operations and performance could not be legitimate. The reason was simple: Greed."
Madoff's scheme collapsed in December 2008 when he confessed to his sons and later to the FBI that his private investment business was a fraud. Although Madoff had sent statements to investors in November 2008 saying they had as much as $65 billion in assets, only a few hundred million dollars remained.
Madoff, 72, pleaded guilty to fraud charges and was sentenced last year to 150 years in prison.
In the lawsuit, Picard updated the scope of the fraud, saying it now appears there were more than 8,000 customer accounts in Madoff's private investment business over the life of the scheme. The lawsuit said it had also been determined that investors had already lost about $20 billion in principal when the scheme was exposed.