The Work
January 12, 2009 1:09 PM
Weekend at Bernie's: Judge Rules Madoff Didn't Violate Bail Terms
Posted by Brian Baxter
UPDATE: This post has been updated after the sixth paragraph with more developments from Bernie Madoff's world.
A federal judge in Manhattan has ruled that Bernard Madoff did not violate the terms of his bail when he mailed more than $1 million in watches and jewelry to friends and family members last month, according to our colleagues at The New York Law Journal, a sibling publication of The Am Law Daily.
The 22-page ruling by U.S. magistrate judge Ronald Ellis allows Madoff to remain under house arrest in his Upper East Side apartment, where the disgraced investment manager's presence will presumably continue to inconvenience his well-heeled neighbors.
According to the NYLJ's Mark Hamblett, Judge Ellis ruled that prosecutors had failed to convince him that Madoff was a flight risk or presented a danger to the community.
But Ellis's ruling will require Madoff to conduct a complete inventory of his home while a government-approved security firm has been charged with searching "all outgoing physical mail to ensure that no property has been transferred."
The assets of Madoff's wife, Ruth, will also be frozen, and an ordered issued by U.S. district court judge Louis Stanton in a related SEC action will be folded into the terms of Madoff's bail conditions.
Speaking of the SEC, the agency continues to take a beating for allegedly ignoring the warnings of an accountant named Harry Markopolos, a long-time Madoff whistle blower who used to work for Rampart Investment Management in Boston. (The Wall Street Journal profiled Markopolos in December and Liar's Poker author Michael Lewis and Greenlight Capital founder and author David Einhorn touted his efforts to expose Madoff in an op-ed column in The New York Times last week.)
But the Boston Globe reports that Markopolos--who titled a 2005 Madoff-related memo he sent to regulators "The World's Largest Hedge Fund is a Fraud"--isn't eager to capitalize on his newfound fame. Instead he's forwarding all interview requests to his lawyer, McCarter & English international practice group cochair Gaytri Kachroo, and telling the Globe that he's ignoring the offers for movie deals in the hope that the media furor will die down so he can resume managing his own business that investigates financial fraud.
"Harry doesn't want to be seen as reaping any kind of benefit from this, especially when so many others are reaping only losses," Kachroo told The Am Law Daily.
Kachroo, who is not a litigator, says that she's been doing work for Markopolos for the past three or four years and thus knows him probably better than any other lawyer. She says Markopolos is in negotiations with SEC Inspector General H. David Kotz and James Segel, special counsel to Barney Frank, chairman of the House Committee on Financial Services, to cooperate in their respective investigations. Markopolos is expected to testify before Congress some time in February.
One individual who can't avoid the media spotlight is hedge fund manager J. Ezra Merkin, who resigned as chairman of TARP-fund recipient GMAC on Friday. Merkin, who is being represented by Dechert litigation heavyweight Andrew Levander, has been pilloried for purportedly investing billions with Madoff without informing his hedge fund clients.
Jacob "Jake" Zamansky, the well-known investor advocate and founder of New York securities litigation firm Zamansky & Associates, told British newspaper The Guardian that he represents 10 clients that have losses "north of $10 million" due to investments in Madoff- and Merkin-managed funds.
As a result, Zamansky says he plans to file a series of civil suits in the coming days against Merkin and Madoff on behalf of investors that have lost a total of nearly $100 million.
But those investors that had the good fortune of exiting from Madoff's funds before the entire scheme came crashing down may not be so lucky after all, reports Newsweek's Mark Hosenball.
Hosenball's story looks at a the demise of a similar hedge-fund-cum-Ponzi-scheme--the collapse of the Bayou Group of hedge funds after guilty pleas to fraud charges by top executives--to show what potential "clawback claims" might look like in Madoff-related litigation. (If Bayou Group sounds familiar its likely because the firm's cofounder, Sam Israel, tried to fake his own death in June before surrendering to authorities several weeks later.)
Not surprisingly, Mitchell Banas, Jr., a name partner with Buffalo's Jaeckle Fleischmann & Mugel who represents an endowment for a Tennessee high school that's been ordered to return both principal and profits to worse-off Bayou Group investors, tells Newsweek that the clawback provision is "extremely unfair."
With that eventual process likely to unfold in bankruptcy court in Manhattan, U.S. bankruptcy judge Burton Lifland granted the trustee of Bernard L. Madoff Investment Securities--Irving Picard of Baker & Hostetler--the power to subpoena witnesses and documents in a ruling handed down on Monday.
Judge Lifland also ordered Picard to cooperate with Justice Department prosecutors and any other federal agencies investigating Madoff's firm.
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