Hedge Fund Manager Sued For Investing With Madoff

Posted on: Jun 22 2016

By Kaja Whitehouse | September 28, 2011 | New York Post

An already-bitter battle pitting disgraced hedge-fund manager Ezra Merkin and the New York attorney general just got nastier.

Lawyers for Merkin sent a letter to New York state judge Richard Lowe on Monday demanding that he toss the AG’s lawsuit, which accuses Merkin of earning a half-Billion dollars for parading as an investment guru while really just funneling the money to Ponzi King Bernie Madoff.

Merkin’s lawyers sent the letter as a result of a separate ruling by federal court judge Deborah Batts, who dismissed a class-action against Merkin earlier Monday that accused him of defrauding investors.

Batts’ decision to toss the lawsuit “is directly relevant” to the AG’s case, which was filed under Andrew Cuomo, said Merkin’s lawyer in the letter to Lowe.

Eric Schneiderman, the new AG, shot back yesterday with his own letter to Lowe, saying there’s plenty of evidence that Merkin breached his fiduciary duty to investors by not telling them that their money was being funneled to Madoff.

Schneiderman’s team cited an arbitration won by Wyckoff, NJ, pediatrician Noel Wiederhorn, who lost close to $1.5 Million with Merkin in Merkin’s Ascot fund, which was nearly 100 percent invested in Madoff.

Wiederhorn said he thought Merkin was directing the investments, and was awarded $1.75 Million from an arbitration ruling last year.

In a decision that caused an uproar among Merkin’s legal foes, Batts pooh-poohed the notion that Merkin should have told investors about his ties to Madoff. The judge pointed to language in Merkin’s offering memorandum that permitted “third-party managers.”

Batts also rejected the notion that Merkin should have heeded red flags that Madoff was a fraud, citing the schemer’s “immense reputation and deep deception.”

David Jaroslawicz, an attorney representing angry Merkin investors, said Batts’ ruling goes against common sense.

“He led the people to believe he was running the fund and making the decisions, but all he does is just turn it over to Madoff. To me, that would be like saying the dog ate my homework.”