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Madoff Trustee Files A Complaint Against The New York Attorney General

On August 1, 2012, the Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC (“BLMIS”) filed a complaint (“Complaint”) in the United States Bankruptcy Court for the Southern District of New York against Eric T. Schneiderman, as successor to Andrew M. Cuomo, Attorney General of the State of New York (“New York Attorney General”), Bart M. Schwartz as Receiver for Ariel Fund Ltd. and Gabriel Capital, L.P., David Pitofsky, as Receiver for Ascot Partners, L.P. and Ascot Fund, Ltd., J. Ezra Merkin, and Gabriel Capital Corporation (collectively referred to as Defendants) regarding a $410 million settlement between the New York Attorney General and J. Ezra Merkin. The Trustee requests that the Bankruptcy Court enforce an automatic stay to enjoin the Defendants from diminishing the assets which the Trustee seeks to recover. Ezra Merkin and Gabriel Capital Corporation (the “Merkin Defendants”) managed the Merkin Fund, which invested in BLMIS. According to the New York Attorney General’s 2009 Complaint against Merkin, investors in the Merkin Fund lost more than $1.2 billion as a result of the Merkin Fund’s involvement with BLMIS, while the Merkin Defendants collected hundreds of millions of dollars in management and incentive fees. Through the $410 million settlement, the New York Attorney General will recover substantial assets from Merkin and will distribute the settlement funds to eligible investors in the Merkin Fund so they can recover 40% of their losses. The Trustee’s Complaint asserts that the settlement “threatens the orderly administration of the BLMIS estate and seek[s] to diminish the pool of assets from which the Trustee can make equitable and pro rata distributions to victims of Madoff’s fraud.” See Complaint, page 2. Indeed, the Trustee’s Complaint alleges that the New York Attorney General had no authority to enter into such a settlement as the settlement gives “a select group [of Madoff customers] a jump-start over all of the victims of this heinous fraud . . . Every victim should be treated equally.”

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