New York's attorney general brought civil fraud charges against hedge fund operator Ezra Merkin on Monday, saying he duped investors by secretly steering $2.4 billion in client money into Bernard Madoff's Ponzi fraud without their permission.
Merkin, a financier and former chairman of the GMAC LLC finance company, was not accused of knowing about Madoff's massive fraud. But New York Attorney General Andrew Cuomo said Merkin ignored glaring red flags about Madoff's investments in an effort to reap huge fees from clients.
Merkin betrayed hundreds of investors who entrusted him with their savings, the lawsuit filed in New York State Supreme Court said.
The complaint contends Merkin was not the investing guru he claimed to be but instead was just a master marketer.
An attorney for Merkin could not immediately be reached for comment.
Madoff pleaded guilty last month to orchestrating Wall Street's biggest-ever investment fraud, a Ponzi scheme that involved as much as $65 billion in client funds over 20 years. A Ponzi scheme pays early investors through money invested by later clients.
The charges are the latest trouble for so-called feeder funds that funneled client money to Madoff to manage. Fairfield Greenwich Group, which channeled billions of dollars to Madoff, was sued last week by Massachusetts' top securities regulator for misleading customers.
Cuomo's complaint says that several prominent charities and nonprofits entrusted their investments to Merkin, who then steered client money to Madoff without their authorization. In exchange, Merkin and his funds earned $470 million in fees, Cuomo said.
Merkin profited enormously from Madoff's scheme, reaping huge commissions while investors lost all their money, Cuomo said.
(Additional reporting by Emily Chasan; Editing by Lisa Von Ahn and Brian Moss)