Ivy Asset Management, a unit Bank of New York Mellon subsidiary that advised clients to invest with Bernard Madoff, will pay $210 million to settle fraud charges in New York.
“This settlement brings accountability for one of the worst financial frauds in American history, and justice to defrauded investors,” said New York Attorney General Eric Schneiderman. “We have recovered over $210 million for the victims who were harmed as a result of the world’s most notorious Ponzi scheme. Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients. An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses.”
The Attorney General alleged that between 1998 and 2008, Ivy was paid over $40 million to give advice and conduct due diligence for clients with large Madoff investments.
Ivy’s own due diligence revealed that Madoff was not investing his funds as advertised.
For example, Madoff’s advertised strategy required him to buy and sell massive amounts of options in securities, but Ivy learned that there were insufficient options traded to support Madoff’s purported trading strategy.
When questioned, Madoff gave Ivy three vastly different explanations to explain the options problem, all of which Ivy knew to be false.
Internal Ivy documents reveal the firm’s deep but undisclosed reservations about Madoff.
One email from an Ivy principal to his subordinate stated: “Ah, Madoff, you omitted one possibility – he’s a fraud!”
Despite its reservations, Ivy did not disclose its suspicions to clients for fear of losing the fees Ivy received through the Madoff investments.
Instead, it falsely told them that “we have no reason to believe there is anything improper in the Madoff operation,” and that Ivy’s only concern about Madoff was the difficulty of managing the enormous pool of assets he had under management.
Ivy’s clients lost over $236 million after Madoff’s Ponzi scheme collapsed. Among the victims were hundreds of individual investors as well as dozens of New York union pension and welfare plans.
Under today’s agreement, Ivy will pay $210 million, which will be used to return money to investors, and pay the fees and expenses of the Attorney General, the Department of Labor and private plaintiffs.
Investors are also expected to receive substantial additional payments at a future date from moneys recovered by Irving Picard, the SIPC Trustee for the liquidation of Madoff’s estate. Today’s settlement, along with money received from Picard, is expected to compensate defrauded investors for all or nearly all of the money they invested with Madoff.