Legal News

NY Law School Races to Court, Sues Merkin Over Madoff Investments

By Dan Slater

Ehud Olmert, center, stands between former Israeli Prime Minister Ariel Sharon, left, and Ezra Merkin, managing partner of Gabriel Capital Group as the sale of Israel’s Leumi Bank to the U.S. investment firm is completed, Jan. 4, 2006. (AP/Eliana Aponte)

Mom and pop investors, European and Asian banks, real estate magnates, sports team owners and high profile charities. Just about everyone seems to have been victimized by Bernie Madoff’s alleged massive Ponzi scheme. Now add a law school to the list.

New York Law School filed an investor lawsuit yesterday against J. Ezra Merkin, chairman of lender GMAC Financial Services, one of his funds — Ascot Partners — and its auditor over investments made through Bernard L. Madoff Investment Securities LLC. Here’s a story from DJ Newswires, and here’s the suit.

The suit, filed in U.S. District Court in Manhattan, alleges recklessness, gross negligence and breach of fiduciary duties by Merkin, who also heads money-management firm Gabriel Partners, Ascot Partners (the fund), and its auditor, BDO Seidman LLP. New York Law School, through its endowment entity, invested $3 million in Ascot in 2006 and the investment is now worthless, according to the suit. The complaint alleges Merkin abdicated his responsibilities by entrusting substantially all of its assets - $1.8 billion - to the Madoff firm and that Seidman failed to recognize “red flags” at the Madoff firm.

In a statement, BDO Seidman said its “audits of Ascot Partners conformed to all professional standards and we will vigorously defend ourselves against these unfounded allegations.” BDO Seidman noted it “is not and has never been” the auditor for the Madoff firm. A spokesman for Ascot Partners didn’t immediately return a call seeking comment.

“Mr. Merkin and his family are personally among the largest victims of the massive fraud confessed by Bernard Madoff,” said Dechert’s Andrew J. Levander, a lawyer for Merkin. “Like the other victims and the entire financial community, Mr. Merkin is shocked by these events. He intends to defend the lawsuit vigorously while seeking redress for himself and his investors from whoever perpetrated this fraud.”

New York Law School is being repped by Abbey Spanier Rod & Abrams LLP.

Separately, in a second lawsuit, Scott Berrie, an investor in Gabriel Partners, another investment partnership managed by Merkin, is suing Gabriel and BDO Seidman, the auditor, for alleged securities fraud and negligence.

Full post as published by Law Blog - WSJ.com on December 17, 2008 (boomark / email).