Legal News

Rounding up Madoff: The 17th Floor, A Poor Employee and JPMorgan

By Dan Slater

Lots of interesting tidbits on the Madoff front. Here’s a round-up:

A look at the 17th floor: Today, the Journal yanks up the blinds on Bernie Madoff’s investment-advisory business, which was housed on the 17th floor of midtown Manhattan’s Lipstick Building. Several of the employees from that group have received subpoenas from regulators seeking documents about their dealings with defrauded investors, though no evidence has emerged that these employees knew about a $50 billion Ponzi scheme.


On the hook for a Benz: Craig Kugel, a human resources employee at Madoff’s firm who wasn’t involved in the alleged fraud scheme could be on the hook for the remaining lease payments on a Benz used by Madoff.

Dow Jones Newswires (link unavailable) reports that, in a Wednesday court filing, William A. Gogel, a lawyer for Kugel, said Kugel never intended to be a personal guarantor for a lease taken out on a 2009 Mercedes-Benz S550-4 sedan, but executed the lease as an accommodation to the company. Kugel works in human resources at Bernard L. Madoff Investment Securities LLC. As we noted last week, Irving Picard, the trustee in the Madoff case, asked a federal judge to cancel leases the firm had on six luxury cars, including the S550-4.

Mercedes-Benz Financial reportedly intends to sell the car next month. But Gogel said in his filing that the wholesale sale of the car will minimize the proceeds, “creating a substantial deficiency, subjecting Craig Kugel to financial loss and impairment of his credit.”


Why did JPMorgan cut its exposure to Madoff? Some angry European investors, reports the NYT, want to know when JPMorgan cut its exposure to Madoff — and why. As early as 2006, the bank had started offering investors a way to leverage their bets on the future performance of two hedge funds that invested with Madoff. To protect itself from the resulting risk, the bank put $250 million of its own money into those funds. But the bank, reports the Times, suddenly began pulling its millions out of those funds in early autumn, months before Madoff was arrested. The bank did not notify investors of its move, and several of them are furious that it protected itself but left them holding notes that the bank itself now says are probably worthless.

A bank spokeswoman said JPMorgan withdrew from the Madoff-linked funds last fall after “a wide-ranging review of our hedge fund exposure.” Lemkau acknowledged, however, that the bank also “became concerned about the lack of transparency to some questions we posed as part of our review.”

Loyal LB’ers: Should the bank have notified investors of its concerns?

Full post as published by Law Blog - WSJ.com on January 29, 2009 (boomark / email).