Legal News

With Suit, Picard Officially Launches Merkin Clawback

By Ashby Jones

This just in, from the WSJ’s Amir Efrati:

Irv Picard, the trustee of Bernie Madoff's defunct investment firm earlier Thursday sued financier and former GMAC Chairman J. Ezra Merkin (pictured), asking for the return of about $558 million that Merkin withdrew from Madoff's firm.

Merkin, who ran several investment firms that channeled client money to Madoff's firm, "knew or should have known" that Madoff was engaged in fraud, according to the complaint, filed in Manhattan federal bankruptcy court.

Even if Picard, of Baker & Hostetler, wins the lawsuit, he may have trouble collecting much of that amount because much of it has already been distributed to Merkin's clients. If Merkin's clients, which ranged from wealthy individuals to charities and universities, had no knowledge of the Madoff fraud, Picard couldn't seek to grab the funds they withdrew, according to lawyers familiar with the case.

In the complaint, Picard said that as a sophisticated fund manager, Merkin should have noticed the myriad warning signs that could have indicated Madoff was engaged in fraud, including the fact that a small, storefront accounting firm was Madoff's auditor and that purported trades made by Madoff, which were listed in account statements sent to Merkin, could never have taken place.

Merkin’s got his hands full. Last month, New York AG Andrew Cuomo sued Merkin, claiming Click here for that lawsuit.

A call to Merkin’s lawyer, Dechert’s bow-tie lovin’ Andrew Levander, was not immediately returned.

Full post as published by Law Blog - WSJ.com on May 07, 2009 (boomark / email).