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Trustee sues Fairfield Greenwich funds for $3.54b

By Erik Larson
Bloomberg News / May 19, 2009
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NEW YORK - The trustee liquidating Bernard Madoff's defunct money-management firm sued three Fairfield Greenwich Group hedge funds, seeking the return of $3.54 billion withdrawn before Madoff's massive fraud unraveled.

The trustee, Irving Picard, filed the so-called clawback lawsuit yesterday in federal court in Manhattan, seeking damages that would be used to repay victims of a $65 billion Ponzi scheme at Madoff's New York-based money-management firm.

Starting in 1995, the Fairfield funds invested about $4.5 billion with Bernard L. Madoff Investment Securities LLC, or BLMIS, through 242 wire transfers, Picard said in the complaint. The funds are Fairfield Sentry Ltd., Greenwich Sentry LP, and Greenwich Sentry Partners LP.

Beginning in 1996, "the defendant funds received from BLMIS unrealistically high and consistent annual returns," Picard said in the complaint. "Defendants knew or should have known that BLMIS was engaged in fraud based on these facts."

The hedge funds withdrew $3.2 billion from Madoff accounts in the six-year period before Madoff's Dec. 11 arrest, including $1.2 billion withdrawn in the final three months of the fraud, according to the complaint. Picard said that amount is "avoidable and recoverable" under US bankruptcy law.

Fairfield Greenwich, one of the hardest-hit firms in the Madoff fraud, with $7.5 billion invested, has been sued by several investors over its Madoff-related losses.

Seth Faison, a spokesman for New York-based Fairfield Greenwich said the funds lost far more from the Madoff fraud than they ever redeemed. "There is no merit to this lawsuit, and it will be defended vigorously," Faison said in an e-mail.

The complaint adds to several clawback suits, seeking a total of $10.1 billion from investors Picard claims should have known of the fraud. The damages would add to as much as $1 billion of Madoff-related assets that Picard has uncovered.