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Merkin to cede control of hedge funds

Associated Press / May 20, 2009
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NEW YORK - J. Ezra Merkin, the hedge fund manager who invested billions of dollars of his clients' money with Wall Street swindler Bernard Madoff, has agreed to relinquish control of his funds to court-appointed trustees.

The attorney general's office had requested the turnover agreement in connection with its civil fraud lawsuit accusing Merkin of convincing clients he was managing their money when he was actually funneling $2.4 billion to Madoff's Ponzi scheme.

The deal, which was discussed in court yesterday and was expected to be approved by a judge tomorrow, is not a settlement in the case, the attorney general's office said.

Lawyer Andrew Levander said in a statement the handover was part of Merkin's "continuing efforts to maximize the returns to investors" and "provide certainty and stability during the previously announced wind-down of the Ariel and Gabriel Funds."

Those funds are to be handed over to Guidepost Partners LLC, while Merkin's Ascot Partners fund is to be placed under the control of David Pitofsky, a litigation lawyer who was once a corporate fraud investigator for the federal prosecutor's office in New York. The two court-appointed trustees are expected to oversee the funds' eventual liquidation.

Lawyer Harry Susman, who has sued Merkin on behalf of a number of investors in the Ascot and Gabriel funds, called yesterday's agreement "welcome news for everyone."

"There's obviously a huge lack of trust," he said. "He was just giving the money to other people . . . and so you really kind of wonder what was the point of having him around in the first place."

The trustee overseeing the liquidation of Madoff's assets, Irving Picard, has said Merkin received tens of millions of dollars in management and performance fees. One Merkin investor alleged that the total surpassed $100 million.

Picard, who declined to comment on yesterday's developments, has sued Merkin and accused him of knowing Madoff was a fraud. Merkin's lawyer has contested that claim.

Levander has said Merkin was duped just like Madoff's other investors, and he has said Merkin's clients knew exactly where their money was going.