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Madoff clients get $1b in deal

Settlement with MassMutual unit among largest

Bankruptcy trustee Irving Picard alleged that Tremont failed to do any meaningful review of Madoff ’s operations or purported investment results. Bankruptcy trustee Irving Picard alleged that Tremont failed to do any meaningful review of Madoff ’s operations or purported investment results.
By Beth Healy
Globe Staff / July 29, 2011

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A hedge fund group owned by Massachusetts Mutual Life Insurance Co. has agreed to pay more than $1 billion to customers of the now-imprisoned Bernard Madoff, in one of the largest settlements with the trustee in the bankruptcy case that resulted from the largest investment fraud in US history.

Under the agreement, announced yesterday, Tremont Group Holdings of Rye, N.Y., and its Rye Select family of funds will pay more than $1 billion to the fund for investors defrauded by Madoff.

The settlement is the largest yet with a bank or so-called feeder fund that directed large sums to Madoff. The trustee sued Rye and its parent companies in December 2010, seeking more than $2 billion and alleging that company executives ignored “obvious warning signs’’ that Madoff was running a fraud.

Tremont, at the time of Madoff’s arrest in December 2008, said it did nothing wrong. Tremont executives wrote in a letter to clients that the company “exercised appropriate due diligence’’ in connection with the Madoff investments. “It seems we were all victimized,’’ Tremont said.

MassMutual, a Springfield-based insurance company, has insisted since then that it had no responsibility to its hedge fund unit’s clients.

But the Madoff trustee, Irving H. Picard, disagreed. Picard alleged that Tremont failed to do any meaningful review of Madoff’s operations or purported investment results, blindly allowing Rye to turn over half its $6 billion in client assets to Madoff and losing half that money when the scheme finally collapsed.

While none of the parties admitted wrongdoing, they decided, according to a filing in US Bankruptcy Court in New York, that the risk of battling it out in court wasn’t worth it.

David J. Sheehan, a lawyer at Picard’s firm, Baker & Hostetler, said in a statement that they believe the settlement “sends a strong message that the financial community cannot deliberately ignore indicia of fraud.’’

A spokesman for Tremont Group, Montieth Illingworth, said the company was “pleased to have negotiated an agreement with the trustee that gives investors in our funds the potential to recover a substantial portion of their losses incurred as a result of Madoff’s fraud.

“We concluded that bringing this matter to a close, with proofs of claim preserved, was the best outcome for investors in our funds,’’ Illingworth said.

MassMutual spokesman Mark Cybulski said in a statement the insurer “is pleased to put this matter behind us in a manner that does not have any meaningful financial impact on the company.’’

Picard’s office said the Tremont payments come on top of $2.6 billion already in the customer fund. Another $5 billion settlement with the estate of philanthropist Jeffry Picower, which is currently under appeal, brings the trustee’s total recoveries to more than $8.6 billion. That represents nearly half of the $17.3 billion in principal that was lost in the Ponzi scheme by customers who filed claims.

Picard also recently announced a $1 billion settlement with three hedge funds linked to Fairfield Greenwich Group, the largest feeder fund to Madoff, delivering $7 billion to the Ponzi artist over the years.

Madoff’s victims had believed they had a total of $65 billion in their accounts. He is serving a 150-year prison sentence for defrauding thousands of individuals, nonprofits, and companies.

The Tremont entities were the second-largest feeder fund group to Madoff. The settlement agreement with Picard includes 12 domestic and foreign funds; Tremont’s former chief executive, Robert Schulman; Oppenheimer Acquisition Corp.; and MassMutual. Picard’s filing said the case was still outstanding as it relates to another Rye fund and Sandra Manzke, Tremont’s creator, who sold the firm to MassMutual in 2001.

The Globe reported in 2009 that when MassMutual was considering buying Tremont, a consultant warned the company that Tremont was placing too much of its clients’ funds with Madoff. The consultants, from Hennessee Group, did not suggest they knew Madoff was running a Ponzi scheme, but told MassMutual executives it wasn’t prudent to put such a large proportion of the hedge fund assets with a single investment firm.

MassMutual and Tremont have been the subject of numerous lawsuits by investors alleging that they were not sufficiently informed of the Madoff investments, or that the companies failed to adequately oversee Madoff.

Picard did allow four of the Tremont and Rye entities to submit claims for their Madoff losses. They were allowed $500,000 each from the insurance fund for brokerage fraud victims, the Securities Investor Protection Corp. That means the funds will get a total of $2 million for customers who lost money.

Picard has other lawsuits outstanding against firms he alleged knew or should have known Madoff was conducting a fraud, including Wall Street’s JP Morgan Chase & Co. and Fred Wilpon, owner of the New York Mets baseball team. In June, the trustee filed an amended complaint seeking $19 billion in damages from JP Morgan, up from the $5.4 billion previously sought.

JP Morgan has denied wrongdoing, as has Wilpon.

The Bankruptcy Court must approve the MassMutual settlement; a hearing is scheduled for Sept. 13.

Beth Healy can be reached at bhealy@globe.com.

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Key Madoff settlements to date

■ $5 billion - Philanthropist Jeffry Picower*

■ $1 billion - MassMutual and its units Tremont and Rye

■ $550 million - Boston philanthropist Carl Shapiro

*under appeal

SOURCE: Office of Irving Picard