MassMutual entity loses all client funds to Madoff

A hedge fund group owned by Massachusetts Mutual Life Insurance Co. of Springfield has lost all of its clients' money--more than $3 billion--to Bernard L. Madoff, the New York trader who confessed last week to losing $50 billion of his clients' funds in a Ponzi scheme.

The hedge fund group, Rye Investment Management, had retained Madoff as the sole investor of its funds, which had $3.5 billion in assets in April. Rye is a division of MassMutual's Tremont Group Holdings Inc., in Rye, N.Y., which places wealthy clients and institutions, such as pension funds, into hedge funds and with exclusive investors such as Madoff.

"Needless to say, our level of anger and dismay over the apparent betrayal by Mr. Madoff and his organization of his 14-year relationship with Tremont is immeasurable," Rye Investment management said in a letter to clients on Friday. The firm said it had hired the high-powered New York law firm Skadden, Arps, Slate, Meagher & Flom to represent it.

Tremont officials confirmed the losses but declined to otherwise comment.

MassMutual, a Springfield-based life insurer with $500 billion in assets, said the losses won't affect its overall financial standing. The company owns several investment entities, including the OppenheimerFunds, a mutual fund group. Rye made up about half of Tremont's total assets of $6 billion, according to spokesmen for the companies. The Massachusetts Division of Insurance, which regulates MassMutual, did not respond to a request for comment.

Rye was one of many so-called "feeder" funds that directed assets to Madoff, a former Nasdaq Stock Market chairman who made his name as an active trader in stocks and options. Madoff drew elite investors from New York and Boston to Palm Beach, Fla., and eventually from around the world, with his steady double-digit returns delivered for decades.

Even this year, amid the stock market's worst performance since the Great Depression, Madoff was telling investors they were making money. Through Nov. 30, investors in the Rye Select Broad Market Fund were told they had earned 8.26 percent, according to an investor statement obtained by the Globe.

One investor described Rye as a back door way to get into Madoff's firm, which had built up a mystique by making it difficult to get in. The minimum investment to get into the Rye Select Broad Market Fund, for example, was $500,000, less than the $1 million minimum that direct investors of Madoff's had to recently meet. Rye earned a 1 percent management fee from investors for this access, according to a fund document.