Thursday, December 18, 2008

Mort Zuckerman on the Madoff Scandal

Mort Zuckerman on the Madoff Scandal

As if the housing crisis, liquidity freeze, deepening recession, and prospect of deflation weren't enough, now we have the Madoff Affair rocking Wall Street and investors everywhere. While no indictments have been handed down yet, prosecutors allege that Bernard Madoff, founder of Bernard L. Madoff Investment Securities, has orchestrated a long-running Ponzi scheme that duped investors—among them hedge funds, charities, and the rich and famous—out of billions. One big name allegedly taken to the cleaners was Mort Zuckerman, a principal of Boston Properties, proprietor of the New York Daily News and U.S. News & World Report, a political commentator, and a philanthropist who was on BusinessWeek's recent list of most generous givers. Zuckerman says he lost none of his personal wealth, but a chunk of the assets in a charity he controlled was invested with Ascot Partners, a hedge fund run by J. Ezra Merkin, managing partner of Gabriel Capital Group and chairman of GMAC Financial Services. Zuckerman said he got a letter from Ascot last week saying almost all its assets had been invested with Madoff and were presumed lost. At least one suit against Ascot has already been filed in federal court in Manhattan, according to news reports, and when I talked with Zuckerman on Dec. 16, he said he, too, would be going after Ascot. In an e-mail, Merkin's lawyer, Andrew Levander of the Dechert law firm, said: "The offering Memorandum for Ascot expressly named Madoff Securities as a prime broker for the fund in several places and accurately described Ascot's trading strategy. Moreover, Mr. Merkin regularly consulted with Mr. Madoff about the trades he was supposedly executing for Ascot, and Mr. Merkin's management team contemporaneously reviewed the trading tickets provided by Madoff Securities. To our horror, it now appears that those discussions and those trade tickets were a sham."


What's the impact of the Madoff scandal on your charitable trust?


Well, about $30 million, or about 10%, was invested in the Ascot fund, which had somewhere around $1.8 billion [under management]. To my astonishment, the fund manager put the entire amount into Mr. Madoff's hands. I had no idea of this. I never knew Mr. Madoff, never heard of him, and then last Friday I get the notice that the entire fund has been lost because of Mr. Madoff's activities. So, obviously, it's going to affect the ability of this [charity] to do more things. Thirty million is a lot of money that I intended to spend for the welfare of others.

With that kind of money, you trusted somebody you knew, right? Was that someone Ezra Merkin?


What has been his response about giving the money to Madoff?

Oh, he has not given anybody a satisfactory response. I had a conversation with him, and I don't want to go into it.

I understand. So…

And nobody knew that he was doing it. I mean, there are dozens and dozens of people who…thought they were investing in a multiple and diverse group of funds. If you were going to invest all this money in another fund, it seems to me you should have told everybody that you were doing this so that they could decide whether or not that person was the person with whom they wanted to invest.

  • Mutual Funds: Know Where the Risks Lie
  • Mutual Funds: Know Where the Risks Lie
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