Investment firm charged in Madoff case
Massachusetts charges feeder fund Fairfield Greenwich with misrepresenting its dealings with convicted Ponzi schemer. Fairfield denies the allegations.
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NEW YORK (CNNMoney.com) -- The Commonwealth of Massachusetts' securities division on Wednesday charged investment firm Fairfield Greenwich with fraudulently representing its dealings with convicted Ponzi mastermind Bernard Madoff.
On behalf of Massachusetts investors, the enforcement arm of the securities division accused Fairfield Greenwich of misrepresenting its lack of knowledge concerning the workings of Bernard L. Madoff Investment Securities, where the company had invested billions of dollars.
Specifically, Fairfield Greenwich had invested more than 95% of its $7.2 billion Sentry Fund with Madoff's firm, according to legal documents filed by Massachusetts Secretary William Galvin.
In these documents, Galvin accuses Fairfield Greenwich of failing to conduct due diligence concerning its Madoff investments, and improperly disclosing that information to Massachusetts investors.
The complaint is based on a "profound disparity" between the due diligence it said it would conduct compared to the due diligence that it actually conducted, read the documents.
The document stated that Fairfield Greenwich had "internal concerns about Madoff" but was nonetheless "quick to assure its clients that they had nothing to worry about when it came to Madoff."
"Fairfield's complete disregard of its fiduciary duties to its investors and its flagrant and recurring misrepresentations to its investors rises to the level of fraud," read the document, which also stated that it was seeking restitution for Massachusetts investors.
Seth Faison, spokesman for the New York-based Fairfield Greenwich, dismissed Galvin's allegations as "false and misleading."
"Contrary to the allegations, FGG conducted vigorous and robust monitoring on an ongoing basis of the Madoff investments," wrote Faison, in an e-mail to CNNMoney.com.
Faison said his company "has fully and completely cooperated with the Mass Securities Division investigation. Unfortunately, Massachusetts has leapt to erroneous conclusions without completing its investigation and without even granting a meeting with FGG in an attempt to arrive at an accurate understanding of the facts."
In addition, Faison accused the securities division of basing its investigation on "20-20 hindsight that supposes that anyone familiar with Madoff's operations should have determined that it was a Ponzi scheme."
On the day after Madoff's arrest in December, founding partner Jeffrey Tucker posted a statement on the company's Web site.
"We are shocked and appalled by this news," he wrote. "We have worked with Madoff for nearly 20 years, investing alongside our clients. We had no indication that we and many other firms and private investors were the victims of such a highly sophisticated, massive fraudulent scheme."
Another company statement, posted in January, said that Fairfield Greenwich had $14.1 billion under management, and that $6.9 billion of that "was invested in vehicles connected to BLM," a reference to Madoff's firm.
Fasion of Fairfield Greenwich said that three of the Sentry investors live in Massachusetts, with a total combined investment of $1.7 million.
Madoff was arrested on Dec. 11, 2008, for running the world's largest Ponzi scheme, where fresh payments from new investors were used to pay more mature investors in what was presented as legitimate returns.
When Madoff pleaded guilty to 11 federal counts in New York district court on March 12, he admitted that he never invested any of his clients' funds in securities.
He stole billions of dollars during the decades-long scheme, though the exact amount may never be known. Investigators are still tallying the number of victims, which is believed to run in the thousands.
Madoff, 70, faces a potential 150-year sentence in federal prison when he returns to court on June 16. His $10 million bail was revoked upon pleading guilty, and he awaits sentencing in the Metropolitan Correctional Center in lower Manhattan.