Massachusetts Charges Feeder Fund Manager with Securities Fraud for Investing in Madoff
The Massachusetts Securities Division has filed a lawsuit against an investment adviser that managed feeder funds that invested a large portion of assets in Madoff Investments. The MSD has argued that the fund manager violated Massachusetts securities anti-fraud statutes by failing to conduct the due diligence that it claimed it conducted in offering and marketing materials. The complaint alleges that the fund manager did not receive timely trade confirmations, assess counterparties, or verify assets. The complaint claims that due diligence was simply a “marketing pitch.” The MSD seeks restitution for investors, disgorgement of fees, and fines.
OUR TAKE: It is fairly draconian to charge the feeder fund manager with securities fraud. The manager is as much a victim of the Madoff scheme as any other investor. The question, which will ultimately be settled by the courts, is whether the manager, when acting on behalf of its clients, was fraudulent, negligent or merely incompetent.