NY AG Sues Adviser Alleged to Have Suspected Madoff Fraud Back in 1997
New York Attorney General Andrew Cuomo filed a lawsuit against a large investment adviser alleging that the adviser knew damaging information about Madoff but did not take action. The Attorney General alleges that the Defendant suspected Madoff could not support his performance claims because the options market would not support the trading claimed by Madoff. Internal documents allegedly indicate the Defendant’s skepticism as far back as 1997. One communication even suggested directly that Madoff may be a fraud. The Attorney General claims that the Defendant did not take action because it was concerned about losing fees.
OUR TAKE: This is the first Madoff case of which we are aware that alleges that the adviser/feeder fund actually knew or suspected that Madoff could not support his performance claims and could be a fraud. In other cases, plaintiffs/regulators have alleged that the adviser/feeder funds recklessly failed to conduct proper due diligence, and the defendants/respondents have countered that they were innocent victims that Madoff duped.