Cuomo probes major non-profits caught in Madoff investment fraud
A few thoughts from Sally Blinken, a former deputy NY State Attorney General who directed numerous public corruption and charity investigations and enforcement actions. Ms. Blinken is now a litigation partner with Venable LLP in New York.
The Madoff investigations added a new wrinkle late last week as New York Attorney General Andrew Cuomo served subpoenas on 15 separate universities, family philanthropies and non-profit institutions that had been investors with Bernard Madoff’s asset management business. Among those hit with document requests were Bard College, New York University and New York Law School.
Even though the organizations may have lost more than $100 million in the Ponzi fraud allegedly carried out by Mr. Madoff, questions of due diligence have been raised about relations between some of the non-profits and J. Ezra Merkin, whose own investment funds were active feeders into the Madoff funds.
Mr. Merkin, the former chairman of GMAC, served on the boards of several prominent NY institutions that invested substantially with Madoff, including Yeshiva University, where he was a trustee and headed its investment committee.
Some are wondering why the non-profits - some of whom are bringing their own civil lawsuits against Madoff - would be handed formal subpoenas.
“It seems clear that the Attorney General is taking a serious look at potential conflicts of interest between Mr. Merkin and the institutions he advised, especially those where he served as a director,” Ms. Blinken said.
“Prosecutors are probably trying to learn whether Merkin disclosed his ties with Madoff before actively placing investments on behalf of the foundations and other institutions - and to what degree those ties were known, or perhaps even ignored, by other directors and fiduciaries of those non-profits,” Ms. Blinken added.
She noted that investigators will likely take a close look at minutes of board meetings and other documents showing how investment decisions were made. “That includes what information Merkin shared on management fees and also allocation figures showing what portion of their investment with Merkin’s three separate funds were being placed with Madoff,” Ms. Blinken noted.
“At the very least, the probe is casting a bright light on the investment policies and protocols in place at some of New York’s leading academic institutions and non-profits,” Ms. Blinken said.
During her seven-year tenure with the AG, Ms. Blinken served as special counsel in the Public Integrity Bureau under Mr. Cuomo.
Sally G. Blinken, a partner in the Commercial Litigation and Nonprofit Practice Groups of the New York office, has seven years experience working in the office of the New York State Attorney General and ten years as a commercial litigation associate specializing in trusts and estates litigation.