Madoff-Linked Fund Manager Charged

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Prominent hedge fund manager J. Ezra Merkin was charged Monday with civil fraud for allegedly steering more than $2 billion in client funds to Bernard Madoff without disclosing where the money was being invested. Merkin is accused of concealing his ties to Madoff.

MELISSA BLOCK, host:

Ever since Bernard Madoff was arrested last December and charged with running a vast Ponzi scheme, a lot of people have been asking this question: How could Madoff have defrauded so many people all by himself? The answer: Maybe he didn't.

Today, New York officials filed civil charges against a prominent hedge fund operator with ties to Madoff. His name is J. Ezra Merkin. And authorities say he defrauded his investors by funneling their money to Madoff's firm without telling them.

NPR's Jim Zarroli joins me now. And Jim, let's start with the basics. Who is J. Ezra Merkin? Tell us more about him.

JIM ZARROLI: Well, Merkin is a very wealthy, very prominent figure in financial and charitable circles in New York, a lot like Madoff in that regard. He's the head of something called Gabriel Capital Management, which invested money for a lot of charities, a lot of individuals.

He was also, until recently, the chairman of the big financing company, GMAC. He's 55 years old. He's a graduate of Harvard Law School. He lives in an 18-room, two-story apartment on Park Avenue. He's also said to have the largest private collection of works by Mark Rothko in the world.

BLOCK: What do authorities say about Merkin's relationship with Bernard Madoff?

ZARROLI: Well, this is a pretty incredible story. I mean, essentially, Attorney General Andrew Cuomo says that for years, Merkin was taking money from investors and telling them that he was investing it on their behalf.

He managed money for a lot of colleges and charities. He was the president of one of the wealthiest and most prominent synagogues in the country, Fifth Avenue Synagogue, and he found investors there.

Authorities say he was a very good salesman. He portrayed himself as a skilled money manager. He told people he was investing their money in distressed securities and other things. And really, Cuomo's office says it was pretty much an act.

All he was doing was funneling the investor's money into Bernie Madoff's firm. He was no better than a kind of glorified bookkeeper, is the way they put it.

Authorities say even his own employees didn't really understand the extent of the firm's ties to Madoff. And for this, he collected huge fees from his investors: $470 million over the years.

BLOCK: Well, one question would be, did Ezra Merkin know that Bernard Madoff was running a Ponzi scheme or was he betrayed as well, along with his investors?

ZARROLI: Well, that's what he says. He says he didn't know. Right after Merkin - Madoff's arrest in December, he sent out a letter to his investors in one of his funds, and he said he was shocked, as I know you are, by this fraud.

Attorney General Cuomo says he had every reason to question Madoff, however. He says he had been warned by his colleagues that Madoff's returns were too good to be true. He'd even seen press articles raising questions about Madoff.

But the gist of this case against Merkin is really that he concealed from investors how much of their money was going to Madoff, whether or not he knew what was happening. And authorities don't say he did.

But some of the investors allegedly told him, don't put our money in Madoff's firms. One of his investors was New York University. It's already sued him for $24 million. It says it didn't know how much of its money was getting funneled to Madoff.

BLOCK: Has Ezra Merkin responded to these civil fraud charges filed today?

ZARROLI: Well, his attorney says these charges are hasty and ill-conceived. He says Merkin performed all the necessary due diligence on Madoff that he should have, but Madoff misled him.

He says he was - you know, he says Merkin himself was a victim, that he lost a lot of money personally. And he also says that Merkin is going to vigorously defend himself against these charges.

BLOCK: That's NPR's Jim Zarroli in New York. Jim, thanks a lot.

ZARROLI: You're welcome.

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