Cuomo Files Suit Against Ivy, Former CEO and Ex-CIO Over Madoff

New York Attorney General Andrew M. Cuomo's civil suit against Ivy Asset Management and two senior executives puts asset managers on the hot seat, yet the execs say they plan to fight the allegations.

(May 12, 2010) — New York Attorney General Andrew M. Cuomo filed a civil suit against Ivy Asset Management, its former Chief Executive Officer Lawrence Simon and ex-Chief Investment Officer Howard Wohl regarding investments in Bernard L. Madoff Securities.

The complaint charged Ivy as well as Simon and Wohl with fraud and breach of fiduciary duty. The suit seeks restitution, damages, penalties and disgorgement of fees.

Cuomo alleges in the complaint filed in New York State Supreme Court that New York-based hedge fund-of-funds manager Ivy Asset Management, acquired by BNY Mellon Asset Management in 2000, and its co-founders deliberately misled its advisory clients — wealth managers J.P. Jeanneret Associates and others — so the firm could make millions of dollars in fees. Cuomo claims the men learned “disturbing facts” about convicted ponzi-scheme operator Bernard Madoff’s investment firm yet “hid the truth” from clients to whom they recommended Madoff. Ivy’s relationship with the Madoff firm began in October 1987 when Ivy invested with Madoff in one of its proprietary funds, the Wall Street Journal reported. Between 1998 and 2008, Cuomo said Ivy was paid more than $40 million to provide advice and conduct due diligence for clients with large Madoff investments. Ivy kept silent to avoid losing fees even after the company discovered Madoff, arrested in 2008 and currently serving a 150-year prison sentence, was not investing client funds as promised, the complaint said, according to Bloomberg.

Cuomo’s suit reflects one of several suits filed by authorities or privately against firms associated with the long-running Madoff ponzi scheme. It highlights the breadth of Madoff’s scheme and reflects efforts to extend blame and responsibility for the $65 billion Ponzi fraud, the biggest in history, to a network of participants, including money managers and financial advisers who profited from others who lost their fortunes.

According to Pensions and Investments, Ivy’s non-discretionary clients invested assets of 76 upstate New York union pension and welfare funds in Madoff feeder funds, which lost more than $150 million in the Madoff ponzi scheme. In total, Ivy client losses from the Madoff scheme came to $227 million.

Last month, BNY Mellon Asset Management announced that Ivy will be closed and its remaining hedge funds of funds wound down.

Ivy Asset Management said it had been cooperating with the attorney general’s investigation and planned to defend itself against Cuomo’s claims in the suit. “Unfortunately, a limited number of clients from a legacy non-discretionary advisory business of Ivy were among Bernie Madoff’s victims when his plot was exposed in December 2008,” said Douglas Squasoni, chief restructuring officer at Ivy, in a statement. “These non-discretionary advisory clients were primarily professional investment advisers who chose to maintain Madoff exposure for their own clients. Ivy informed its clients that it had questions about Madoff that it could not answer and recommended to its clients that they reduce their exposure to Madoff.”

Additionally, the defendants have issued statements saying they raised questions about Madoff to their clients, sharing their worries with clients and urging them to reduce their allocation to the Madoff firm. A statement issued on Wohl’s behalf claims:

“Contrary to the attorney general’s allegations, the facts will show that Mr. Wohl repeatedly told Ivy’s advisory clients…about concerns he had with the Madoff funds. In fact, he urged them to drastically reduce their positions in Madoff investments. These fund managers rejected his counsel, and their investors suffered significantly as a result.”

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href=''></a>; 646-308-2742