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Madoff feeder Fairfield Greenwich charged with fraud

by Brad A. Greenberg

April 1, 2009 | 2:09 pm

Just spotted this news on an Wall Street Journal electronic newsboard in our building’s lobby:

Massachusetts securities regulators charged Fairfield Greenwich Group, a major feeder fund for Bernard Madoff, with fraud, saying the company breached its fiduciary duty to clients by failing to provide promised due diligence on its investments.

An administrative complaint filed on Wednesday by Secretary of the Commonwealth William F. Galvin alleges a “profound disparity between the due diligence that Fairfield represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities and the due diligence it actually conducted.”

Separately, U.S. Marshals in Florida Wednesday seized Mr. Madoff’s two boats—a 55-foot luxury yacht and a smaller vessel.

The complaint said the firm misrepresented its “degree of knowledge and comfort with respect to Madoff’s operations.”

The charges, not criminal, are the first regulatory action against a so-called feeder fund, a fund that gained access for investors to Mr. Madoff. About $7 billion of Fairfield’s assets were invested with Mr. Madoff.

“Investment advisers have a fiduciary responsibility to their clients under law,” Mr. Galvin said. “The allegations against Fairfield in this complaint outline a total disregard for such responsibility which helped the Madoff scheme to stay afloat for so long.”

Galvin’s argument is the same that some attorneys made when I asked them whether Jews should sue Jews, or whether Jewish communal organizations should sue a partner in the community who invested their money with Madoff.

I’m curious also the implications these charges have for Stanley Chais and J. Ezra Merkin, who were considered two of Madoff’s primary fund feeders.

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