Merkin’s Madoff Funds to Pay Investors $500 Million

Photographer: Jin Lee/Bloomberg

Bernard Madoff, president and founder of Bernard L. Mandoff Investment Securities LLC, walks out of Manhattan federal court in New York. Close

Bernard Madoff, president and founder of Bernard L. Mandoff Investment Securities LLC,... Read More

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Photographer: Jin Lee/Bloomberg

Bernard Madoff, president and founder of Bernard L. Mandoff Investment Securities LLC, walks out of Manhattan federal court in New York.

J. Ezra Merkin’s so-called feeder funds for Bernard Madoff’s Ponzi scheme will pay investors $110 million, bringing total recoveries to more than $500 million.

The third cash payment by Merkin’s Ariel and Gabriel funds, which has been approved by a New York Supreme Court judge in Manhattan, will be delivered within about 10 business days, liquidator Bart M. Schwartz said in a statement dated today that was e-mailed to Bloomberg News. The payments are separate from the money recovered for Merkin’s former investors by New York Attorney General Eric Schneiderman in a $410 million settlement of a state lawsuit against the investment adviser, Schwartz said.

The $500 million payback from the two Merkin funds may be the largest so far in the Madoff case, Schwartz has said. Irving Picard, who is liquidating the Madoff brokerage, has paid customers about $333 million since the fraud collapsed in December 2008.

More distributions to Ariel and Gabriel investors are coming, Schwartz said in the statement. While Madoff bought no securities, Ariel and Gabriel invested in other funds, including Cerberus Capital Management LP, with assets that Schwartz could sell to raise money for the payouts, according to court papers.

Merkin was originally sued by Andrew Cuomo, then New York’s attorney general, for allegedly steering $2.4 billion to Madoff in exchange for almost $500 million in fees. As a result of Madoff’s scheme, investors in four funds controlled by Merkin lost more than $1.2 billion, the attorney general’s office has said.

State Court Suit

Madoff is serving 150 years in prison after pleading guilty in 2009 to running the biggest Ponzi scheme in U.S. history. Picard and his law firm, Baker & Hostetler LLP, have charged about $273 million for liquidating the estate.

Schwartz sued Merkin in state court in September 2010, accusing the investment adviser of breaching his fiduciary duty, gross negligence and fraud.

Investors including prominent charities entrusted their funds to Merkin. Institutions that have alleged they lost money in Merkin’s investments with Madoff include New York University, Yeshiva University and New York Law School.

The cases are Cuomo v. Merkin, 450879/2009, and Schwartz v. Merkin, 651516/2010, New York State Supreme Court (Manhattan.)

To contact the reporters on this story: Linda Sandler in New York at lsandler@bloomberg.net; Chris Dolmetsch in New York at cdolmetsch@bloomberg.net

To contact the editors responsible for this story: John Pickering at jpickering@bloomberg.net; Michael Hytha at mhytha@bloomberg.net

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