Tremont Group Holdings Inc. must face an investor lawsuit over losses tied to Bernard Madoff’s fraud, a state appeals court ruled.
The Washington state appeals court revived a lawsuit brought by a group of investors, including FutureSelect Portfolio Management Inc., that lost $195 million in Tremont’s feeder fund when Madoff’s Ponzi scheme collapsed. The ruling reverses a lower court’s dismissal of claims against Tremont, its parent Oppenheimer Acquisition Corp., Oppenheimer’s parent Massachusetts Mutual Life Insurance Co. and auditor Ernst & Young LLP.
“The complaint adequately alleges negligent misrepresentation claims against Tremont, Ernst & Young, agency claims against Mass Mutual and Oppenheimer, and an apparent agency claim against Mass Mutual,” the a three-judge panel of the court ruled. It also reversed the dismissal of claims under the states Securities Act.
FutureSelect, based in Kirkland, Washington, sued in state court in Seattle accusing Tremont of failing to detect Madoff’s fraud and failing to notify them of risk associated with Madoff’s funds while claiming to monitor the investments. FutureSelect invested about $195 million between 1998 and 2007 in feeder funds managed by Madoff.
“MassMutual, Oppenheimer and Tremont must be held accountable for their gross negligence in promoting Madoff,” Steven Thomas, an attorney for the investors, said today in an e-mail. “Ernst & Young violated its public duty by turning a blind eye to Madoff. This is yet another example of a Big Four accounting firm not just missing, but enabling a big fraud.”
Tremont was the second-biggest so-called feeder into Madoff’s multibillion-dollar fraud, after Fairfield Greenwich Group. A $1 billion settlement between the liquidator of Madoff’s brokerage and Tremont survived an investor challenge last year, freeing up money to repay other investors. FutureSelect opted out of that agreement, Thomas said.
Madoff is serving a 150-year sentence in federal prison in North Carolina.
Montieth Illingworth, a spokesman for Tremont, and Amy Call Well, a spokeswoman for Ernst & Young, didn’t immediately return phone calls and e-mails sent after regular business hours seeking comment on the ruling.
The case is FutureSelect Portfolio Management Inc. v. Tremont Group Holdings Inc., 68130-3-I, Court of Appeals of the State of Washington, Division One (Seattle).
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