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Fairfield Must Face Investor Suit, U.S. Judge Rules

Fairfield Greenwich Group, an operator of “feeder funds” channeling money into Bernard Madoff’s fraudulent investment scheme, must face claims in a lawsuit filed in New York, a U.S. judge ruled.

U.S. District Judge Victor Marrero in Manhattan today declined to dismiss most of the claims in the case while narrowing the investor lawsuit against Fairfield and several firms that provided it with administrative and accounting services.

Fairfield, a hedge fund co-founded by Walter Noel, earned an estimated $919 million from placing investors’ money with Madoff. The suit, which seeks class-action status, contends the defendants shut their eyes to Madoff’s fraud, and seeks recovery of the investors’ losses.

“According to plaintiffs, FGG fulfilled a critical role for Madoff, who knew that secrecy and obfuscation were key to prolonging how long he could keep his big lie afloat and his sand castles grounded,” Marrero said in a 198-page opinion today.

Also sued in the case are Citco Group Ltd., GlobeOp Financial Services LLC and the accounting firm PricewaterhouseCoopers LLP.

Custodian, Depository

A call to Amsterdam-based Citco Group after business hours wasn’t answered. A voice-mail message left with the New York office of London-based GlobeOp wasn’t immediately returned. Steven Silber, a spokesman for PricewaterhouseCoopers, based in New York, had no immediate comment on the ruling.

GlobeOp provided administrative services to Fairfield’s Fairfield Sentry fund, Marrero said in his opinion. Citco served as an administrator, custodian, bank and depository for Fairfield funds.

“We’re pleased that Judge Marrero dismissed many of the claims against many of the individual and corporate defendants,” said Mark Cunha, a lawyer representing Fairfield in the case.

Cunha said that important claims in the suit, which Marrero was required to assume as fact for purposes of deciding whether to dismiss them, aren’t true. Fairfield will have a chance to disprove the plaintiffs’ remaining claims later, he said.

Motion Denied

Last month, Marrero denied motions to dismiss claims that the defendants argued are preempted by the Martin Act, a New York law that gives the state attorney general power to investigate and take action against financial fraud.

In his opinion today, Marrero described Fairfield as “an intricate tangle of entities” that “all apparently existed to accomplish the same task -- managing funds invested almost exclusively with Bernard Madoff.”

Madoff, 72, pleaded guilty to masterminding the biggest Ponzi scheme in history. He is serving a 150-year prison term in a federal prison in North Carolina.

When Madoff was arrested in December 2008, account statements reflected 4,900 accounts with $65 billion in nonexistent investments, according to Irving Picard, the trustee appointed to oversee the liquidation of Madoff’s firm. Investors lost about $20 billion in principal.

The case is Anwar v. Fairfield Greenwich, 09-cv-118, U.S. District Court, Southern District of New York (Manhattan).

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