Bernie Madoff's Little Helper

How much did J. Ezra Merkin know about what Bernie Madoff was doing with his clients' money?

J. Ezra Merkin, the son of a major Jewish philanthropist, was one of the major factors in Bernie Madoff's -- well, one doesn't want to call it a "success," does one? Let's say his "scale." Merkin ran a fund of funds that funneled money into Madoff's Ponzi scheme. He was also, thanks to his father's legacy, well-ensconced in the boards and fundraising networks of many major Jewish institutions. Those institutions gave him their money, and in turn, he exposed their endowments to a devastating blow. In the immediate aftermath of Madoff's collapse, pretty much everyone I knew who was involved with some Jewish institution in New York had to cope with the evaporation of millions of dollars they needed for operating expenses.

It's never been quite clear how much J. Ezra Merkin knew. Did he understand that he was funneling money into a scam, or was he merely a lazy and credulous git who wanted to rake a percentage off the top for passively handing his clients' income to Bernie Madoff to manage? In some sense, I argued at the time, whether he'd harmed his clients through horrifying negligence or deliberate fraud didn't matter. Either way, the trustee handling the Madoff case was going to seize all his money and hand it back to Madoff's victims, which is as it should be.

But the quotes released today as part of the trustee's court filing seem to suggest that he did know -- or at least, that he was trying hard not to know. Here's the New York Times reporting on a 2003 memo from an investor Merkin met with:

In 2003, a research company met with J. Ezra Merkin, a prominent Wall Street financier who had earned a fortune investing his clients' money with Bernard L. Madoff.

During the meeting, according to a new court filing, Mr. Merkin admitted that he did not fully understand Mr. Madoff's business and questioned its legitimacy. He warned the unnamed company never to "go long in a big way" with Mr. Madoff. He joked that "Charles Ponzi would lose out because it would be called the 'Madoff scheme,' " according to notes from the meeting.

"Seems to be some probability even in Ezra's mind that this could be a fraud," a representative of the company concluded.

Of course, this could be taken out of context; often when you read the whole memo or e-mail, these things seem less damning. And I've tended to assume Merkin was stupid and lazy, rather than guilty of committing outright fraud, because stupidity and laziness are far more common than frank moral turpitude. Still, it doesn't sound good for Mr. Merkin, does it?

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