Category: Business

It is a tragedy of almost Biblical dimensions: The late Hermann Merkin was a lion of Jewish philanthropy who gave millions to help build Yeshiva University, the Fifth Avenue Synagogue and Merkin Concert Hall, among other causes.

His son, J. Ezra Merkin, who took his father’s place as a director of many of those institutions, has managed to wipe out much of what Hermann Merkin spent a lifetime creating.

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Ezra Merkin was “the Golden Boy controlling the Golden Goose,” as one trustee at Yeshiva University put it – the head of Gabriel Capital Group, a $5 billion money-management firm whose clients include wealthy families and university endowments. So it was not surprising that many institutions turned to him to help manage their endowments.

Merkin invested their money in a $1.8 billion fund he called Ascot Partners – telling no one that Ascot was invested entirely with his longtime friend, Bernard Madoff, the Wall Street trader accused last Thursday of defrauding investors through a $50 billion Ponzi scheme.

Now, all that money is presumed gone.

In a three-paragraph note sent out the day that Madoff was arrested, Merkin informed Ascot’s investors that the fund was now virtually worthless. He said he himself had “suffered major losses from this catastrophe.”

That was little consolation, however, to Hebrew University, said to have lost $110 million of its endowment; or to Congregation Kehilath Jeshurun, the Ramaz School of Manhattan and SAR Academy in Riverdale, said to have lost substantial sums; or to several family foundations belonging to Merkin’s fellow trustees at Yeshiva University, including Robert M. Beren and Ludwig Bravmann.

Another Ascot casualty was a charitable trust founded by real-estate magnate Mortimer Zuckerman, the chairman of real-estate firm Boston Properties and owner of the New York Daily News and U.S. News & World Report. That lost $30 million.

Harry Susman of Houston law firm Susman Godfrey LLP, who has been retained by several well-to-do New York families, told the New York Times that none of those investors knew Merkin was giving all of the money to Madoff.

He said his clients are particularly incensed because Merkin was charging them an annual fee of 1.5 percent of their investments in exchange for his services, which now appear to be little more than turning over the money to another investor.

“People who went through Merkin, they had to pay for the privilege of being stolen from,” Susman said.

Indeed, even as he has portrayed himself as a victim, Merkin is being harshly criticized. Several people told Jewish Week that while they had been reluctant to invest with Madoff, they trusted Merkin completely.

“We thought we were investing in Ezra,” said one official of a Jewish institution, “and now find out we were invested with Madoff. We feel duped and outraged.”

One private investor said that several years ago he asked Merkin directly if his investment in Ascot was going into the Madoff fund and was told it was not.

…Merkin has served for the last several years as chairman of the investment committee at UJA-Federation of New York. But in part because the federation has a policy prohibiting members of the committee from directing funds, there was no exposure of its funds to Ascot Partners or Madoff.

“There were some on the board who grumbled about us missing out on a solid investment but we weathered the criticism,” one insider noted.

Merkin is expected to be off the UJA-Federation board by week’s end.

Yesterday, the first of what is expected to be a slew of investor lawsuits against Merkin was brought by New York Law School, which had invested $3 million in Ascot Partners.

The lawsuit, filed in U.S. District Court in Manhattan, alleges recklessness, gross negligence and breach of fiduciary duties by Merkin, the fund, Ascot Partners and its auditor, BDO Seidman LLP.

Merkin’s lawyer, Andrew J. Levander, offered this response:

“Mr. Merkin and his family are personally among the largest victims of the massive fraud confessed by Bernard Madoff. Like the other victims and the entire financial community, Mr. Merkin is shocked by these events. He intends to defend the lawsuit vigorously while seeking redress for himself and his investors from whoever perpetrated this fraud.”

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• Muck tracker – Ezra Merkin and Bernard Madoff – December 13, 2008
• Madoff’s victims span the globe, from Palm Beach to Paris – December 15, 2008
• Trading legend Bernard Madoff charged with ‘massive’ securities fraud – December 11, 2008
• Muckety movers – conspiracy theorists – December 18, 2008
• Top Madoff players hire lawyers with ties to SEC, Justice department – December 18, 2008
• Muck tracker – Madoff bail – December 17, 2008
• Mortgage crisis helped John Paulson reap $3.7 billion – April 17, 2008
• Bernard Madoff cultivated ties to the Washington establishment – December 16, 2008
• Alberto Vilar, ex-millionaire philanthropist, awaits jury verdict – November 15, 2008
• SEC chairman defends record – June 27, 2007