by Sarah Fitzpatrick, CBS News Investigative Unit
The New York Attorney General filed a civil suit today against Ivy Asset Management, a subsidiary of Bank of New York Mellon, and two of its former senior executives, claiming they deliberately misled clients about Bernard Madoff's investment firm in order to bring in millions in advisory fees.
"Ivy and its former co-principals saw the trouble with Madoff coming around the bend, but instead of guiding their clients through the financial waters, they sold them down the river," Attorney General Cuomo said in a statement about the New York-based firm.
The lawsuit claims the firm's former Chief Executive Officer Lawrence Simon, and its former Chief Investment Officer Howard Wohl knew about problems with Madoff's strategy 12 years before it was publicly discovered.
One internal Ivy memo from 1997 referenced in the complaint reveals that the firm was struggling to understand Madoff's success: "[t]his is a clear example of our inability to make sense of Madoff's strategy, and one where his trades for our accounts are inconsistent with the independent information that is available to us."
The complaint also references a document written by Chief Executive Officer Howard Wohl, who wrote to a colleague regarding Madoff's purported strategy: "Ah, Madoff, You omitted one possibility, a fraud!"
Yet Cuomo says Ivy's correspondence with clients tells a different story. In 1999, Ivy sent letters to clients falsely stating that, "we have no reason to believe there is anything improper in the Madoff operation." Between 1998 and 2004, the firm wrote to its clients that its only concern about Madoff's firm was its "ability to manage what must be an enormous pool of capital with such consistently outstanding results."
Internal emails reveal that Simon and Wohl decided not to disclose the information they had about Madoff to their clients with Madoff-related investments so as not to lose revenue. One email states: "Are we prepared to take all the chips off the table, have assets decrease by over $300 million and our overall fees reduced by $1.6 million or more, and, one wonders if we ever "escape" the legal issue of being the asset allocator and introducer, even if we terminate all Madoff related relationships?"
Cuomo's office estimated that Ivy's clients, which included hundreds of private investors as well as dozens of New York pension and welfare funds, lost over $227 million in the collapse of Madoff's Ponzi scheme.
Between 1998 and 2008, Ivy Asset Management was paid over $40 million to provide investment advice and conduct due diligence for clients with significant Madoff investments, according to the complaint. The lawsuit alleges that the firm discovered Madoff was not investing funds as he claimed as early as 1997.
In a statement today, Douglas Squasoni, Chief Restructuring Officer of Ivy Asset Management said that "The non-discretionary advisory business that is the focus of this complaint was never part of Ivy's core proprietary fund of hedge funds business, and is no longer in operation. Further, the Ivy executives involved in this matter left the company in 2008." Squasoni also said the firm was cooperating with the Attorney General's investigation and intends to defend itself against the suit's claims.