Fairfield Greenwich Group was the largest "feeder fund" for disgraced financier Bernie Madoff's firm. Its Sentry family of funds is said to have lost around $7 billion to Madoff's alleged Ponzi scheme.
And how did Madoff get away with it when probed by Fairfield's officials? He simply "refused to answer or he lied."
According to a complaint filed April 1 by Massachusetts Secretary of the Commonwealth William F. Galvin, that was the extent of Madoff's evasions. The complaint seeks restitution for Fairfield's Massachusetts investors and claims the firm tolerated Madoff's deflections. Fairfield collected "hundreds of millions in fees on money sent to Madoff's firm."
In October, when Fairfield Greenwich sought the names of key personnel and asked how Madoff monitored trades, he just ducked the query, according to Galvin’s civil suit.
“Secrecy as to information is a key issue for everybody,” Madoff told Fairfield Greenwich executives on Dec. 19, 2005, according to a transcript of a taped call included with the complaint. Madoff advised them on how to fend off federal regulators’ queries. “Just say I -- you know, don’t answer,” said Madoff, who began the call with: “Obviously, this conversation never took place."
"They were blinded by the fees they were earning," Galvin said, noting that they had seemingly ignored "any fact that would have burst their lucrative bubble."
Fairfield's response was swift, claiming that Galvin's assertion that the firm had failed to exercise proper due diligence is "false and misleading."
Fairfield “conducted vigorous and robust monitoring on an ongoing basis of the Madoff investments,” the statement said. “This monitoring was consistent with the representations made to investors in the Sentry funds.”
The 110-page complaint offers new detail on how Madoff orchestrated his scheme and managed to dupe what Galvin says was a willing, gullible investor. The regulator bores in on an Oct. 2 meeting that Fairfield had with Madoff after one of its investors withdrew $75 million because the firm couldn’t answer Madoff-related questions.
There were “gaps in our knowledge,” complained Fairfield Chief Risk Officer Amit Vijayverjiya, according to Galvin.
Joining Madoff at his headquarters in midtown Manhattan’s so-called Lipstick Building that day were his aide Frank DiPascali and Fairfield executives Walter Noel, Jeffrey Tucker, and Mark McKeefry. Noel and Tucker are founding partners of the firm, which began investing with Madoff in 1989. Vijayverjiya listened in by phone, according to the complaint... From the start, Madoff let it be known that he wouldn’t be forthcoming about his business, according to an internal Fairfield report included in Galvin’s filing. The money manager recounted how a friend at JPMorgan Chase & Co. asked Madoff to meet with colleagues who had questions about Madoff’s operation.
“BLM refused,” according to the Fairfield report, whose author isn’t identified, referring to Madoff’s firm... The Fairfield investors sought answers to 42 questions they’d previously given to Madoff, including the identities of “key personnel” overseeing his secretive “split-strike conversion” investment strategy, his procedures for trade processing and his compliance practices.
The Fairfield team was satisfied with Madoff’s evasions, Galvin said in his lawsuit.
“Have there been any changes to these models/algorithms in the past 3 years? If yes, please describe,” the Fairfield executives asked, according to the report.
“Yes,” Madoff replied, adding that he’s “always looking at the models and fine-tuning them,” the report says.
Did Madoff require dual signatories on documents and, if so, who were they? the Fairfield Greenwich investors asked. “Yes. Names not provided,” they wrote, summarizing Madoff’s response.
“Who is responsible for actually placing the trade order of the SSC?” the Fairfield Greenwich Group queried, referring to the split-strike strategy. “Traders,” Madoff replied, “under the direction of supervisors.”
...Irving Picard, the bankruptcy trustee liquidating Madoff’s firm, said he’s found no evidence Madoff made any trades for decades.
...On the day before Madoff’s arrest, Fairfield’s Tucker wrote a letter to Madoff outlining his firm’s strategy for its Madoff- invested “capital to be replenished,” following large redemptions. “Our firm is very dependent on its relationship with your firm,” he wrote.
So Fairfield (FGG) held a meeting with Madoff on October 2nd that was spurred by an investor withdrawing $75 million due to FGG's inability to answer questions about Madoff's firm.
In the meeting, FGG posed 42 questions. They received, essentially, no answers.
My only response: how'd you like to have "Chief Risk Officer of Fairfield Greenwich Group" on your resumé?
Hat tips: Greenwich Roundup and Bernie Madoff's Scam.