The Financial Times London reports that one of the biggest investors into Bernard Madoff’s firm warned its clients that his brokerage “could abscond with those assets”. It still managed to attract investments totalling $2.75bn.
Kingate Global warned clients of the risk of giving custody of its assets to its investment manager. Mr Madoff wasn’t named in their marketing material, but clients were cautioned that Kingate would not verify the accuracy of statements provided by the investment manager. The co-managers are entitled to rely upon information supplied by the investment manager without any due diligence to determine the accuracy thereof, provided they act in good faith.
The majority of “feeder” funds did not mention Mr Madoff or his brokerage in their marketing material, although some went out of their way to claim that the investment manager’s performance is being monitored to ensure execution of trades.
The key element in the first court case filed by investors is the detail supplied to them regarding the links between the feeder funds and Mr Madoff’s firm. In the case of the New York Law School against Ascot Partners, the investor claims documents never disclosed the fact that almost all the fund’s assets were invested with Madoff. The Law School invested $3m with Ascot.
On the other hand Fairfield Greenwich indicated to its investors that Mr Madoff’s services were “essential to the continued operation of the fund”. The Fairfield Sentry fund prospectus claimed that it would “maintain full transparency to BLM (Madoff Securities) accounts” with “independant verification of prices and account values”. Investments in the Sentry fund totalled $7.3bn.
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