Kathy Bazoian Phelps
Senior Counsel in Ponzi Scheme Litigation
and Bankruptcy Matters

Kathy is a senior business trial attorney with more than 30 years experience prosecuting and defending claims for high net worth clients involved in Ponzi scheme matters and in bankruptcy proceedings. Kathy’s practice includes recovering assets for clients in complex fraud cases under standard fee and alternative fee arrangements. She also handles SEC and CFTC whistleblower claims. Kathy also serves as a mediator in bankruptcy matters, in complex business disputes, and in matters requiring detailed knowledge about fraud or Ponzi schemes.

Kathy’s Clients in Ponzi Scheme Cases and Bankruptcy Matters
Equity Receivers
Bankruptcy Trustees
High Net Worth Investors
Debtors in Bankruptcy
Secured and Unsecured Creditors

Tuesday, November 13, 2012

Investors Settle with Fairfield Greenwich for Up To $80.25 Million

Posted by Kathy Bazoian Phelps
A class of Madoff investors has settled with Fairfield Greenwich and its related entities for up to $80.25 million.
These entities were Madoff feeder funds that had invested over $4.5 billion with Madoff. In their second amended complaint, the investors asserted claims of common law fraud federal securities fraud and control person liability negligent misrepresentation gross negligence breach of fiduciary duty, third-party beneficiary breach of contract constructive trust, mutual mistake and unjust enrichment See Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 354 (S.D.N.Y. 2010), and Anwar v. Fairfield Greenwich Ltd., 728 F. Supp. 2d 372 (S.D.N.Y. 2010).
The defrauded investors specifically alleged that the Fairfield defendants:
Made false representations and omissions regarding Madoff’s split-strike conversion strategy.
Made false representations and omissions regarding the funds' track record of profitability.
Made false representations and omissions in fund reports to investors and concerning due diligence and oversight of Madoff.
Ignored red flags of Madoff’s fraud.
Falsely reassured investors who made inquiries.
Assisted Madoff in thwarting an SEC investigation.
Attempted to raise money to keep Madoff afloat in late 2008.
Earned massive fees from funneling plaintiffs’ assets into the Madoff fraud.
Fairfield’s response to the allegations is explained in the motion to approve the settlement as follows:
[T]he FG Defendants vigorously maintain that they did not know about wrongdoing at BLMIS until it was revealed to the public in December 2008, lost more than $72 million of their own and family members' money in the fraud, maintained a full-time professional staff to perform due diligence and risk monitoring, and were among many financial firms and regulators that were fooled by Madoff including the Securities and Exchange Commission. They also point to the efforts to conceal the fraud by Madoff and seven others who pleaded guilty to crimes, including creating false trade blotters, trade confirmations and DTC reports which they were shown, and aspects of Madoff's activities that were not typical of a Ponzi scheme, including refusing new investments and redeeming billions of dollars upon request over many years.
The settlement calls for a guaranteed recovery of $50.25 million upon the court’s approval of the settlement agreement, plus an additional amount up to $30 million “to the extent it is not used to pay certain other claims or judgments against the FG Defendants.”
The settlement agreement was apparently hard fought, following substantial discovery. The defendants produced more than six million pages of documents, while plaintiff’s produced more than 75,000 pages of documents. The parties took about 50 depositions.
The settlement will be funded by the founding shareholders of Fairfield - Walter Noel, Jeffrey Tucker and Andres Piedrahita. The settlement motion explains that “the settlement consideration represents a substantial portion of the assets that might be recovered” if the plaintiffs were to prevail.
The plaintiffs’ claims against co-defendants PricewaterhouseCoopers, Citco and GlobeOp are not settled and will continue to be litigated. The memorandum states that the Citco Defendants acted as administrators of the Funds and custodians of the Funds' assets and were responsible for monitoring BLMIS as subcustodian of those assets. PwC Netherlands and PwC Canada were the auditors of the Funds' financial statements. Interestingly, the settlement proposes to bar these defendants from asserting claims for contribution against the settling defendants.
The settlement agreement, filed on November 6, 2012, is here. The memorandum in support of the motion to approve the agreement is here. The plaintiff’s second amended complaint is here.

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