The suit alleges that e-mails and internal documents between former top officials of Ivy Asset Management show that the firm knew Madoff was not investing funds as advertised, but did not disclose the information to clients for fear of losing revenue from fees. As a result, Ivy investors lost $227 million in Madoff funds, while Ivy earned about $40 million between 1998 and 2008 for advising Madoff investors, according to a statement on Coumo’s Web site.
Cuomo said Ivy officials realized Madoff’s dishonesty as early as 1997, when officials learned that there were not enough options to support Madoff’s purported trades, suggesting that Madoff was not actually making the trades.
Cuomo obtainted an Ivy internal memo that states: “This 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.”
Defendants named in the suit, filed in New York State Supreme Court in Manhattan, include Ivy’s former chief executive, Lawrence Simon, and its former chief investment officer, Howard Wohl. The lawsuit seeks payment of restitution, damages, and penalties from Ivy, Simon, and Wohl, as well as the disgorgement of all fees that Ivy received. The lawsuit also seeks to bar Simon and Wohl from acting as investment advisers.
In a statement released in response to the lawsuit, Ivy Funds claimed it informed clients that it had unanswerable questions about Madoff. “Ivy takes its responsibilities very seriously, and our first priority always is to protect our investors and clients,” said Douglas Squasoni, chief restructuring officer of Ivy Asset Management. “Unfortunately, a limited number of clients from a legacy non-discretionary advisory business of Ivy were among Bernie Madoff’s victims when his plot was exposed in December 2008. These non-discretionary advisory clients were primarily professional investment advisors who chose to maintain Madoff exposure for their own clients. Ivy informed its clients that it had questions about Madoff that it could not answer and recommended to its clients that they reduce their exposure to Madoff.”
Squasoni also said the non-discretionary advisory business that is the focus of the lawsuit was never part of Ivy’s core proprietary fund of hedge funds business, and is no longer in operation, and that the Ivy executives involved in the matter left the company in 2008.