Compliance June 12, 2009

Law Firm Files Another Madoff-Related Suit

Spector Roseman Kodroff&Willis, P.C., filed another class action against Austin Capital Management Ltd. for millions of dollars of losses due to improper investments in securities controlled by Bernard Madoff and his company.
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The suit, brought on behalf of the Pittsburgh-based Board of Trustees of the Steamfitters Local 449 Retirement Security Fund and a nationwide class of similar funds, alleges that Austin failed to prudently invest the benefit funds’ assets, in violation of Employee Retirement Income Security Act (ERISA), according to an announcement from the law firm. The complaint says that Austin was a fiduciary to the class of benefit funds and owed them the duty to manage investments with the highest care, but instead failed to notice the numerous red flags about the Madoff-related securities.

According to the announcement, the red flags included:

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  • the lack of transparency in the operations of Madoff and Madoff Securities, including Madoff’s refusal to disclose his investment strategy;
  • the fact that investment returns of Madoff Securities were abnormally smooth, with very little volatility, including only five months of negative returns in the past 12 years;
  • the inability of other funds, using Madoff’s stated method, to generate returns in any way comparable;
  • the fact that Madoff acted as his own prime broker, while most hedge funds used large banks as their prime brokers;
  • the fact that monthly account statements sent to Madoff investors did not support the returns being supposedly earned;
  • the fact that Madoff’s auditors consisted of one office in Rockland County, New York, with three employees: one was 78 years old and lived in Florida, and one was a secretary.

The complaint notes that numerous other investment managers did discover the red flags and declined to invest in Madoff-related securities.

The suit also names as defendants individual officers and managers at Austin as well as its affiliated companies, KeyCorp, Victory Capital Management, and Austin Capital Management GP Corp. Plaintiffs seek to represent all employee benefit plans that used Austin as an investment manager and lost money due to Austin’s purchase of Madoff-related securities.

This is second such suit the law firm has filed against Austin Capital (see “Union Sues Over Madoff Pension Losses“).The hedge fund firm also faces a suit brought by Coughlin Stoia Geller Rudman & Robbins LLP (see “Hedge Fund Firm Sued for Madoff Investments“).

Madoff-related cases were responsible for 30% of all securities cases in the first quarter of 2009 (see “Madoff-Related Suits Main Cause of Litigation Surge“).

Deals & People June 12, 2009

Revzon Taps Brooks to Head RK Services

The Revzon Consulting Group added Michelle Brooks to its staff as the manager of Participant Recordkeeping Services.
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According to an announcement, Brooks was previously employed by New York Life of Westwood, Massachusetts, where she served as a conversion manager. In that role she was responsible for all Taft-Hartley new business as well as Small Plan and Mid-Market new business products. Brooks also was instrumental in the strategic planning for Total Retirement Outsourcing, according to the firm.

Prior to joining New York Life, Brooks was vice president and manager of Conversions and New Business for Union Bank of California.

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“As we expand both our client base and the services we offer to the financial community, having someone with Michelle’s expertise and know-how is invaluable,” said Les Revzon, principal of The Revzon Consulting Group. “In this time of government scrutiny of 401(k) plans and the fees being charged we feel that we bring true value to the market place. Michelle, like all of our hand-picked staff, has the experience to guide any financial institution or plan sponsor successfully through the plan set-up process.’

Marshfield, Massachusetts-based Revzon is a management consulting firm that assists financial service firms offering retirement plans and services as well as corporate and personal trust services.

More information about the firm is available at www.revzonconsulting.com.

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