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The settlement agreement we’re announcing today provides a measure of justice for those Americans who worked hard to prepare for their retirement and then saw hoped-for stability disappear. My department is committed to ensuring that workers and retirees receive the benefits they’ve earned and deserve.
Secretary of Labor Hilda L. Solis
Washington
US Labor Department recovers nearly $220 million for Madoff victims
Settlement to benefit worker retirement, health care plans impacted by illegal Ponzi scheme
November 13, 2012
NEW YORK — The U.S. Department of Labor today announced a settlement that includes the payment of nearly $220 million to compensate employee benefit plans and other investors that suffered losses through investments in Bernard L. Madoff’s Ponzi scheme. The settlement is pending approval by the U.S. District Court for the Southern District of New York and resolves department litigation, actions brought by New York’s attorney general, and several private lawsuits and class actions brought on behalf of plans and other investors that invested with Madoff. The settlement was reached with Ivy Asset Management LLC, J.P. Jeanneret Associates Inc., Beacon Associates Management Corp., Andover Associates Management Corp., and their current and former owners and officers.
“The settlement agreement we’re announcing today provides a measure of justice for those Americans who worked hard to prepare for their retirement and then saw hoped-for stability disappear,” said Secretary of Labor Hilda L. Solis. “My department is committed to ensuring that workers and retirees receive the benefits they’ve earned and deserve. If approved by the court, this settlement, combined with expected payments from the Madoff bankruptcy estate, will allow worker benefit plans impacted by Bernard Madoff’s illegal and reprehensible scheme to recover all, or nearly all, of the money they invested with him.”
“Today’s settlement brings accountability for one of the greatest financial frauds in American history and justice to defrauded investors. We have recovered over $210 million for the victims who were harmed as a result of the world’s most notorious Ponzi scheme,” said New York Attorney General Eric Schneiderman. “Ivy Asset Management violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients. An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses.”
The department sued Ivy, Jeanneret, Beacon, Andover and their owners and officers Oct. 21, 2010, for alleged violations of the Employee Retirement Income Security Act. The suit alleged that they breached their fiduciary duties to a number of benefit plans by recommending, making and maintaining investments with Madoff, thus losing hundreds of millions of dollars in assets needed for the pension and health benefits of thousands of workers.
“Nothing can make up for the years-long agony that plan administrators and participants, and individual investors were put through by these defendants and Madoff,” said Assistant Secretary of Labor for Employee Benefits Security Phyllis C. Borzi. “But this settlement should go a long way toward making victims financially whole and, hopefully, closing a painful chapter for many workers and families.”
Ivy served as the investment adviser for Jeanneret, Beacon and Andover, and introduced those parties to Madoff. The suit alleged that Ivy misrepresented and concealed doubts and suspicions about Madoff, including the belief that no investment with Madoff was justified. The suit further alleged that Ivy concealed its suspicions because the investments made by Jeanneret, Beacon, and their plan clients and other investors generated enormous fees for Ivy and contributed significantly to the assets under Ivy’s management. The department alleged that Ivy made the decision not to sacrifice those financial benefits by disclosing the true nature of its doubts about Madoff, especially because management did not think the company could escape legal liability for those investments.
Jeanneret served as the investment manager for more than 70 plans that invested with Madoff through several methods, including its own fund of funds, starting in 1991. The department’s suit alleged that the company and its principals made material misrepresentations and failed to disclose material facts to their ERISA-covered plan clients that invested with Madoff. These included failing to disclose that Ivy had informed Jeanneret that it was unable to perform due diligence on Madoff. Jeanneret also allegedly failed to disclose to its clients that it had entered into a new agreement with Ivy in 2007 that eliminated Madoff from Ivy’s due diligence responsibilities, and failed to disclose that Ivy recommended Jeanneret reduce plan client and investor exposure to Madoff.
Additionally, the suit alleged that Jeanneret largely ignored Ivy’s recommendations to reduce its clients’ Madoff investments and failed to take prudent steps to investigate irregularities about Madoff and his purported trading, while taking substantial amounts in fees as the investment manager for the plans. Finally, Jeanneret and its owners and officers allegedly violated ERISA based on their fee arrangement, which provided for higher fees for Madoff investments than for other types of investments. This arrangement gave them the ability to set their own compensation by exercising their discretion to recommend and make Madoff investments for plans.
Beacon and Andover were the investment managers for the Beacon and Andover funds, which invested heavily with Madoff starting in the early 1990s. Many employee benefit plans, including Jeanneret’s clients, invested in the Beacon and Andover funds. Like Jeanneret, the department alleged that the two fund companies and their owners and officers largely ignored Ivy’s recommendations to reduce their Madoff investments and failed to take prudent steps to investigate Madoff, while still taking substantial amounts in fees as the investment managers for the Beacon and Andover funds. The suit also charged Beacon, Andover and their principals with making misrepresentations and failing to disclose to their plan investors that Ivy had informed them it was unable to perform due diligence on Madoff, and that Beacon and Andover had entered into agreements with Ivy that eliminated Madoff from Ivy’s due diligence responsibilities.
Under the settlement agreement, Ivy and its principals have agreed to pay a total of $210 million. Jeanneret and its owners, John P. Jeanneret and Paul Perry, have agreed to pay $3 million. Beacon and Andover and their owners, Joel Danziger and Harris Markhoff, have agreed to pay $3.5 million and relinquish a claim of more than $3.3 million for management fees.
The settlements resulted from investigations conducted by the New York and Boston regional offices of the Employee Benefits Security Administration, an agency of the Labor Department. Litigation was conducted by the Plan Benefits Security Division of the department’s Office of the Solicitor in Washington, D.C.