Madoff Trustee Sues 25 Fairfield Greenwich Affiliates

The trustee for convicted Ponzi scheme operator Bernard Madoff's firm sued more than two dozen affiliates of Fairfield Greenwich Group and its founding partners late Tuesday, saying they wrongly enriched themselves from the fraud.

The amended complaint, filed by court-appointed trustee Irving Picard, adds 25 Fairfield Greenwich affiliates and 19 individuals as defendants, including Walter Noel and two other founding partners. Mr. Picard previously sued three Fairfield Greenwich hedge funds, which served as feeder funds to Mr. Madoff.

The complaint, filed in federal bankruptcy court in Manhattan, alleges the Fairfield Greenwich affiliates and the individual defendants had "actual and constructive knowledge" of Mr. Madoff's fraud and "generally looked the other way" in the interest of profit. Fairfield Greenwich is believed to be the largest feeder to Mr. Madoff.

"The defendants were not victims," the lawsuit said. "They were enablers. They were facilitators. They deepened the pain of Madoff's customers and their own investors. The effect of their actions was a catastrophic continuation of the Ponzi scheme, the worsening of the (Bernard L. Madoff Investment Securities LLC's) insolvency and billions of dollars in additional damages."

Mr. Madoff, 72 years old, admitted in March 2009 to running a decades-long Ponzi scheme that bilked investors out of billions of dollars. He is serving a 150-year sentence in a federal prison in North Carolina.

The complaint alleges more than $1 billion was transferred from the three Fairfield Greenwich feeder funds to other affiliates as management, performance and administrative fees. Mr. Picard is seeking more than $3.6 billion in damages.

In a statement, Fairfield Greenwich said the trustee's new complaint is "replete with false, misleading and rehashed accusations." The company said it was in the middle of good-faith negotiations with the trustee and other parties and found the filing at this time "incomprehensible." The company said it has cooperated fully with the trustee and remains willing to work toward a settlement.

"We are outraged that Mr. Picard has chosen to characterize a number of so-called 'red flags'—warning signals apparent only in hindsight—as evidence that Fairfield Greenwich participated in the Madoff fraud," the company said. "We reject absolutely the allegation that Fairfield Greenwich or any of its executives or employees was aware of the fraud or in any way abetted it."

Fairfield Greenwich said it made good-faith efforts to monitor and safeguard its investments with Mr. Madoff and has cooperated in probes by the Securities and Exchange Commission and other regulators.

In September, the company agreed to pay $8 million to settle civil fraud charges by Massachusetts Secretary of State William Galvin. The settlement covered about 15 Massachusetts investors who lost money in the scheme.

Fairfield Greenwich said its principals invested alongside their clients and suffered more than $70 million in losses in the Madoff fraud.