Due diligence by Ivy Asset Management revealed discrepancies in Madoff's stated investment strategy, according to a statement by New York Attorney General Eric Schneiderman, who announced the settlement Tuesday.
While Ivy steered clients to invest in Madoff, thereby collecting fees for itself, some at the firm had reservations about Madoff, the attorney general said.
Schneiderman cited an email one Ivy principal sent to a subordinate: "Ah, Madoff, you omitted one possibility -- he's a fraud!"
Ivy didn't disclose its suspicions to clients, Schneiderman said, and falsely told them that "we have no reason to believe there is anything improper in the Madoff operation."
"Ivy Asset Management violated its fundamental responsibility as an investment advisor by putting its own pecuniary interests ahead of the interests of its clients," Schneiderman said. "An investment advisor 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."
Madoff's multibillion-dollar Ponzi scheme was revealed in December 2008. He is serving a 150-year prison sentence.
Schneiderman sued Ivy in 2010. The settlement concludes suits also brought by the U.S. Department of Labor and private plaintiffs, and includes another $9 million from other defendants. The settlement will repay Madoff's investors and cover fees and expenses of those who brought the suits.
©2012 Los Angeles Times
Visit the Los Angeles Times at www.latimes.com
Distributed by MCT Information Services
Our new comment system is not supported in IE 7. Please upgrade your browser here.