Ezra Merkin: Criminal or Just Really Lazy?

New York attorney-general Andrew Cuomo filed civil fraud charges against Ezra Merkin for allegedly secretly channelling more than $2.4 billion of his client's assets to the Madoff ponzi machine. Curiously, no criminal charges have been filed and Mr. Cuomo isn't attempting to prove that Mr. Merkin knew about the Madoff fraud. Instead, Mr. Merkin stands accused of misleading investors by failing to inform them that he was merely funneling their money into one investment strategy; that of a fraudulent ponzi scheme. According to Mr. Cuomo's complaint, about 85% of investors in the the Ascot fund believed their assets were diversified and didn't know that most of their money was flowing directly to Mr. Madoff. Furthermore, Mr. Merkin informed investors in his two other funds, Gabriel and Ariel, that he was investing in distressed assets and bankruptcies, when he was investing it in a stock and option fund that was actually a ponzi scheme. It's one thing to declare that you are a feeder fund for another, and quite another to claim that you are actively investing when you are just in the business of wiring money. As in the case with Fairfield Greenwich and the other feeder funds, investors are angry that all of the advertised extensive due diligence didn't uncover the Madoff fraud. Mr. Merkin's victims, including an angry Mort Zuckerman who is filing a separate suit, are particularly irked that they were sold one investment strategy and received quite another in return. Mr. Merkin's fees were outrageous for the service he actually provided; that of a high-priced Western Union franchise with Mr. Madoff as the ultimate beneficiary.

The Wall Street Journal provides a great excerpt from the New York state attorney general's deposition of Mr. Merkin. In response to a question from the attorney general asking if Mr. Merkin took steps to conceal his relationship with Mr. Madoff, Mr. Merkin responds with the following classic quote: "I did not have a policy of not disclosing a relationship with Mr. Madoff or not." With eloquence like that and the work ethic of a three-toed sloth, it's a wonder that Mr. Merkin was ever able to amass billions of dollars to manage. Then again, bull markets are not particularly discriminating.