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Tuesday, May 21, 2024 | Back issues
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Class Claims Bank Gave Money to Madoff

(CN) - The EFG Bank, of Switzerland, and its investment arm, EFG Capital International, induced consumers to invest in "feeder funds" that were lost in Bernard Madoff's $60 billion Ponzi scheme, according to a federal class action in Miami.

Named plaintiffs Lorrene and Arlete Da Silva Ferreira say that at EFG Capital's suggestion they invested $120,000 in the Fairfield Sentry Limited Hedge Fund in 2005. But they say Fairfield was effectively controlled by Madoff, and their money evaporated with his arrest and guilty plea to 11 felony charges.

The Ferreiras say EFG Bank allowed the funds to remain invested with Madoff despite numerous red flags that had been raised in the months before his arrest.

They also say EFG Capital unjustly held onto commissions it collected, and of failing to disclose that it was receiving substantial "placement" fees from the Fairfield Greenwich Group for its promotion and sale of the Fairfield Sentry fund.

The Ferreiras seek compensatory and punitive damages and disgorgement of all fees paid to EFG Bank in connection with the investments.

The Fairfield Sentry Limited Hedge Fund was one of the main feeder funds that invested heavily in Madoff and Bernard L. Madoff Securities LLC, according to the complaint. As much as 95 percent of the $7.5 billion invested in the fund was handed over to Madoff, the complaint states.

Among the obvious red flags they say the bank should have noticed were the lack of a third-party custodian or administrator, Madoff's use of an obscure and ill-equipped auditor, audit reports that showed no evidence of customer activity whatsoever, lack of electronic access to accounts, and Madoff's use of a suspect investment strategy.

Reports in Barron's and other business publications had expressed doubts about Madoff's investments and the returns he claimed to be achieving. Despite these reports, EFG Capital never took any meaningful steps to confirm that any legitimate investments were being made on its clients' behalf, according to the complaint.

The Ferreiras said they received monthly statements that by July 2008 were reporting that their $120,000 had grown to $151,500.

But on Dec. 31, 2008, days after Madoff was charged, the Ferreiras say they received a statement putting the value of their investment at zero. It said that the "true value [of their investment was] currently not meaningful given fraud allegation."

The Ferreiras seek damages for breach of fiduciary duties, gross negligence, unjust enrichment and violation of Florida's Deceptive and Unfair Trade Practices act.

The Ferreiras' lead attorney is Lawrence Kellogg with Levine, Kellogg & Lehman.

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