(CN) – Two of Bernard Madoff’s proprietary traders say Madoff’s sons, Mark and Andrew, “perpetuated a fraud of their own on their employees,” and demand a total of $1.7 million. The men say the Madoff sons “had long known that their father’s advisory business was an illegal enterprise,” but failed to disclose it “to induce plaintiff (and others) to continue to earn legitimate profits.”
Richard Stahl demands $1.3 million from Mark and Andrew Madoff, and Reed Abend demands $474,000, in separate complaints in New York County Court.
Both men say they were proprietary traders for Madoff Securities. Both say they were promised $75,000 salaries plus 25 percent of the profits from their trades. Both say that “It is universally recognized that while most of Madoff Securities was a giant Ponzi scheme, the trading business managed by the Madoff sons was a legitimate business enterprise that earned legitimate profits. The proof that this business was both legal and profitable is demonstrated by the fact that after Madoff Securities was taken over by the United States government through the Securities Investment Protection Corporation (‘SIPC’), the SIPC trustee sold the trading business for an amount that could equal $25.5 million.”
Stahl and Abend say they were two of 32 people who worked as proprietary traders in the “trading business.” By Dec. 15, 2008 – the day a federal bankruptcy judge ordered Madoff Securities to be liquidated – Stahl said he had made $5 million in profits for the year; Abend says he made $2 million, “and did so during the worst market sell-off in recent memory.”
In identical language, the two complaints state: “It is now clear that the Madoff sons had long known that their father’s advisory business was an illegal enterprise, and that its criminal conduct threatened the trading business and each of its employees. Nevertheless, in order to perpetuate their father’s lawless conduct, the Madoff sons made false statements to plaintiff (and other employees) and failed to disclose Madoff Securities’ criminal actions in order to induce plaintiff (and others) to continue to earn legitimate profits.”
The nearly identical 10-page complaints offer no overwhelming evidence that Madoff’s sons knew that their father was running a Ponzi scheme. They claim that the sons “affirmatively deceived” them “by misrepresenting the legitimacy of Madoff’s investment advisory business.”
Barron’s magazine published an article in 2001 called “Don’t Ask, Don’t Tell,” which questioned how Madoff’s investment advisory could earn 15 percent profits for more than a decade, “and noted several highly suspicious characteristics of the business,” according to the complaints.
The complaints continue: “In response to the Barron’s article, the Madoff sons told the employees of the trading business – including plaintiff – that the suspicions raised by the article were not true. The Madoff sons went on to state falsely that Madoff’s investment advisory business was completely legitimate.
“The Madoff sons knew that these statements were false when they made them, as evidenced by, among other things, that the Madoff sons were Madoff’s children and assisted in the management of the business.”
After the Ponzi scam collapsed, Stahl and Abend say, they were not paid the money owed them for 2008. They want the money they say they earned, and punitive damages for fraud, fraudulent omissions. Both men are represented by Adam Mitzner with Pavia & Harcourt.