Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Sunday, June 16, 2024 | Back issues
Courthouse News Service Courthouse News Service

Financier Who Invested in Madoff Ducks Liability

MANHATTAN - (CN) - After losing a $1.5 million investment that an offshore hedge fund entrusted with Bernard Madoff, an Israeli charity cannot sue financier J. Ezra Merkin, a federal judge ruled.

Keren Matana sued Merkin and his hedge fund group, Gabriel Capital Corp., in Manhattan in March. The Israeli charity said it invested $1.5 million in the offshore hedge fund Ascot Fund Ltd., which the defendants managed.

Ascot invested substantially all of its assets with Madoff, losing them all after Madoff's multibillion dollar scheme was exposed.

The court dismissed the original complaint in July, but granted Keren Matana narrowly limited leave to amend.

Keren Matana then filed state-law claims of fraud and bad faith. The amended complaint alleges that Keren Matana was the intended third-party beneficiary of a partnership agreement with Ascot in 2002, and that there was a previously undiscovered oral contract between Merkin and the charity's manager, Benjamin Jesselson.

U.S. District Judge Paul Engelmayer dismissed the complaint Friday, stating that the amended complaint did not follow his earlier directives.

"KM was not a party to the asserted written contract," the 26-page opinion states. "And, as to both asserted contracts, the amended complaint runs afoul of the court's August 6, 2013 admonition that, in granting leave to amend, 'the court did not invite, or intend to invite, plaintiff to bring claims or articulate legal theories that could have been brought earlier in this litigation.'"

Keren Matana could have just as easily brought both new claims in earlier in the litigation, and it did not explain its failure to do so, Engelmayer said.

Even if the new claims were properly within the scope of the leave to amend, Engelmayer said he would still have to toss the suit for failure to state a claim.

Precedent dictates that shareholders of a corporation cannot be third-party beneficiaries of contracts entered into by that corporation, and Keren Matana has cited no law to the contrary, according to the ruling.

Engelmayer also deemed the second claim "inadequately pled."

"The amended complaint does not specifically allege any such oral agreement; at best, paragraph 110 alleges that Merkin made an oral promise upon which KM relied, but the amended complaint does not anywhere allege an exchange of promises or other consideration, nor does it allege the date on which the contract was entered," he wrote. "Indeed, the first time KM explicitly referred to a supposed oral contract was in its memorandum of law opposing the motion to dismiss the amended complaint."

Any such oral agreement would be precluded as a matter of law, anyway, because KM disclaimed any reliance on representations made outside of the fund documents and any independent investigations it made, according to the ruling.

Keren Matana's suit was the latest of several against Merkin in the years after Madoff's fraud was exposed.

He and Ascot Partners were sued in 2008 by the New York Law School over an alleged $3 million losses.

In 2009, then-New York Attorney General Andrew Cuomo also filed suit, alleging that Merkin charged clients $470 million to "manage" their money while simply turning it over to Madoff who lost $2.4 billion of it.

Merkin sued a charitable trust in New York County Court last year, seeking legal costs for his defense in arbitration against him.

Follow @davejourno
Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.