State Says Bank, Adviser Took $16 Million|In Fees for Turning Money Over to Madoff

HARTFORD (CN) - The Connecticut banking commissioner wants Westport National Bank and PSSC Services, an investment adviser, to return the $16.2 million in fees they got for turning over clients' money to Bernard Madoff. Prosecutors say the bank "created, offered and sold two unregistered investment vehicles known as BLM1 and BLM2" for clients sent to them by PSSC president Robert Silverman.

Attorney General Richard Blumenthal, who filed the case, is seeking the U.S. Senate seat being vacated by Christopher Dodd.

Blumenthal says the bank, a division of Connecticut Community Bank, collected $2.4 million in fees between 2000 and 2007 as a custodian of its clients' funds, but handed over most of its responsibilities to PSCC and Silverman, who sent the money with Madoff.

Blumenthal said 240 investors, including 97 in Connecticut, put money into the two BLM funds, which they thought Westport National Bank was going to manage. Blumenthal said the bank ignored indications of fraud.

Blumenthal said at a press conference that PSSC earned $13.8 million in fees, and that "this fee was so high that even Madoff himself questioned the amount of the fee."

"After Madoff complained in 2005, PSCC lowered its fee to approximately 2.4 percent of the assets of the clients," according to the complaint.

Blumenthal says the bank provided PSCC with bank letterhead so it could prepare letters for investors and prospective investors, as if the investors were corresponding with Westport National Bank.

"These investors were betrayed twice, first by Madoff and then by their advisers who charged them millions and then hurled them into the abyss," Blumenthal said. "Not only did they mislead investors, but [they] miscalculated fees to enrich themselves." Westport National Bank President Richard Cummings Jr. said in an email that the bank denies the allegations.

"The attorney general's inflammatory press release contains numerous inaccuracies and fabrications with respect to our role and conduct," Cummings wrote.

"We never introduced anybody to Madoff or recommended that anybody invest with Madoff. We are shocked and disappointed by the actions of the attorney general." PSSC's answering machine was full and could not take messages from several calls placed to the organization on Monday.

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