J. Ezra Merkin
J. Ezra Merkin | |
---|---|
Born | Jacob Ezra Merkin April 19, 1953 |
Nationality | American |
Education | B.A. magna cum laude Columbia University (1976), JD, with honors Harvard Law School |
Board member of | Board of Visitors, Columbia College; Vice Chairman, Ramaz School, New York City; Managing Partner, Gabriel Capital Group (1985–); Member of the Board, GMAC (Resigned as non-executive Chairman); Beyeler Foundation (Switzerland) Trustee; Carnegie Hall Trustee |
Jacob Ezra Merkin (born April 19, 1953),[3] also known as "The Rabbi",[2][4] is an American money manager and financier. He was a close business associate of the convicted Ponzi scheme operator Bernard Madoff, and is alleged to have played a significant part in the Madoff fraud. He served as the Non-executive Chairman of GMAC until his resignation on January 9, 2009, at the insistence of the U.S. government.[5] He was the general partner of Gabriel Capital LP, a $5 billion group of hedge funds which was dissolved in 2008 after heavy losses in the Madoff fraud.
On April 6, 2009, Merkin was charged with civil fraud by the state of New York, for "secretly steering $2.4 billion in client money into Bernard Madoff's Ponzi fraud without their permission."[6] On May 18, 2009, Merkin agreed to New York Attorney General Andrew Cuomo's demands to step down as manager of his hedge funds and place them into receivership.[7]
Contents
Personal
He is the son of prominent businessman Hermann Merkin and Ursula Merkin (née Ursula Sara Breuer), both German-born Orthodox Jews who fled Germany prior to World War II to escape Nazism. Merkin's sister is Daphne Merkin, a writer. He and his wife, Lauren, have four children.
On May 20, 2009, he resigned as President of Fifth Avenue Synagogue, which was founded by his father in 1959. Members include some of his largest Madoff-related investors, losing in total, more than $1 billion. [8]
Merkin attended Ramaz, an Upper East Side Modern Orthodox prep school, Yeshivat Kerem B'Yavneh and Yeshivat Har Etzion yeshivas in Israel, then Columbia University and Harvard Law School.
In 1995, he paid $11 million for an 18-room duplex formerly owned by Ron Perelman, a member of his synagogue, at 740 Park Avenue, sometimes referred to as "the world's richest apartment Building."[9] In 2003, he began to collect 12 Mark Rothko paintings, the largest private collection in the world, worth an estimated $150 million.[5][10] The Rothkos were sold in 2008, under an agreement with the receiver, for $320 million.
Merkin also owns a home in Atlantic Beach, New York, valued at $1.7 million, and a property in Eagle County, Colorado, worth $506,000.[11]
Business background
“It’s very, very difficult for Ezra to make decisions. He worried about the big picture, fretted over allocations. His gift was that he was a world-class salesman. He recognized that many people didn’t have (investment decision) confidence, that if people had confidence in him, then he could give them confidence,” said one money manager who worked with him over the years.[5]
From 1979–82, he worked for the law firm Milbank Tweed. He worked at Halcyon Investments from 1982 to 1985. He moved on to Halcyon, a hedge fund run by Alan B. Slifka, his father's friend. There he met Joel Greenblatt, who founded Gotham Capital in 1985, where Merkin worked until 1988, as an analyst and a managing partner in Gotham Capital LP and Ariel Capital LP.[11]
In 1988, he started Gabriel Capital to raise capital, and funnel it to managers in exchange for a fee. By 1992, Merkin was raising money and co-managing securities with and for Stephen A. Feinberg, a manager whose private-equity firm Cerberus Capital Management, later bought controlling shares in Chrysler (80%) and GMAC (51%, at a cost of $6.4 billion),[12] the financing arm of General Motors.[13] Merkin invested his funds into Cerberus and its portfolio companies. His Gabriel fund invested $79 million in Chrysler, $66 million in GMAC, and $67 million in Cerberus partnerships, according to year-end statements.[14]
On March 30, 2009, it was announced that Cerberus would lose its controlling stake in Chrysler. [15]
In 2005, Cerberus and Gabriel bought a 9.9% combined interest in Bank Leumi, but in April 2009, decided to sell in order to boost liquidity due to their substantial financial losses in 2008.[16]
Merkin manages Ascot Partners LP, a hedge fund which was valued at $1.8 billion prior to the collapse of Bernard L. Madoff Investment Securities LLC.[17]
GMAC
In 2006, Cerberus appointed Merkin as nonexecutive Chairman.[18]
In a statement, on December 10, 2008, GMAC said, "GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company's outstanding debt and raise capital hasn’t attracted enough participation." This was in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers' inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC. [19] GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. GMAC's exposure to the gap in residual values is around $3.5 billion.[20]
As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it couldn’t pay back all of its debt.[21]
In January 2009, Merkin resigned from his chairmanship as a condition of the U.S. government. [5] Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could obtain access to bailout money.[22]
On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).
Victor Teicher
Victor Teicher specialized in merger-related investments. In 1988 he was indicted for insider trading, convicted in 1990, and in 1994 jailed for a year.
In August 1998, Merkin again hired Teicher to manage about $1 billion as an independent operator,[5] paying him $1 million a year plus incentives.[23] In 1988 Merkin began putting a substantial portion of the money he raised for Gabriel Capital with Teicher. From 1988 to 1998, Teicher actually managed Merkin’s off-shore, Ariel fund and Gabriel Capital. Merkin “occupied himself primarily with raising money for the funds using his extensive social and professional network.” [24]
While in jail, Teicher was running about $375 million from Merkin's investors. In January 1995, Merkin took over Teicher's staff, put Gabriel Capital’s name on the door, and hired Nathan Leight to manage the money.[5]
Teicher had told Merkin not to invest with Madoff because such steady returns were impossible. [25] After Madoff's arrest, Teicher immediately sent some emails to Merkin:
“You, however, took a brilliant career and actively, willingly, wiped your ass with it when it was obvious that you (knew what you) were doing.”[26]
“The Madoff news is hilarious; hope you negotiate out of this mess as well as possible ....Unfortunately, you’ve paid a big price for a lesson on the cost of being greedy.”[27]
"I guess you did such a good job in fooling a lot of people, you ultimately fooled yourself...a man's name tells you who he is; Madoff made off with the money.[28]
Bernard Madoff scandal
Merkin kept two 2001 news articles questioning Madoff's returns – one published in Barron's and one by a hedge fund newsletter called MARHedge.[25]
In the early 1990s Jack Nash, former chairman of Oppenheimer & Company and a pioneer of the modern hedge fund industry, had briefly invested with Madoff, but pulled his cash out after a closer look. He told Merkin numerous times over the years that he was suspicious of Madoff's steady profits. Madoff had given vague answers to questions about his investment strategy in meetings with Nash and his son Joshua, also a successful investor. In 1982, Nash co-founded the hedge fund Odyssey Partners after selling Oppenheimer for $163 million. He and his partner, Leon Levy, built Odyssey into a $3.3 billion investment firm before closing the fund in 1997. During its 14 years, the firm earned an average return of 22.4 percent a year for its investors.[29]
Merkin's sister, Daphne has opined in writing, that investors considered Madoff as being part of an extended Jewish family, giving the appearance he was trustworthy, having their best interests at heart, and a nice guy. [30]
By 1992, Bernie Madoff began underwriting Merkin's lifestyle. Merkin collected an annual fee of 1 – 1.5% of the funds' total assets.[25] By 2005, Merkin earned about $35 million a year simply for funneling money to Madoff.[5] Merkin invested personally and through family trusts and foundations $7 million in Ascot in its first six years, and less than $2 million over the following 10 years. He did not reinvest his $169 million in management fees for the years 1995 to 2007 back into his Ascot. [25]
On December 11, 2008, Federal Bureau of Investigation agents arrested Bernard Madoff on a tip-off from his sons, Andrew and Mark, and charged him with one count of securities fraud. On the day prior to his arrest, Madoff told his senior executives at the firm that the management and advisory segment of the business was "basically, a giant Ponzi scheme."[31]
In an official letter distributed to alumni, students, faculty, and administration, Yeshiva University President Richard Joel stated that Merkin, who was Chairman of the University Investment Committee, managing its endowment of almost $1.8 billion (as of about 2 years ago), had invested about $112 million in his own hedge fund, Ascot Partners, which was almost solely invested with the Madoff fund. In actuality, it was an initial investment of $14 million that became falsely inflated to $112 million over time. As such, Merkin collected an initial fee of one percent and later 1.5 percent, standard for all of Yeshiva’s money managers on whose Board of Trustees he sat. He collected over $2 million in fees, almost $1 million for Ascot alone. In fourteen years, the fund grew 9 percent a year, even after subtracting losses for Madoff and expenses. He made at least $10 million from Yeshiva over his tenure. [5] Although Joel implicitly acknowledged that the university's charter lacked a conflict of interest restriction on the management of school funds, Merkin resigned from all of his positions at Yeshiva that day.
Over 30 charities invested with Ezra, many of them with a Jewish affiliation.[5]
According to the New York Post, as a result of the alleged fraud, members of Manhattan's Fifth Avenue Synagogue, for which Merkin served as president, "suffered a $2 billion bloodbath."[32] Through introductions by President Merkin, Madoff, a non-member, gained access to some of the wealthiest Jews in America.[33]
They include: Ronald O. Perelman, the financier and corporate raider; Ira Rennert, who made a fortune in junk bonds and the Hummer; Mort Zuckerman, the real estate magnate who owns The New York Daily News, and as a Madoff intermediary with Elie Wiesel, the Nobel Peace Prize winner, who lost much of his personal wealth and the endowment of the Elie Wiesel Foundation for Humanity. [8]
Spring Mountain Capital LP, invested in three Merkin-led funds. $35 million in Madoff investments amounted to 4.4 percent of Spring Mountain's $800 million in hedge-fund fund-of-funds investments, but Madoff represented as much as 7 percent of at least one fund. John "Launny" Steffens, former executive of Merrill Lynch, managing director of Spring Mountain Capital LP], invested about $40 million with Merkin’s Ascot Partners LP and was aware of their heavy Madoff exposure.[34] Daniel Tully, 77, and David Komansky, 69, each a former chairman and chief executive officer, and colleague, Barry Friedberg, also lost money in the Merkin fund. [35][36]
Civil fraud charge
On January 15, 2009, New York State Attorney General Andrew Cuomo issued subpoenas to three investment funds run by Merkin, and 15 nonprofits which say they lost money due to Merkin and Madoff.[37] The investigation examined [38] whether Merkin had properly disclosed where the money was being invested. The nonprofits are being asked how they were affected by the Madoff scandal, and if the nonprofits exercised due diligence to protect themselves from losses. Merkin reportedly collected over $40 million a year in fees.[18]
On April 6, 2009, New York Attorney General Andrew Cuomo filed civil fraud charges [39] against J. Ezra Merkin alleging he "betrayed hundreds of investors" by moving $2.4 billion of clients' money to Bernard Madoff without their knowledge. The complaint states, he lied about putting the money with Madoff, failed to disclose conflicts of interest, and collected over $470 million in fees for his three hedge funds, Ascot Partners LP with Ascot Fund Ltd., Gabriel Capital Corp. and Ariel Fund Ltd. He promised he would actively manage the money, but instead, he misguided investors about his Madoff investments in quarterly reports, in investor presentations, and in conversations with investors. "Merkin held himself out to investors as an investing guru.... In reality, Merkin was but a master marketer."[6][38][40][41]
In addition, the complaint accused Merkin of improperly commingling his personal funds with his hedge fund accounts and using some of the money to buy artwork worth more than $91 million. Mr. Cuomo’s office is seeking restitution and unspecified damages from Mr. Merkin.[24]
Madoff depended on feeder funds to funnel investor deposits directly to him. In 2000, Merkin told investors in his Gabriel and Ariel funds that he was investing in distressed assets and bankruptcies when he actually transferred more than one third of each of those funds' money to Madoff.[25]
Merkin's Ascot Partners formed in 1992, held $1.7 billion from 300 investors, and earned him $25.5 million per year by the end of December, 2008. He advised investors that only 15% of the fund was invested with Madoff. [25] "Substantially all" of its assets went to Madoff, [42] although he represented the contributions as only a 15% investment.[25]
On December 11, 2008, Merkin informed investors in his $1.8 billion Ascot Partners fund that he was among those who suffered substantial personal losses, since all of the fund's dollars were invested with Madoff.[42][43] Many of them were not aware or told of the connection to Madoff, and Merkin denied any connection to Madoff when asked by an investor.[44] Merkin lied to a client that his investment was with Morgan Stanley, and protected. [25]
Lawsuits
On December 16, 2008, the New York Law School filed a lawsuit against Merkin, Ascot Partners, and its auditor BDO Seidman, LLP after losing its $3 million investment in Ascot. The lawsuit charged Merkin with recklessness, gross negligence, and breach of fiduciary duties.[45] Merkin has been sued for his role in running a "feeder fund" for Madoff.[46]
On December 23, 2008, New York University filed a lawsuit to recover $24 million lost in the Ariel Fund, Ltd. and the Gabriel Capital Corp. It claims that the university was unaware Merkin was actually turning NYU’s money over to Madoff. NYU states that in 1994 Merkin was warned by then-manager of the Ariel Fund, Victor Teicher, that Madoff was delivering impossible returns. Teicher worked for Merkin while serving time in federal prison in New Jersey for insider trading. The substance of Merkin's due diligence was to ask Madoff directly, if Teicher was correct. Attorney Andrew J. Levander represents both Merkin and Teicher; the latter is petitioning the SEC for reinstatement.[47] [48] Justice Richard Lowe in the Manhattan State Court unsealed documents which detail manager conversations including Teicher, client disclosures, and fee arrangements with Merkin.[26]
The case is New York University v. Ariel Fund Ltd. 603803/2008 in New York State Supreme Court (Manhattan). [49]
In December 2008, the Calibre Fund, which invested $10 million with Merkin’s Ascot Partners LP, and other Merkin investors claimed in federal suits that he misled them by claiming he invested in a “diverse portfolio of securities.” [50]
On March 4, 2009, Nephrology Associates PC Pension Plan filed a class action lawsuit in district court. [51]
On March 10, 2009, Howard Schiffman, attorney for the Ariel Fund requested that New York State Supreme Court Justice Richard Lowe III lift an order prohibiting assets from being transferred out of the Ariel Fund, because Merkin wanted to wind down the fund. The order prevents the Ariel Fund from engaging counsel to file claims against the estate of Bernard Madoff's firm; from paying its lawyers in the NYU lawsuit; and from paying attorneys to assist in its efforts to cooperate with government probes into Madoff's fraud. The Ariel Fund is a Cayman Islands fund, with an independent board of directors and administrator located in the Cayman Islands.[52]
On April 6, 2009, Mort Zuckerman, chairman of Boston Properties Inc. and publisher of the New York Daily News, filed a lawsuit against Merkin and his Gabriel Capital LP. The lawsuit claims fraud and negligent representation and seeks unspecified punitive damages. Merkin had a “huge incentive not to disclose Madoff’s role, especially to investors like Zuckerman,” because he charged clients “substantial fees” to manage both his Ascot Partners LP and Gabriel Capital. The lawsuit claims over $40 million in losses for placing his assets with Bernard L. Madoff Investment Securities LLC without his knowledge. Zuckerman invested $25 million with Merkin’s Ascot Fund in 2006 through his Charitable Remainder Trust, or CRT Investments Limited, and personally invested $15 million with Merkin’s Gabriel Capital. Merkin charged Zuckerman a 1.5% fee and imposed significant “lock-up restrictions on redemptions,", but his agreement with Gabriel Capital contains an arbitration clause against Merkin for his lost personal $15 million investment. The lawsuit also named the accounting firm BDO Seidman LLP, and a related entity called BDO Tortuga, as defendants.[50]
The case is CRT Investments Ltd. v. J. Ezra Merkin, 601052/2009, filed in New York State Supreme Court (Manhattan).
Arbitrations
On May 17, 2010, it was reported that, in the first case to reach verdict or award, an individual investor in Merkin's Ascot Partners L.P. hedge fund, Noel Wiederhorn MD, was awarded approximately $1.75 million by two members of a three-person arbitral panel, who found that "Merkin intentionally breached his fiduciary duty by not disclosing Madoff’s role in the fund". The arbitrators ordered Mr. Merkin to pay the investor, a New Jersey pediatrician, damages equal to 100% of his investments in Ascot, plus close to $300,000 in pre-award interest.[53]
The reasoned award issued in this case is available on-line.[54] In the award, the two arbitrators in the majority found that both Mr. Merkin and the investor "were victims," but that Mr. Merkin "did not make [the investor] an informed investor with regard to how his $1,462,040 would be invested. Mr. Merkin did not disclose material information to [the investor] about how he, the Managing Partner, 'managed' Ascot and why he was due 1.5% of assets under management." According to the majority: "Mr. Merkin should have acknowledged what the Panel concludes were his limitations to truly understand the options trading that was [allegedly] taking place and, because his fiduciary duties demanded it, he should have had someone in his office (or even outsourced services) ... do more than just accept what was being mailed to Ascot by Madoff Securities." The majority found that Merkin was "negligent" in his due diligence of Madoff but not "grossly negligent" (the contractual standard for the imposition of liability). While making an award on the pediatrician's non-disclosure and misrepresentation claims (and ordering complete restitution of the amounts invested), the majority denied the investor's claims for damages for emotional suffering, punitive damages, and attorneys' fees.
In dissent, the third panelist found, among other things, that the investor was aware of Mr. Madoff's role in Ascot and that Mr. Merkin had a right to rely on the documentation received from Madoff Securities as genuine, as so many other investors, and regulators, apparently did. The dissenter also found that the investor did not prove that Mr. Merkin acted with scienter, or an intent to defraud or mislead.
On May 17, 2010, the investor filed a special proceeding in state court in New York to convert the arbitral award into an enforceable judgment, a process known as confirmation. Mr. Merkin opposed the special petition. In August, 2010, Justice Richard B. Lowe granted the investor's petition to confirm and denied all relief to Mr. Merkin and his management company, Gabriel Capital Corporation. Mr. Merkin has disclosed that he intends to appeal Justice Lowe's rulings.
In September, 2010, it was disclosed that two New Jersey based fund-of-funds, Sandalwood Partners Funds A and B, won an arbitral award of $12.74 million from Mr. Merkin. These investors have also filed for confirmation in state Supreme Court in New York. The arbitral panel did not issue a reasoned award in the case. The Sandalwood investors invested in Mr. Merkin's Gabriel Capital, L.P., a fund which had entrusted approximately 30% of its assets to Mr. Madoff as of December 2008.
Bankruptcy case
On May 7, 2009, Madoff Bankruptcy Trustee, Irving Picard filed a lawsuit [55] against Merkin seeking to recover almost $500 million withdrawn from Madoff accounts in the last six years. The complaint alleges that since 1995, Merkin steered more than $1.0 billion to Madoff through three private hedge funds, Ascot Partners, Ariel Fund, and Gabriel Capital. Since 2002, the funds withdrew at least $494 million from Madoff — returns that Merkin “knew or should have known” were fraudulent. There were at least 500 instances in the last 10 years when his Madoff account statements showed large blocks of stock bought or sold at prices that did not match the stock’s trading range for the day when the transactions supposedly occurred.[56]
The case number is 08-01789 (BRL): IRVING H. PICARD, Trustee for the Liquidation of Bernard L. Madoff Investment Securities LLC, v. J. EZRA MERKIN, GABRIEL CAPITAL, L.P., ARIEL FUND LTD., ASCOT PARTNERS, L.P., GABRIEL CAPITAL CORPORATION.[55]
Receivership
As of May 18, 2009, Merkin's control of Ascot, Gabriel and Ariel hedge funds are to be placed into receivership for liquidation by Guidepost Partners. One receiver will be responsible for managing the remaining money, nearly $1 billion, in the Gabriel and Ariel funds, and another will be responsible for overseeing Ascot, whose entire $1.8 billion in assets was lost to Madoff's Ponzi scheme. New York University has been given until the end of May, 2009 to review the agreement. .[7] Merkin collected over $470 million for managing three funds, Ariel, Gabriel and Ascot Partners, over the last decade. The three funds have about $1.4 billion in assets remaining with about $700 million in Ariel.[57]
On June 22, 2012, Merkin agreed to pay back $405 million to investors in his hedge funds.[58] Picard, however, sued in bankruptcy court to stop the settlement, saying it obstructed his own effort to obtain $500 million from Merkin and his funds for other investors.[59]
Quotes
"It is not easy to stay on the sidelines while others are busy getting rich. Wall Street, moreover, is constitutionally predisposed to overdo things. The stereotype imagines a Wall Street populated by bulls and bears. In reality, the Street itself is neither bull nor bear but shark, constantly shifting direction in an eternal search for food. This feeding process involves massive shifts of capital, which inevitably, is sometimes misallocated." – J. Ezra Merkin, writing in an introduction to a chapter in the 75th anniversary version of Graham and Dodd's Security Analysis.
"As long as investors remain human, and thus subject to greed, fear, pressure, doubt, and the entire range of human emotions, there will be money to be made by those who steel themselves to overcome emotion. Think of Graham and Dodd as embodying the spirit of Hamlet, Prince of Denmark, who declared: 'Blest are those/Whose blood and judgement are so well commingled,/that they are not a pipe for Fortune's finger/to sound what stop she please.'"[60]
References
- ↑ Lua error in package.lua at line 80: module 'strict' not found., "Ezra Merkin, a money manager and leading member of New York’s tightly knit Modern Orthodox Jewish community...", "Mr Merkin followed his father in becoming president of the Fifth Avenue Synagogue"
- ↑ 2.0 2.1 Lua error in package.lua at line 80: module 'strict' not found., "[Merkin] was the "Rabbi of Wall Street," according to federal court documents"
- ↑ Lua error in package.lua at line 80: module 'strict' not found.
- ↑ Lua error in package.lua at line 80: module 'strict' not found., "But [Merkin] is best known in his world as “the Rabbi”"
- ↑ 5.0 5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 Lua error in package.lua at line 80: module 'strict' not found.
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- ↑ [1][dead link]
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- ↑ 25.0 25.1 25.2 25.3 25.4 25.5 25.6 25.7 Lua error in package.lua at line 80: module 'strict' not found.
- ↑ 26.0 26.1 Lua error in package.lua at line 80: module 'strict' not found.
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External links
- Deposition of J. Ezra Merkin: Madoff Charities Investigation, State of New York (January 30, 2009)
- Civil Fraud Complaint State of New York (April 6, 2009)
- Exhibits, Civil Fraud Complaint
- Continued Exhibits, Civil Fraud Complaint State of New York, (April 6, 2009)
- Complaint and Exhibits State of New York v. J. Ezra Merkin and Gabriel Capital Corp. (April 6, 2009) FindLaw
- Victor Teicher Deposition, NYU v. Ariel Fund Ltd., Gabriel Capital Corp., J. Ezra Merkin, et al. Case No. 08603803/2008
- Complaint against J. Ezra Merkin (May 7, 2009)
- Articles with dead external links from November 2015
- Articles with dead external links from December 2011
- Articles with dead external links from August 2010
- Articles with dead external links from May 2016
- Pages using infobox person with unknown parameters
- Infobox person using religion
- Articles with hCards
- No local image but image on Wikidata
- 1953 births
- Living people
- American hedge fund managers
- American investors
- American Jews
- American money managers
- American people of German-Jewish descent
- American stock traders
- Businesspeople from New York City
- Cerberus Capital Management
- Columbia University alumni
- Harvard Law School alumni
- People from Manhattan
- Pyramid and Ponzi schemes
- People associated with the Madoff investment scandal