More On Legal & Compliancefrom The Advisor's Professional Library
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
- Trading Practices and Errors When SEC-registered investment advisors conduct annual audits of firm policies and procedures, they should pay close attention to trading practices. Though usually not required to, state-registered advisors should look at their trading practices and revise policies that do not fully protect clients.
Irving Picard, trustee for the liquidation of Bernie Madoff's firm, announced Thursday that he had reached a $1 billion settlement with Madoff "feeder funds."
Picard, working for the Securities Investor Protection Act (SIPA) liquidation of Bernard L. Madoff Investment Securities, said he has reached a settlement with more than a dozen domestic and foreign investment funds and their affiliates.
The settlement needs approval of the U.S. Bankruptcy Court for the Southern District of New York. A hearing on the matter is scheduled for Sept. 13.
He also settled with a former chief executive associated with Tremont Group Holdings, the multibillion-dollar money-management company and operator of the second-largest Madoff “feeder fund” group, the Rye Select and Tremont families of funds.
At the same time, at the behest of Rep. Scott Garrett, R-N.J., chairman of the House Financial Services Subcommittee on Capital Markets, the Government Accountability Office has said that it will conduct a comprehensive evaluation of the actions of the Securities Investor Protection Corp. (SIPC), Picard; and the Securities and Exchange Commission’s involvement and oversight of the liquidation.
According to a release announcing the settlement, the deal also includes three co-defendants named in the suit, filed on Dec. 7, 2010: Oppenheimer Acquisition Corp., an affiliate of the Oppenheimer family of mutual funds which acquired Tremont Group in 2001, and Oppenheimer’s parent corporations, MassMutual Holding and the Massachusetts Mutual Life Insurance Co.
As part of the settlement agreement, the release states that defendants will deliver cash payments into escrow totaling more than $1 billion, which will ultimately be placed into the Customer Fund and distributed, pro rata, to Madoff customers with allowed claims.
As explained in the release announcing the settlement, the payments, “combined with the approximately $2.6 billion already in the Customer Fund and the $5 billion settlement with the Picower estate (currently under appeal) brings the Trustee’s recoveries to more than $8.6 billion, or nearly 50% of the approximately $17.3 billion in principal that was lost in the Ponzi scheme by customers who filed claims.”
The release states that according to the complaint, the Tremont Group and related entities were aware–through warnings in both internal communications and publicly available information–that the Madoff fund might be fraudulent.
“We believe this settlement–coupled with the Trustee’s recent settlements with the Fairfield Sentry, Greenwich Sentry and Greenwich Sentry Partners feeder funds–sends a strong message that the financial community cannot deliberately ignore indicia of fraud,” said David J. Sheehan, a partner at Baker & Hostetler, the court-appointed counsel for the trustee, in the release.
In the settlement agreement, both sides stated their desire to avoid the risk, expense and delay associated with litigation.
The release further says that upon the release of the settlement payments from escrow, the Trustee will allow customer claims related to the Rye Select and Tremont funds against the Madoff funds of more than $3 billion, with four of the funds each receiving $500,000 in SIPC advances–a total of $2 million–which will be available for distribution to these feeder fund investors.
“We have structured this settlement with the view that any future pro-rata distributions to Rye Select and Tremont funds will flow through to the investors and not the funds’ management,” said Thomas Long, counsel to Baker & Hostetler, in the release.