Yesterday, we received a news alert that Irving Picard, trustee for the liquidation of Bernard L. Madoff Investment Securities had settled with “more than a dozen domestic and foreign investment funds, their affiliates and a former chief executive associated with Rye, New York-based Tremont Group Holdings, Inc., the multi-billion-dollar money management company and operator of the second-largest Madoff “feeder fund” group, the Rye Select and Tremont families of funds.”
The settlement also includes three co-defendants: Oppenheimer Acquisition Corp. (part of the Oppenheimer group that acquired Tremont in 2001) and MassMutual holding LLC and the Massachusetts Mutual Life Insurance Company, which ultimately own Oppenheimer and Tremont.
Tremont Group Holdings is considered to be the second largest “feeder fund” that funneled money into Madoff’s scheme. And for its involvement in supporting what was later revealed to be one of the greatest investment frauds of the modern age, the defendents in this suit will pay more than $1 billion into the Customer Fund that is reimbursing claimants who in total lost some $17.3 billion in principal when Madoff’s pyramid scheme collapsed in at the end of 2008.
The complaint against Tremont is that the group ignored repeated warnings that Madoff’s operation was a fraud. According to counsel for the Trustee, this settlement, along with similar settlements with other feeder funds such as Fairfield Sentry, Greenwich Sentry and Greenwich Sentry Partner Funds, is just desserts for any financial services operation that looks the other way when presented with obvious signs of skulduggery.
The reason why this is important – aside from the billion or so green-colored ones – is that a little more than a year ago, Dodd-Frank had not yet been signed into law. And there was some fierce debate going on over the extent of the regulatory package, and what kind of collateral damage it might inflict on financial services companies that did not appear to have anything to do with the failures that had kickstarted the Great Recession. Massachusetts senator Scott Brown gained special notice when last April, he went on Face the Nation to criticize financial services reform.
Brown pointed out that while trying to reel in firms that were taking excessive financial risks, financial services reform would catch insurers such as Liberty Mutual and Mass Mutual in the crossfire. Firms he implied did not merit extra scrutiny because if their history of responsible investment strategy. Brown even went so far as to suggest that what would become Dodd-Frank would cost some 25,000 to 35,000 jobs. A scare tactic, if ever there was one.