Connecticut Attorney General Richard Blumenthal recently filed suit against a bank and local money manager who served as custodians for two feeder funds that invested with convicted Ponzi-schemer Bernie Madoff.
The state is seeking to recover $16.2 million in damages for investors. The suit alleges that Westport National Bank, money manager Robert L. Silverman and his company PSCC Inc., violated multiple state banking laws.
According to the suit, the plaintiffs' feeder funds ignored obvious, repeated signs of fraud; miscalculated fees, resulting in millions of dollars in overcharges; acted as investment advisors without a state license; provided no written information on fund risks and strategies; and failed in their duty to verify Madoff's investments.
The suit alleges that Westport National Bank collected $2.4 million in fees for acting as custodian between 2000 and 2007, but actually delegated most of the responsibilities to Silverman and his company, even providing them with blank bank stationary. Silverman's firm collected $13.8 million in fees, so much that Madoff himself complained to get the fees lowered.
“These investors were betrayed twice, first by Madoff and then by their advisors 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. The bank and Mr. Silverman effectively aided and abetted Madoff’s massive fraud, ignoring clear and compelling signals that his investments were bogus."