BOSTON – Secretary of the Commonwealth William Francis Galvin yesterday brought fraud charges against Madoff feeder fund Fairfield Greenwich Group.
In its filing, the Enforcement Section of the Mass. Securities Division of the Office of the Secretary of the Commonwealth accuses the investment advisory firm – Fairfield Greenwich Advisors LLC and Fairfield Greenwich (Bermuda) Ltd – of violating the state’s Uniform Securities Act and related regulations.
“This complaint is based on a profound disparity between the due diligence Fairfield represented to its investors that it would conduct with respect to Bernard L. Madoff Investment Securities LLC (‘Madoff Investments’) and the due diligence it actually conducted, as well as misrepresentations to investors in its Sentry funds about Fairfield’s degree of knowledge and comfort with respect to Madoff’s operations … and the failure of Fairfield to disclose to investors the interconnected relationship between Fairfield and Madoff Investments,” the Enforcement Section writes. “Fairfield’s complete disregard of its fiduciary duties to its investors and its flagrant and recurring misrepresentation … rises to the level of fraud.”
Besides a cease-and-dispute order requiring Fairfield to refrain from further violations of state law and regulations, the state is seeking restitution “to all Massachusetts investors of losses incurred in connection with investments” in the firm’s Fairfield Sentry fund, the Greenwich Sentry fund or the Greenwich Sentry Partners fund; refunds of performance and other fees paid to Fairfield by Massachusetts investors in the Sentry funds; an administrative fine to be set by the hearing officer; and whatever other action a hearing officer “may deem appropriate in the public interest and necessary for the protection of Massachusetts investors.”
The full complaint is posted by the Securities Division site at www.sec.state.ma.us/sct/.
Fairfield Greenwich spokesman Seth Faison called the Massachusetts complaint “false and misleading,” and said the firm would fight it vigorously,” The New York Times reported.
Meanwhile, in a separate action this Tuesday, a temporary freeze was imposed on the investment firm’s assets by Conn. Superior Court Judge Arthur Hiller, according to the Times.
That action came in a civil lawsuit filed Monday by the Town of Fairfield and two pension funds, which alleges that Fairfield Greenwich and two other feeder-fund managers had long been aware that Madoff was engaging in illegal activity. Also named in that case were Tremont Partners and its Rye Select funds, and Maxam Capital Management and its Maxam Absolute Return fund.
Fairfield Greenwich also faces class-action lawsuit brought by Sentry fund investors, The New York Times noted in a separate report.
“We understand that many investors, along with the many other investment firms and private investors, share our shock and dismay at the Dec. 11 news of the arrest and charging of Bernard L. Madoff with federal securities laws violations. It appears to be a highly sophisticated and massive fraud – perhaps the largest in history,” Fairfield Greenwich says in its latest public statement, posted on its Web site Jan. 8.
The firm is “currently assessing the extent of potential losses and will pursue on behalf of our investors the recovery of all assets associated with our accounts related to Bernard L. Madoff Investment Securities. … We are seeking to gather all facts, work diligently with counsel to determine the appropriate course of action toward recovery, and stand ready to assist the authorities with their investigation. We will communicate with our investors as we have pertinent news.”
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Madoff allegedly ran a Ponzi scheme that cost investors at least $50 billion. (READ MORE) Banco Santander SA, the new parent of Sovereign Bank, and Royal Bank of Scotland Group Plc, the parent of Citizens Financial Group Inc., appear to be among the big losers. And in Massachusetts, Boston philanthropist Carl Shapiro’s charitable foundation may have lost up to $145 million.
Fairfield Greenwich is the second Madoff feeder fund to be targeted by Galvin’s office. On Feb. 11, the Securities Division’s Enforcement Section filed a complaint against Cohmad Securities Corp., seeking the revocation of its securities registration.
News and information from the Office of the Secretary of the Commonwealth, and its Securities Division, are available at www.sec.state.mass.us.
Fairfield Greenwich Group – formally, Fairfield Greenwich Advisors LLC and Fairfield Greenwich (Bermuda) Ltd. – is an investment advisory firm founded in 1983. It describes itself as “a leading alternative asset investment specialist.” For more information, visit www.fggus.com.
