Lawsuits Investor lawsuits Fairfield Greenwich was a defendant in a
class action seeking to recoup losses resulting from Fairfield Greenwich funds' investments with Bernard L. Madoff Investment Securities. The class action was a result of the consolidation of multiple cases filed in federal and state court against Fairfield Greenwich. On September 29, 2009, a second amended consolidated complaint was filed. The complaint also named as defendants the
placement agent for the funds;
Citco, the
fund administrator and sub-custodian of the funds which calculated the
net asset value (NAV) of the funds; and
PricewaterhouseCoopers, the auditor of the funds. The complaint alleged fraud, violations of
Rule 10b-5, violations of Section 20(a), negligent misrepresentation,
gross negligence, breach of
fiduciary duty, third-party beneficiary breach of contract,
constructive trust, mutual mistake, negligence, negligent misrepresentation, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, and
unjust enrichment. The court held in the case, prior to the settlement, that it is reasonable to infer from Plaintiffs' allegations that the Administrators were aware that Plaintiffs would—and did—rely on their statements of the Funds' NAVs that were sent to the investors. ... Accordingly, the Court finds that Plaintiffs allege a relationship between the investors and the Administrators that gives rise to a
duty of care Fairfield was also a defendant in a lawsuit filed in
Miami against PricewaterhouseCoopers Ireland by investors in a fund marketed by defendant
Banco Santander SA, Europe's second-largest bank by market value, which lost an estimated $3 billion.
Massachusetts action On April 1, 2009,
Massachusetts Secretary of the Commonwealth William Galvin filed a civil action charging Fairfield Greenwich with fraud, breaching its fiduciary duty to clients by failing to provide promised due diligence on its investments. The complaint sought a fine and restitution to Massachusetts investors for losses and disgorgement of
performance fees paid to Fairfield by those investors. It alleged that in 2005 Madoff coached Fairfield staff about ways to answer questions from SEC attorneys who were looking into Harry Markopolos' complaint about Madoff's operations. The Secretary of State had stated that he had no plans to settle the lawsuit in spite of Fairfield Greenwich's offer to repay all Massachusetts investors, and said he was going to force Fairfield to explain e-mails and other evidence that appear to show company officials knew about potential problems with Madoff but failed to disclose them to clients. However, the action was settled on September 8, 2009. Fairfield Greenwich neither admitted nor denied wrongdoing, accepted a
censure from state officials, agreed to provide restitution to Massachusetts investors, and paid a $500,000 fine.
Other lawsuits and investigations On April 13, 2009, a Connecticut judge dissolved a temporary
asset freeze from March 30, 2009, and issued an order for Walter Noel to post property pledges of $10 million against his Greenwich home and $2 million against Jeffrey Tucker's. Noel agreed to the attachment on his house "with no findings, including no finding of liability or wrongdoing". Andres Piedrahita's assets continued to remain temporarily frozen because he was never served with the complaint. The principals were all involved in a lawsuit filed by the town of
Fairfield's
pension funds. The pension fund case was
Retirement Program for Employees of the Town of Fairfield v. Madoff, FBT-CV-09-5023735-S, Superior Court of Connecticut (Bridgeport). On May 18, 2009,
Irving Picard sued Fairfield Greenwich Group seeking the return of $3.2 billion covering the period from 2002 to Madoff's arrest in December 2008. $1.2 billion was withdrawn in the final three months of the fraud. Since 1995, the Fairfield funds invested about $4.5 billion with Bernard L. Madoff Investment Securities LLC, or BLMIS, through 242
wire transfers. The funds were Fairfield Sentry Ltd., Greenwich Sentry LP, and Greenwich Sentry Partners LP. However, it was conjectured that the money may already be in the hands of Fairfield's own clients, who are likely off-limits to Picard, since they weren't direct investors with Madoff. On May 29, 2009, Fairfield Sentry, based in the
British Virgin Islands, filed a complaint in
New York State Supreme Court in Manhattan seeking to recover more than $919 million in investment management and performance fees that it paid to Fairfield, based upon "inflated net asset value reports of its investments with Bernard L. Madoff Investment Securities LLC ... The Fairfield entity defendants recklessly disregarded their duties as the fund's risk and investment adviser and their actions and inactions constitute gross negligence." The lawsuit alleged breach of
fiduciary duty, and
unjust enrichment. It was "the largest victim of the fraud perpetrated by Bernard L. Madoff", losing $7 billion. The defendants include founders Noel and Tucker and other fund partners who the plaintiffs alleged "failed to fulfill their contractual obligations to use best efforts to supervise the operations" of Madoff-related investments and to "oversee the day-to-day investment activities of the fund". The case was
Fairfield Sentry Ltd. v. Fairfield Greenwich Group, 601687/2009, New York State Supreme Court (Manhattan). On July 20, 2009, Justice Edward Alexander Bannister granted the request to liquidate the Fairfield Sentry funds, worth more than $7.2 billion in December 2008, now less than $70 million, incorporated in 1990 under the
mutual fund statutes of the British Virgin Islands and technically under the control of their local directors. Spanish anticorruption prosecutors investigated Fairfield Greenwich as well as Piedrahita to determine what they knew about Madoff's fraudulent funds when they sold them to Spanish clients.
Allegation of auditor shopping On February 4, 2009, Madoff whistleblower Harry Markopolos testified before Congress. In his prepared statement he discussed Fairfield Greenwich's accounting practices regarding its choice of auditors and accused it of frequently switching them, or "auditor shopping". However, Markopolos did not distinguish between separate auditors for separate funds within Fairfield Greenwich, which did not actually change as he alleged.
Effects on executives and other employees Noel and Tucker sold a one-16th shared interest in a
Cessna 560XL private jet, purchased in late 2006. Tucker wanted to sell his three horse farms, which he bought in 2004 for $18 million. They each include furnished homes. Most of his horses have been sold. Tucker's wife Melanie, an avid
bridge player, was accustomed to using her husband's jet to fly herself, and the bridge pros hired to play on her team, to bridge tournaments across the country. She postponed attending tournaments requiring air travel. Executive
Charles Murphy initially offered for sale his 1882, limestone townhouse, located at 7 East 67th Street,
Lenox Hill, Manhattan, but as of December 2009, the home was no longer listed. He had bought the residence from
Seagram liquor heir
Matthew Bronfman in 2007 for $33 million. Murphy later committed suicide by leaping to his death from the 24th floor of the
Sofitel New York Hotel on March 27, 2017. His widow, Annabelle Murphy, later sold the townhouse for only $28.5 million in April 2018, well below its peak $49.5 million asking price in 2016. Matthew Brown and his wife, Marisa Noel Brown, were forced to sell their
Upper East Side townhouse at 12 East 78th Street for $9.75 million, $3.75 million less than what they had paid in January 2008. ==See also==