Financier Merkin Testified in Madoff Probe, New York Judge Says

J. Ezra Merkin, the financier being sued by New York University over losses related to Bernard Madoff, gave information to regulators investigating the $65 billion fraud, a New York judge said in a ruling.

State Supreme Court Justice Richard Lowe in Manhattan said a deposition in which Merkin testified under oath in connection to a civil lawsuit brought by NYU can be disclosed. Lowe said releasing Merkin’s testimony wouldn’t hinder Madoff-related probes.

"Merkin’s deposition testimony reveals the steps taken by regulatory agencies with respect to the investigation," Lowe wrote in a decision dated April 14 and filed with the court yesterday. "Specifically, Merkin provides information regarding his participation in the investigation."

NYU, the largest private university in the U.S. by enrollment, sued Merkin and his funds, Ariel Fund Ltd. and Gabriel Capital LP, over the Madoff-related losses. The university said in a Dec. 23 complaint that it lost at least $24 million after Merkin and his funds invested the school’s money with Madoff’s firm without telling it.

Judge Lowe’s ruling stems from a request to unseal the testimony of Merkin and Victor Teicher, who Merkin employed as Ariel’s manager. The university said it first learned of the Madoff-related investments on Dec. 12, 2008, a day after federal prosecutors charged the former investment manager with operating a Ponzi scheme.

Strategy, Holdings

Merkin and lawyers for the funds sought to keep the testimony secret. That testimony covered Ariel’s investment strategy and holdings, employees and advisers of the fund and personal information about Teicher and the government’s investigations into Madoff’s scheme, Lowe said.

In his decision, Lowe said some of the testimony by Merkin and Teicher may be disclosed. Information on compensation for Merkin, Teicher and other fund employees can also be made public, Lowe said.

"Any minimal interest the defendants allege for maintaining this information under seal is outweighed by the public interest in such information," Lowe said.

Merkin has denied any wrongdoing in the case. His lawyer, Andrew Levander, didn’t immediately return a voice-mail message seeking comment. Beth Kaswan, a lawyer for NYU, didn’t return a voice-mail message left at her office.

'Returns Smelled'

Kaswan said at a Feb. 17 hearing that Merkin secretly employed Teicher to be Ariel’s manager at the time the university began investing with the fund. In court papers, Kaswan said that the Ariel prospectus "touted" Merkin’s background and "actively" deceived investors about the identity of the "true 'managers' of the funds, Teicher and Madoff."

At that hearing, Kaswan quoted from Teicher’s testimony, taken as part of the civil lawsuit, in which Teicher said he warned Merkin that "the Madoff returns smelled" and that "Mr. Madoff’s returns were not probable." Kaswan said Merkin, after receiving Teicher’s warning, contacted Madoff and asked him, "Is this true?"

Teicher was convicted of federal securities fraud in 1992 and sentenced to a term of 18 months in prison, according to court records. He was released from federal prison in New Jersey in February 1995, U.S. Bureau of Prisons records show. His lawyer, Charles Stillman, couldn’t immediately be reached for comment yesterday.

Gabriel, once a $1.5 billion hedge fund, is now being liquidated after incurring losses on investments with Madoff.

Madoff, 70, pleaded guilty in federal court last month to defrauding investors of as much as $65 billion. He faces as many as 150 years in prison at his sentencing in June.

New York Attorney General Andrew Cuomo sued Merkin and his Gabriel Capital Corp. on April 6. In the complaint, Cuomo accused Merkin of secretly placing $2.4 billion of client funds with Madoff in exchange for $470 million in fees.

The case is New York University v. Ariel Fund Ltd., 603803/2008, New York State Supreme Court (Manhattan).

(Published by Bloomberg - April 16, 2009)