Employee Benefits News examines legal developments that impact the employee benefits and executive compensation employers provide, including federal and state legislation, rules from federal...
Dec. 8 — Ivy Asset Management once again escaped liability for steering a New York union pension fund to invest in Bernard L. Madoff’s notorious Ponzi scheme ( Trs. of Upstate N.Y. Eng’rs Pension Fund v. Ivy Asset Mgmt. , 2016 BL 408095, 2d Cir., No. 15-3124, 12/8/16 ).
The U.S. Court of Appeals for the Second Circuit held that Ivy, now owned by Bank of New York Mellon, wasn’t liable under federal benefits law for facilitating the pension fund’s investment of nearly $20 million in Madoff’s company. The Second Circuit focused on the pension fund’s being a “net winner” in Madoff’s fraud, profiting by nearly $33 million from the investment.
Ivy has been accused by multiple parties of investing clients’ money with Madoff despite harboring doubts about his investment strategy. In 2012, Ivy and its principals reached a $210 million settlement with the Department of Labor over these accusations.
In rejecting each of the pension fund’s claims, the court kept returning to the pension fund’s earning “$33 million in pure profit” from its involvement with Madoff. Because of this profit, the pension fund suffered no concrete injury giving it standing to sue, the court found.
The fund argued that it suffered losses despite this profit, including $1.8 million in advisory fees paid to Ivy and legal fees connected to Madoff’s implosion and bankruptcy. The fund also claimed that it paid higher pension benefits in partial reliance on the Madoff investment’s strong performance.
None of these alleged losses swayed the court, which said the returns earned through Madoff far surpassed anything the fund could have earned through an alternative, legitimate investment. Even if the pension fund found an investment with an “astronomical” 25 percent annual return, it still would have been more than $11 million shy of where it was with Madoff, the court said.
The court was similarly unimpressed with the pension fund’s complaint that it wasn’t able to withdraw the full amount of its Madoff account balance, which reached nearly $37 million. According to the court, the pension fund was seeking “a missed chance for innocent enjoyment of a fraud,” because this money actually belonged to other Madoff victims.
Finally, the pension fund argued that Ivy principals Lawrence Simon and Howard Wohl should be forced to turn over the $200 million they earned when BNY Mellon acquired Ivy in 2000. According to the fund, Simon and Wohl concealed their concerns about Madoff so that clients like the pension fund wouldn’t close their accounts and drive down Ivy’s acquisition price. The court rejected this argument, finding no reason to think the fund would have fired Ivy in addition to withdrawing its Madoff investment.
The court’s Dec. 8 decision was written by Judge Dennis Jacobs and joined by Senior Judge Amalya L. Kearse and Judge Rosemary S. Pooler. It affirms a 2015 decision by a New York federal judge.
O’Donoghue & O’Donoghue LLP represented the fund. Cleary Gottlieb Steen & Hamilton LLP represented Ivy.
To contact the reporter on this story: Jacklyn Wille in Washington at email@example.com
To contact the editor responsible for this story: Jo-el J. Meyer at firstname.lastname@example.org
Text of the decision is at http://www.bloomberglaw.com/public/document/TRUSTEES_OF_THE_UPSTATE_NEW_YORK_ENGINEERS_PENSION_FUND_Plaintiff.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
All Bloomberg BNA treatises are available on standing order, which ensures you will always receive the most current edition of the book or supplement of the title you have ordered from Bloomberg BNA’s book division. As soon as a new supplement or edition is published (usually annually) for a title you’ve previously purchased and requested to be placed on standing order, we’ll ship it to you to review for 30 days without any obligation. During this period, you can either (a) honor the invoice and receive a 5% discount (in addition to any other discounts you may qualify for) off the then-current price of the update, plus shipping and handling or (b) return the book(s), in which case, your invoice will be cancelled upon receipt of the book(s). Call us for a prepaid UPS label for your return. It’s as simple and easy as that. Most importantly, standing orders mean you will never have to worry about the timeliness of the information you’re relying on. And, you may discontinue standing orders at any time by contacting us at 1.800.960.1220 or by sending an email to email@example.com.
Put me on standing order at a 5% discount off list price of all future updates, in addition to any other discounts I may quality for. (Returnable within 30 days.)
Notify me when updates are available (No standing order will be created).
This Bloomberg BNA report is available on standing order, which ensures you will all receive the latest edition. This report is updated annually and we will send you the latest edition once it has been published. By signing up for standing order you will never have to worry about the timeliness of the information you need. And, you may discontinue standing orders at any time by contacting us at 1.800.372.1033, option 5, or by sending us an email to firstname.lastname@example.org.
Put me on standing order
Notify me when new releases are available (no standing order will be created)