Ivy Asset Beats Pension Fund’s Appeal Over Madoff Scheme

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By Jacklyn Wille

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.

'$33 Million in Pure Profit.’

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 jwille@bna.com

To contact the editor responsible for this story: Jo-el J. Meyer at jmeyer@bna.com

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