Administration August 13, 2009

Foundation Seeks $30M from Merrill over Madoff Investments

August 13, 2009 (PLANSPONSOR.com) - A South Florida foundation has hit Merrill Lynch with a lawsuit over allegations the investment firm failed to advise it against placing funds with now-jailed Ponzi schemer Bernard Madoff and contributed to its loss of more than $30 million.
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The suit filed by the MorseLife Foundation alleged Merrill was negligent and committed a fiduciary breach after Merrill representatives met with Madoff in July 2008 and recommended MorseLife actually increase its Madoff investments, the Daily Business Review reported. The foundation provides senior housing and health care services.   

The buy recommendation represented a turnaround for Merrill, which originally expressed hesitancy about Madoff’s investment company, according to the suit.

MorseLife said it sank $11.8 million into Madoff’s company from 1995 to 2006. The investment allegedly ballooned to $33.5 million last November but is now worthless.

“Merrill advised MorseLife that Merrill did not see any down side and recommended maintaining and even agreed to increasing MorseLife’s concentration of its investments in the Madoff portfolio,” the lawsuit contends.

According to the suit, following the Madoff meeting, John Lacy, a vice president with Merrill’s global wealth management group in West Palm Beach, reversed his initial position and touted Madoff as a conservative investment — as opposed to a hedge fund or alternative investment — in a “highly favorable” report.

“MorseLife placed its trust and confidence in Merrill to guide it through the investment process and to protect MorseLife’s assets, which Merrill was fully aware came from charitable donations and needed special protection from the risk of capital loss,” the lawsuit stated.

Merrill’s Defense

Merrill Lynch spokesman Bill Halldin told the Daily Business Review that MorseLife decided to invest with Madoff 10 years before hiring Merrill Lynch to handle other funds.

“We had no role in their investment decision. Additionally, we had no responsibility for the Madoff investments, and it was never held in any Merrill Lynch account,” Halldin told the newspaper. “This is very simply an effort of the foundation’s to find someone to blame for its own investment decisions and Mr. Madoff’s illegal conduct.”

Merrill has filed legal papers in the case to compel the foundation to take the dispute to arbitration.   

Madoff was sentenced in June to 150 years in prison after his guilty plea in the case (see  Madoff Scheduled for Sentencing, Faces 150 Years ).

The foundation’s suit is available  here .

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