Ivy Asset Management Sued over Madoff Scheme

May 11, 2010 (PLANSPONSOR.com) – Ivy Asset Management, a unit of Bank of New York Mellon, is facing a lawsuit by New York Attorney General Andrew Cuomo related to the Bernard L. Madoff Ponzi scheme.

TheStreet reports that Cuomo is alleging in the suit that emails and internal documents between former top officials of Ivy Asset Management show that the firm allowed its investors to lose $227 million in Madoff funds to protect its own fee generation. The suit alleges that Ivy Asset Management former officials discovered that Madoff was not being straight about his investing, yet kept quiet about their concerns as they earned about $40 million between 1998 and 2008 for advising Madoff investors.   

Cuomo says Ivy officials realized Madoff’s dishonesty as early as 1997. Data on the volume of outstanding options tied to the Standard & Poor’s 100 Index supporting only half of the Madoff assets under management is cited in the lawsuit, according to the news report.   

The lawsuit also cites an Ivy internal memo that states: “This is a clear example of our inability to make sense of Madoff’s strategy, and one where his trades for our accounts are inconsistent with the independent information that is available to us.”   

Defendants named in the suit include Ivy’s former chief executive, Lawrence Simon, and its former chief investment officer, Howard Wohl.   

In response to the suit, Douglas Squasoni, Chief Restructuring Officer of Ivy Asset Management, issued the following response, according to TheStreet: “Ivy takes its responsibilities very seriously, and our first priority always is to protect our investors and clients. Unfortunately, a limited number of clients from a legacy non-discretionary advisory business of Ivy were among Bernie Madoff’s victims when his plot was exposed in December 2008. These non-discretionary advisory clients were primarily professional investment advisors who chose to maintain Madoff exposure for their own clients. Ivy informed its clients that it had questions about Madoff that it could not answer and recommended to its clients that they reduce their exposure to Madoff.”

Squasoni also said the non-discretionary advisory business that is the focus of the lawsuit was never part of Ivy’s core proprietary fund of hedge funds business, and is no longer in operation, and that the Ivy executives involved in the matter left the company in 2008.