MassMutual Investigated for Madoff Investments

May 6, 2009 ( - Massachusetts Secretary of State William F. Galvin is investigating Massachusetts Mutual Life Insurance Co.'s relationship with a hedge fund operation that lost $3.3 billion to convicted Ponzi scheme mastermind Bernard L. Madoff.

Galvin, who oversees the state Securities Division, said his office is looking into MassMutual as part of an ongoing probe of investment firms that placed clients’ funds with Madoff, according to the Boston Globe. The division is examining whether MassMutual did enough to safeguard its customers’ money.

MassMutual owns Tremont Advisers Inc., a Rye, New York, hedge fund firm that sustained the second-biggest loss of all Madoff’s clients, the news report said.

“We’re particularly interested in not just the entity that had the loss,” but also in the hedge fund company’s interaction with its parent, MassMutual, Galvin said, according to the Globe.

The newspaper said it reported on Tuesday that in 2001, when MassMutual was considering buying Tremont, a consultant warned the company that Tremont was placing too much of its clients’ funds with Madoff, but MassMutual decided to buy Tremont from Hennessee Group. Hennessee executives said they did not know Madoff was running a Ponzi scheme, but they warned MassMutual it was not prudent for a hedge fund to place so much of its money with any single investor.

MassMutual declined to comment.

According to the news report, MassMutual and Tremont are facing at least 18 lawsuits by investors who say they were not sufficiently informed of the Madoff investments, or that the companies did not do adequate due diligence on Madoff, but some legal specialists said the plaintiffs may have difficulty holding MassMutual liable because Tremont is separated from the parent company by a number of subsidiary layers.

In March, Madoff pleaded guilty to eleven felony counts related to the $50 billion Ponzi scheme, and he faces a maximum of 150 years in prison when sentenced in June (see Madoff Scheduled for Sentencing, Faces 150 Years ).