Union Sues Over Madoff Pension Losses

February 13, 2009 (PLANSPONSOR.com) - A Philadelphia-area union pension fund has filed a federal court lawsuit against Austin Capital Management Ltd. over losses from the securities fraud which authorities say was controlled by Bernard Madoff.

A news release from the Philadelphia law firm of   Spector Roseman Kodroff & Willis said the firm filed the suit on behalf of the Pension Fund for Hospital and Health Care Employees – Philadelphia and Vicinity, and that the suit seeks class action status. The suit alleges Austin Capital Management Ltd. violated the Employee Retirement Income Security Act (ERISA) by imprudently investing the union funds in Madoff-controlled securities.    

The complaint alleges Austin failed to conduct an adequate due diligence prior to recommending and investing monies in Madoff-related funds.

Specifically, according to the suit, “Austin failed to notice, or completely disregarded, the numerous red flags about the Madoff-related securities” including:

  • the lack of transparency in the operations of Madoff and Madoff Securities, including Madoff’s refusal to disclose his investment strategy;
  • the fact that investment returns of Madoff Securities were abnormally smooth, with very little volatility, including only five months of negative returns in the past 12 years;
  • the inability of other funds, using Madoff’s stated method, to generate returns in any way comparable;
  • the fact that Madoff acted as his own prime broker, while most hedge funds used large banks as their prime brokers;
  • the fact that monthly account statements sent to Madoff investors did not support the returns being supposedly earned; and
  • the fact that Madoff’s auditors consisted of one office in Rockland County, New York, with three employees – with one employee 78 years old and living in Florida, and one a secretary.

Other investment managers did discover the red flags and declined to invest in Madoff-related securities, the suit said.

More information about the suit can be obtained by e-mailing  classaction@srkw-law.com  .