Investment firm that steered Upstate unions to Bernie Madoff is sued by NY attorney general

Madoff_Scandal_NYBZ152_3.JPGBernard Madoff

Syracuse, NY - An investment firm defrauded Upstate New York union pension plans out of $150 million by urging them to invest in Bernard Madoff-controlled accounts for a decade after it suspected Madoff was running a Ponzi scheme, the state attorney general’s office said Tuesday.

In 1997, officers of Ivy Asset Management LLC discovered Madoff had claimed to have made trades with clients' assets that were never made, according to a suit filed by Attorney General Andrew Cuomo. Ivy's senior executives concluded in 1998 that none of the investments they managed for their firm's clients should be placed with Madoff, the suit alleged.

But the same Ivy officers kept advising Syracuse financial adviser John Jeanneret and dozens of unions whose pensions Jeanneret managed to continue to invest in Madoff-controlled funds, the suit claimed.

Ivy never told Jeanneret and the unions it suspected Madoff was running a Ponzi scheme because it would lose $40 million in business, the attorney general alleged.

When Madoff was arrested in December 2008 and admitted he was running an elaborate Ponzi scheme, the union pension funds lost more than $150 million, Cuomo alleged.

Madoff had raided the retirement funds of Upstate union roofers, carpenters, heavy equipment operators, electrical workers, laborers and plumbers.

DSC_6699.JPGSyracuse asset manager John Jeanneret was misled by Ivy Asset Management executives about Bernard Madoff, according to the attorney general's suit.

Roofers Local 195 in Cicero lost $13.5 million,

or 90 percent of its pension fund, according to the union.

Jeanneret, who runs J.P. Jeanneret Associates in Syracuse, managed investments for dozens of benefit plans covering about 60,000 union workers Upstate. His firm is being sued by unions representing 21 locals.

But Jeanneret and his firm are not defendants in the attorney general’s suit. The AG’s complaint suggests Jeanneret was misled by Ivy’s executives.

Notes and emails included in the suit reveal Ivy executives suspected Madoff a decade before his scam blew up. Yet, they repeatedly assured Jeanneret and the unions that their investments were safe.

In 2000, Jeanneret asked Ivy President Lawrence Simon, “Is he (Madoff) essentially legitimate?” Madoff was “essentially legitimate,” Jeanneret was told, the suit alleged.

“We have no reason to believe there is anything improper in the Madoff operation,” Ivy’s senior officers wrote to Jeanneret in 1999.

But at the same time, Ivy executives were considering withdrawing $5 million of the firm’s money from Madoff accounts because of their suspicions. Ivy’s chief of investment management recommended that, and suggested the firm’s union clients should be told.

“Would the Engineers, Jeanneret and others walk away from Madoff if Ivy withdraws its money?” wrote Ivy’s chief of investment management. “Based on the amounts of capital they have invested with BLM (Madoff), my perception is that they are quite satisfied with Madoff and would not want to leave. In the case of Jeanneret, he hardly listens to our advice at all, and our pleas to the Engineers for more diversification have for the most part fallen on deaf ears.”

Ivy withdrew its own investments in Madoff in 2000, but misled Jeanneret and the unions about the reason it did that, Cuomo’s suit alleges.

Barbara Hart, the lead counsel representing the unions in class action suits against Jeanneret and Ivy, said the suit corroborates the unions’ allegations against both.

“We don’t know if Jeanneret knew it was a Ponzi scheme,” Hart said, but she said Jeanneret did not meet his fiduciary duty to protect his clients’ assets.

Contact Mike McAndrew at mmcandrew@syracuse.com or 470-3016.

Click here to read the attorney general's suit against Ivy Asset Management.

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