Ascot Partners, L.P. ("Ascot") and Gabriel Capital, L.P. ("Gabriel") are investment partnerships offering hedge funds to investors.
The Class Action lawsuit was commenced on behalf of a Class, consisting of all persons and entities who invested in limited partnership interests of Ascot between December 16, 2002 through and including December 16, 2008 (the "Class Period") and also retained their investment through that date. In addition, the Class, with respect to Plaintiff's claims of breach of fiduciary duty only, includes all Ascot limited partners as of the end of the Class Period.
The Complaint alleges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder common law fraud, negligent misrepresentation and breach of fiduciary duty under the laws of New York State. Defendants include Ascot, J. Ezra Merkin ("Merkin") and BDO Seidman, L.P. ("Seidman"). Defendant Merkin is the founder, General Partner and Manager of Ascot. Plaintiff and other class members are qualified investors that purchased limited partnership interests in Ascot. Defendant Seidman is the independent auditor for Ascot and during the Class Period issued audit reports on Ascot's annual financial statements which were relied on by Plaintiff and other limited partners of Ascot.
This case arises from a massive fraudulent scheme perpetrated by Bernard L. Madoff ("Madoff") through his investment firm, Bernard L. Madoff Investment Securities, LLC ("BMIS"), and others. The Complaint alleges that Defendants Ascot, Merkin and Seidman recklessly or with gross negligence and/or in breach of fiduciary duties owed to Plaintiff and other class members caused and permitted $1.8 billion -- virtually the entire investment capital of Ascot -- to be handed over to Madoff to be "invested" for the benefit of Plaintiff and the other limited partners of Ascot. Plaintiff's investment in Ascot has been wiped out, as a direct result of: (a) Defendant Merkin's abdication of his responsibilities and duties as General Partner and Manager of Ascot and its investment funds and; (b) the failure of Ascot's auditor Seidman, in light of "red flags" indicating a high risk to Ascot from concentrating its investment exposure in Madoff as sole third-party investment manager for all of the Partnership's assets, to perform its audits and provide its annual audit reports in conformance with generally accepted auditing standards.
A substantially similar Complaint was also filed on December 17, 2008, on behalf of a Class consisting of all persons and entities who invested in limited partnership interests of Gabriel between December 12, 2002 through and including December 12, 2008 (the "Class Period") and also retained their investment through that date. In addition, the Class, with respect to Plaintiff's claims of breach of fiduciary duty only, includes all Gabriel limited partners as of the end of the Class Period. Specifically, the Complaint alleges that Defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, common law fraud, negligent misrepresentation and breach of fiduciary duty under the laws of New York State. Defendants include Gabriel, J. Ezra Merkin ("Merkin") and BDO Seidman, L.P. ("Seidman"). Merkin is the founder, General Partner and Manager of Gabriel. Plaintiff and other class members are qualified investors that purchased limited partnership interests in Gabriel. Defendant Seidman is the independent auditor for Gabriel and during the Class Period issued audit reports on Gabriel's annual financial statements which were relied on by Plaintiff and other limited partners of Gabriel.
On May 7, 2009, a Complaint was filed in the U.S. District Court for the Southern District of New York, titled Jacob E. Finkelstein CGM IRA Rollover Custodian, et al. v. Ariel Fund Limited, et al., case number 09-CV-04407. According to a press release dated May 7, 2009, this case arises from a massive, fraudulent scheme perpetrated by Bernard L. Madoff (“Madoff”) through his investment firm, Bernard L. Madoff Investment Securities, LLC (“BMIS”), and others, and which was facilitated by Defendants named herein. The Complaint alleges that during the Class Period, the Defendants issued to the investing public false and misleading information and financial statements concerning, among other things, the Fund’s reported net asset value, the manner in which the Fund’s assets were invested, the extent of the Defendants’ due diligence of Madoff and BMIS, and the true state of supervision and oversight over the Fund’s assets. Defendants caused and permitted 24 percent of the Fund’s total assets to be handed over to Madoff to be “invested” for the benefit of Plaintiff and the Class. Plaintiff’s investments with the Fund were decimated as a direct result of the fraud perpetrated by Madoff and BMIS and the complete failure of BDO Tortuga and BDO International to perform adequate audits and create its annual audit reports in conformance with generally accepted auditing standards despite the existence of a myriad of “red flags” indicating a high risk to Ariel Fund from concentrating its investment exposure in Madoff. On December 10, 2008, Madoff informed certain senior BMIS employees (reported to be his sons) that BMIS’ investment advisory business was an utter fraud. Madoff also stated that he estimated the losses from this fraud to be approximately $50 billion. On December 11, 2008, SEC and criminal charges were brought against Bernard Madoff. He was arrested and admitted to a Federal Bureau of Investigation Special Agent that “there is no innocent explanation” for BMIS’ losses and that he “paid investors with money that wasn’t there.” One of Madoff’s client’s was Defendant Ariel Fund, which, unknown to Plaintiff and other class members, and notwithstanding assertions to the contrary, failed to monitor or supervise the investments made with Madoff and BMIS, and failed to perform adequate due diligence. Investors who entrusted their savings are now ruined. Indeed, scores of charities were destroyed and have either closed their doors or canceled their proposed grants. On June 25, 2009, the case was consolidated into the lead case, In re J. Ezra Merkin and Gabriel Capital Corp. Litigation, case number 08-CV-10922.
On April 6, 2009, Judge Deborah A. Batts signed the Order granting the motion to appoint Counsel and lead Plaintiffs. Two actions, New York Law School v. Ascot Partners, L.P. et al. (08 Civ. 10922) (DAB) and Scott Berrie v. Gabriel Capital et al., (08 Civ. 10930) (DAB), were consolidated under the caption "In re J. EZRA MERKIN AND BDO SEIDMAN SECURITIES LITIGATION” maintained under Docket Number 08 Civ. 10922. Both New York Law School and Scott Berrie were appointed co-lead Plaintiffs and Abbey Spanier Rodd & Abrams, LLP was appointed as lead Counsel. On April 27, 2009, the lead Plaintiffs filed a Consolidated Amended Class Action Complaint. On March 2, 2010, the lead Plaintiffs filed a Second Consolidated Amended Class Action Complaint.
On April 12, 2010, Defendant BDO Seidman LLP filed a motion to dismiss.
On May 13, 2010, Judge Deborah A. Batts signed the Order appointing New York Law School and Scott Berrie as co-lead Plaintiffs on behalf of the Ascot Fund and Gabriel Fund investors, and Jacob E. Finkelstein CGM IRA Rollover Custodian as co-lead Plaintiff on behalf of the Ariel Fund investors. According to the Order, Abbey Spanier Rodd and Abrams LLP was appointed co-lead Counsel on behalf of co-lead Plaintiffs New York Law School and Scott Berrie and Wolf Haldenstein Adler Freeman & Herz LLP was appointed co-lead Counsel on behalf of co-lead Plaintiff Jacob E. Finkelstein CGM IRA Rollover Custodian. New York Law School, Scott Berrie and Jacob E. Finkelstein CGM IRA Rollover Custodian were permitted to prosecute specific issues that are distinct between the Ariel Fund co-lead Plaintiff and those issues of the Ascot Fund and Gabriel Fund co-lead Plaintiffs, however, with respect to overlapping issues. Plaintiffs were instructed to file a Consolidated Third Amended Complaint within 30 days of the date of this Order.
On June 18, 2010, the Plaintiffs filed a Third Consolidated Amended Class Action Complaint. On July 30 and August 2, 2010, the Defendants filed motions to dismiss. Before any order on the motion to dismiss, the Plaintiffs filed a Fourth Consolidated Amended Class Action Complaint.
On September 23, 2011, the Court issued an Order granting the Defendant's Motion to Dismiss both the Section 10(b) and 20(a) claims under the Exchange Act along with the state law claims with prejudice. The Clerk's Judgment was entered on September 27, 2011.
On October 25, 2011, the Plaintiff filed a motion to alter the Clerk's Judgment, and later filed a Notice of Appeal on October 27th.
