Ezra Merkin: The Typhoid Mary Of Madoff's Fraud

ezra merkin tbi

Assuming Ezra Merkin didn’t know Bernard Madoff was engaged in a massive fraud, he probably thought he was doing a favour for the charities whose board he sat on when he hooked them up with Madoff. After all, Madoff promised unwavering returns while charging minimum fees.

Now Merkin could face legal peril for his role. At the heart of the legal peril is what now seems like an obvious conflict of interest: Merkin was sitting on charity boards while acting as their investment adviser, personally profiting from fees collected from non-profits. Now Andrew Cuomo is investigating.

The Daily News reports:

Records show Merkin sat on the boards of at least seven of the 15 subpoenaed charities, including three in which he also acted as the nonprofit’s investment adviser.

In all three cases, Merkin advised the groups to place their money in his funds. They all did, and two of the three wound up losing millions of dollars to Madoff.

As part of the probe, Cuomo will examine whether Merkin violated his fiduciary duty to the nonprofits as a board member, a source familiar with the matter said.

Cuomo’s recommendations for charities say board members “should avoid transactions in which they or their family members benefit.”

Such transactions are not illegal, just lousy business practice, said Daniel Borochoff, president of the Chicago-based watchdog group, American Institute of Philanthropy.

“It might be legal but it’s bad governance,” he said. “You need to separate people who have a private interest in the investment of the charity’s money.”

Board members are told to “represent the not-profit interests over your own” interests, Borochoff said. “That’s the concern here: why other board members allowed this arrangement?”

At Yeshiva University, both Madoff and Merkin were on the board. Merkin was also chairman of the school’s investment committee.

A source said probers are looking into an unusual transaction involving both men. The college says it invested money in Merkin’s Ascot Partners, which apparently steered the money to Madoff. That manoeuvre earned Merkin sizable fees.

The intersection of charity and finance in New York is well known. Big financiers compete to be on various charity boards in hopes it will raise their status and prestige. Unfortunately, big hazards can await them if they don’t take care to remember not to use their position on the charity boards to generate advisory fees for themselves.

NOW WATCH: Money & Markets videos

Want to read a more in-depth view on the trends influencing Australian business and the global economy? BI / Research is designed to help executives and industry leaders understand the major challenges and opportunities for industry, technology, strategy and the economy in the future. Sign up for free at research.businessinsider.com.au.