Yesterday, Mort Zuckerman said he had never heard of Bernie Madoff, but that he lost money anyway because one of his funds, Ascot, had virtually all of his money with him. That seems pretty plausible after reading the WSJ’s piece on Ascot and its head J. Ezra Merkin, who also happens to be the chairman of troubled lender GMAC.
Here’s the really killer part:
An Ascot offering document reviewed by The Wall Street Journal mentions Mr. Madoff once, explaining that Bernard L. Madoff Investment Securities LLC currently serves as a principal custodian for the partnership’s assets and as clearing agent. The Ascot fund charged a 1.5% management fee on clients’ assets.
Harry Susman of Houston law firm Susman Godfrey LLP says he has talked to at least 10 investors in the Ascot fund. “A clear pattern has emerged,” said Mr. Susman, who described the clients as well-to-do New York Jewish families. “They didn’t know he was giving the money to Bernie.”
Ascot lays out its strategy in the offering memorandum. The memorandum says the strategy involves buying a basket of stocks resembling an S&P index while simultaneously selling options that pay off for the buyer if these stocks soar, while also buying options that pay off if the index tumbles.
In other words, Ascot just outsourced its entire stock picking and investing strategy to Madoff (while pocketing a 1.5% management fee), but claimed that Madoff was only a custodian. Ascot claimed to have its own strategy — the same split-strike nonsense that Madoff talked about — but obviously it wasn’t engaged in doing that itself.
No doubt Merkin already has a lot on his plate with GMAC, but this sounds like big-time trouble, especially since Zuckerman (and no doubt his other clients) has indicated his willingness to sue.