How Ex-Merrill Bigs Got Burned On Madoff

The latest high profile Madoff victims to emerge are a handful of ex-Merrill execs. The story, according to WSJ, is that ex-brokerage chief John “Launny” Steffens started a fund called  Spring Mountain Capital, which had invested in J. Ezra Merkin, who of course was just a front/feeder for Madoff. Due to his time at Merrill, Steffens was able to get several other people from the firm to place some money with him.

Although one Spring Mountain official estimated that the $35 million in Madoff investments amounted to just 4.4% of the firm’s $800 million in hedge-fund fund-of-funds investments, one investor said Madoff represented as much as 7% of at least one fund, Spring Mountain Capital Partners QP I.

10 days after the Ponzi scheme surfaced in mid-December, Mr. Steffens, 67 years old, announced plans to close down the Spring Mountain funds of hedge funds, even though some had positive returns. The firm has another $1.2 billion in separately managed accounts.

So once again we see an example of a fund of funds of funds, meaning layers upon layers of fees for the end investors — in this case quite sophisticated ones.

Meanwhile, what’s Stefens planning to do? He’s doing the same that many other managers, who are well below their high water mark, are doing. Starting fresh:

Now, Mr. Steffens is developing a “new platform” for future investments, investors say.

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