UPDATE Attorney General Richard Blumenthal said today he has sued Westport National Bank and a Westport-based money manager for “effectively aiding and abetting” a fraud by convicted Ponzi scheme operator Bernard Madoff.
Blumenthal said his office is seeking to recover $16.2 million in fees paid to Westport National and an investment advisor. (CLICK TO ENLARGE) Dave Matlow for WestportNow.com/file
In a statement, Blumenthal said his office, in cooperation with the Connecticut Department of Banking, is seeking to recover for investors $16.2 million in fees paid to Westport National and Robert L. Silverman, a Wilton resident whose Connecticut actuary and investment advisory firm is based in Westport.
Blumenthal also is seeking a $100,000 fine for each violation of state banking laws and legal costs.
The attorney general acted two weeks after Gov. M. Jodi Rell said the bank allegedly received $2.5 million in fees for managing pooled investments for Bernard Madoff and that she had referred results of a preliminary investigation to Blumenthal’s office.
In addition, she said Silverman and his firm allegedly received clients’ fees in excess of $14 million and failed to properly disclose to clients how those fees were calculated. (See WestportNow April 6, 2010)
In his statement today, Blumenthal said: “These investors were betrayed twice, first by Madoff and then by their advisors who charged them millions and then hurled them into the abyss.
“Not only did they mislead investors, but miscalculated fees to enrich themselves. Silverman’s fees were so high even Madoff complained. These defendants deceived their clients and shirked their duties, anything to keep the gravy train running—until it ran down their clients.”
The lawsuit alleges Silverman and his company ignored repeated and obvious signs of fraud, failed to perform their duty to verify Madoff’s claimed investments, miscalculated fees and operated as investment advisers without the proper state license.
Silverman’s firm earned $13.8 million in fees, Blumenthal said in his statement today.
The bank, as custodian, collected $2.4 million in fees between 2000 and 2007, but failed to perform any of those duties, including verifying the purchase of securities on the investors’ behalf, Blumenthal said.
Silverman started doing business with Madoff in the late 1980s and hired Westport National in 1999 to serve as custodian for his Madoff accounts, Blumenthal said.
About 240 consumers, including 97 who live in Connecticut, invested an estimated $10 million in two Westport National funds with Madoff, Blumenthal said.
Any restitution may be pro-rated because some investors withdrew funds before Madoff’s fraud was revealed, Blumenthal said.
Banking officials said the bank was “utterly derelict” in fulfilling its obligations as custodian by allowing Silverman to decide how and when his fees were deducted from clients’ assets and permitting Silverman to control all contact and communication with clients.
For example, Silverman returned calls investors made to the bank, and the bank’s vice president signed letters prepared by Silverman on bank letterhead, the attorney general said.
Madoff, 71, admitted in March 2009 to running a decades-long Ponzi scheme that bilked thousands of investors out of billions of dollars. The scheme fell apart after his arrest in December 2008. He is serving a 150-year prison term.
Richard T. Cummings Jr., Westport’s president, said the bank denies the allegations and will “vigorously defend the lawsuit.”
“The attorney general’s inflammatory press release contains numerous inaccuracies and fabrications with respect to our role and conduct,” Cummings said. “We never introduced anybody to Madoff or recommended that anybody invest with Madoff. We are shocked and disappointed by the actions of the attorney general.”
Silverman didn’t immediately return phone calls seeking comment
