US - New York state attorney general Andrew Cuomo sued Bank of New York Mellon's investment advisory unit Ivy Asset Management for allegedly misleading clients about investments tied to Bernard Madoff.
The lawsuit alleges Ivy, its former chief executive officer Lawrence Simon and its former chief investment officer Howard Wohl of having "kept their clients in the dark about damaging financial information about Madoff so Ivy could bring in millions in advisory fees". Both left the firm in 2008.
The attorney's office said New York union pension and welfare plans, as well as several other types of investors were affected.
Cuomo said: "These defendants violated their basic responsibility as investment advisers by putting their own financial interests ahead of their clients. They shamelessly profited off of their own clients' impending misfortune and we are holding them accountable for their actions."
According to the lawsuit, between 1998 and 2008, Ivy was paid over US$40m to give advice and conduct due diligence for clients with large Madoff investments.
The lawsuit alleged Ivy learned that Madoff was not investing funds as advertised.
However, it also said internal e-mails revealed that Ivy did not disclose this information to clients for fear of losing revenue from fees. As a result, Ivy's clients lost over $227m after Madoff's Ponzi scheme collapsed, Cuomo said.
In a statement, Ivy chief restructuring officer Douglas Squasoni said: "Unfortunately, a limited number of clients from a legacy non-discretionary advisory business of Ivy were among Madoff's victims when his plot was exposed in December 2008."
He added these clients were primarily professional investment advisors who chose to maintain Madoff exposure for their own clients. He also said: "Ivy informed its clients that it had questions about Madoff that it could not answer and recommended to its clients that they reduce their exposure to Madoff.
"The non-discretionary advisory business that is the focus of this complaint was never part of Ivy's core proprietary fund of hedge funds business, and is no longer in operation."
Ivy said it has been cooperating with Cuomo on the investigation.
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