Madoff Complaint

Baker & Hostetler LLP

45 Rockefeller Plaza New York, NY10111Telephone: (212) 589-4200Facsimile: (212) 589-4201David J. SheehanEmail:dsheehan@bakerlaw.comMarc E. HirschfieldEmail:mhirschfield@bakerlaw.com

Attorneys for Irving H. Picard, Esq.,Trustee for the SIPA Liquidation of Bernard L. Madoff Investment Securities LLC

UNITED STATES BANKRUPTCY COURTSOUTHERN DISTRICT OF NEW YORK

In re:BERNARD L.MADOFF INVESTMENTSECURITIES LLC,Debtor.SIPA LIQUIDATION No. 08-01789 (BRL)IRVING H. PICARD, Trustee for the LiquidationofBernard L. Madoff InvestmentSecurities LLC,Plaintiff,v.J. EZRA MERKIN, GABRIEL CAPITAL, L.P.,ARIEL FUND LTD., ASCOT PARTNERS, L.P.,GABRIEL CAPITAL CORPORATION,Defendants.Adv. Pro. No. __________ (BRL)

COMPLAINT

Irving H. Picard, Esq. (the “Trustee”), as trustee for the liquidation of the business of Bernard L. Madoff InvestmentSecurities LLC (“BLMIS”), under the Securities Investor Protection Act, 15 U.S.C. §§ 78aaa, etseq. (“SIPA”), by and through his undersigned counsel,for his Complaint, states as follows:

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NATURE OF PROCEEDING

1.This adversary proceeding arises from the massive Ponzi scheme perpetrated byBernard L. Madoff (“Madoff”). In early December 2008, BLMIS generated client accountstatements for its nearly 7,000 client accounts at BLMIS. When added together, these statements purportedly show that clients of BLMIS had approximately $64.8 billion investedwithBLMIS.In reality,BLMIS had assets on hand worth a small fraction of that amount. On March 12, 2009,Madoff admitted to the fraudulent scheme and pled guilty to 11 felony counts. Defendantsreceived avoidable transfers from BLMIS, and the purposeofthis proceeding is to recover theavoidable transfers received by one or more of the Defendants.2.Defendant J. Ezra Merkin (“Merkin”) is a sophisticated investmentmanager whowas a close business and social associate of Madoff. Merkin, individually orthrough hiscompany Gabriel Capital Corporation, managed several investmentfunds which, from at least1995 through 2008, collectively withdrew more than $500 million of non-existent principal fromBLMIS prior to the collapse of the Ponzi scheme. In connection withthese investments, Merkin,individuallyor through Gabriel Capital Corporation, “earned” tens of millions of dollars inmanagement and performance fees, even though he knew or should have known that BLMIS wasengaged in fraud.3.Fromat least 1995 through 2008, the Defendant funds received unrealisticallyhigh and consistent annual returns of between 11% and 16% in contrast to the vastly larger fluctuations in the S & P 100 Index on which Madoff’s trading activity was purportedly basedduring thattime period. Between 1998 and 2008, more than 400 purported trades reflected onthe Defendants’ monthly customer account statements were allegedly exercised at prices outside

-3-the daily range for such securities traded in the market on the days in question, a fact that couldeasilyhave been confirmed by any investmentprofessional managing the accounts. Indeed,Victor Teicher, who was retained by Merkin to manage certain of the Defendant Funds for several years, specifically advised Merkin that BLMIS’ purported results were inconsistent withwhat could possibly take place in reality in that the returns were too consistent and the volatilitywas too low. On information and belief, Merkin was also advised by one of the accountants atGabriel Capital Corporation that, based on the his review of Madoff trading tickets, BLMISlooked like a fraud to him. Merkin knew or should have known that BLMIS was engaged infraud based on these facts and the numerous other indicia of fraud described herein.4.This adversaryproceeding is brought pursuant to 15 U.S.C. §§78fff(b) and 78fff-2(c)(3), sections 105(a), 542, 544, 547, 548(a), 550(a) and 551 of 11 U.S.C. §§ 101

et seq

. (the“BankruptcyCode”), the New York Fraudulent Conveyance Act (N.Y. Debt & Cred. §270

et seq

. (McKinney 2001)), and other applicable law, for turnover, accounting, preferences,fraudulent conveyances, damages and objection to claim in connection with certain transfers of propertyby BLMIS to or for the benefit of Defendants. The Trustee seeks to setaside suchtransfers and preserve the property for the benefit of BLMIS’ defrauded customers.

JURISDICTION AND VENUE

5.This is an adversary proceeding brought in this Court, the Court in which themain underlying SIPA proceeding, No. 08-01789 (BRL) (the “SIPA Proceeding”) is pending.The SIPA Proceeding was originally brought in the United States District Court for the SouthernDistrict ofNew York as

Securities Exchange Commission v. Bernard L. Madoff Investment Securities LLC et al.

, No. 08 CV 10791 (the “District Court Proceeding”). This Court has