DOL Slams Ivy Asset Management in $210 Million Madoff Settlement

New York Attorney General Eric Schneiderman said in the same statement that the settlement "brings accountability for one of the greatest financial frauds in American history and justice to defrauded investors." Ivy Asset Management, he said, "violated its fundamental responsibility as an investment adviser by putting its own pecuniary interests ahead of the interests of its clients. An investment adviser should apprise its clients of risks, but Ivy deliberately concealed negative facts it uncovered in its due diligence of Madoff in order to keep earning millions of dollars in fees. As a result, its clients suffered massive and avoidable losses."

According to DOL, Ivy served as the investment adviser for Jeanneret, Beacon and Andover, and introduced those parties to Madoff. The suit alleged that "Ivy misrepresented and concealed doubts and suspicions about Madoff, including the belief that no investment with Madoff was justified."

The suit further alleged that "Ivy concealed its suspicions because the investments made by Jeanneret, Beacon, and their plan clients and other investors generated enormous fees for Ivy and contributed significantly to the assets under Ivy's management." The department alleged that "Ivy made the decision not to sacrifice those financial benefits by disclosing the true nature of its doubts about Madoff, especially because management did not think the company could escape legal liability for those investments."

Jeanneret served as the investment manager for more than 70 plans that invested with Madoff through several methods, including its own fund of funds, starting in 1991, DOL says. The department's suit alleged that "the company and its principals made material misrepresentations and failed to disclose material facts to their ERISA-covered plan clients that invested with Madoff. These included failing to disclose that Ivy had informed Jeanneret that it was unable to perform due diligence on Madoff. Jeanneret also allegedly failed to disclose to its clients that it had entered into a new agreement with Ivy in 2007 that eliminated Madoff from Ivy's due diligence responsibilities, and failed to disclose that Ivy recommended Jeanneret reduce plan client and investor exposure to Madoff.

The suit went on to further allege that Jeanneret "largely ignored" Ivy's recommendations to reduce its clients' Madoff investments and "failed to take prudent steps to investigate irregularities about Madoff and his purported trading, while taking substantial amounts in fees as the investment manager for the plans."

According to DOL, Jeanneret and its owners and officers "allegedly violated ERISA based on their fee arrangement, which provided for higher fees for Madoff investments than for other types of investments. This arrangement gave them the ability to set their own compensation by exercising their discretion to recommend and make Madoff investments for plans."