PRESSBOX

New York Supreme Court Commends Scott+Scott’s Representation Of NYU In Case Against Hedge Fund Linked To Bernard Madoff

New York Supreme Court Judge, the Honorable Richard B. Lowe, III, recently praised Scott+Scott LLP for its representation of New York University ("NYU") in NYU's investor lawsuit against hedge fund Ariel Fund Limited, its partners and auditors, and J. Ezra Merkin who, as sole shareholder and employee of Gabriel Capital Group, had Ariel Fund invest a significant amount of its assets with Bernard Madoff. In his opinion, Judge Lowe specifically recognized that Scott+Scott's work on the case not only benefitted NYU but also all investors.

Judge Lowe stated:

It is this Court's position that Scott+Scott did a superlative job in its representation....  It should be noted that Scott+Scott has demonstrated a remarkable grasp and handling of the extraordinarily complex matters in this case.  The extremely professional and thorough means by which NYU's counsel has litigated this matter has not been overlooked by this Court. [Their] knowledge has always been used to benefit all investors. 

NYU's original complaint asserted direct claims on behalf of NYU to recoup approximately $24 million in losses to its endowment fund.  NYU's funds were invested by Merkin and Ariel with Madoff, who was directing a $50 million Ponzi scheme. The complaint was filed on behalf of NYU within two weeks of learning of the Ponzi scheme on December 11, 2008, and within one week of learning from Merkin's intention to wind up the affairs of Ariel.  Recognizing the importance of conserving Ariel's remaining assets to maximize NYU's recovery, Scott+Scott obtained a temporary restraining order (TRO) on December 24, 2008, against Merkin, enjoining him from encumbering the assets of Gabriel Capital Corporation and the Ariel Fund or taking any steps to dissolve Ariel.  Merkin was also enjoined from concealing or destroying any documents related to Madoff.  On January 6, 2009, NYU obtained a further extension of the restraining order, preventing Merkin from liquidating the fund's assets.

The practical effect of the TRO was such that any off-shore transfer of Ariel's approximate $1 billion in assets was enjoined, and Ariel would not be able to "wind up" its assets in a Cayman Islands proceeding driven by Merkin.  Further, the purported $323 million deferred incentive fee promised to Merkin could not be paid.  While the TRO was in place, Scott+Scott continued to advance the case on an accelerated timeline on behalf of NYU, deposing Merkin and proceeding with critical discovery.

On February 18, 2009, the New York Attorney General's Office (NYAG) subpoenaed much of the discovery obtained by NYU and the unredacted transcripts of the Merkin deposition, and other documents filed under seal. On April 6, 2009, the NYAG filed his own action and, ultimately, a receiver took control of Ariel's assets through the NYAG action. 

NYU's action was subsumed by the NYAG's action, which was brought on behalf of all investors, including NYU. Recognizing Scott+Scott's efforts in the lawsuit, however, Judge Lowe stated that the actions taken by Scott+Scott on behalf of NYU "in this proceeding led to substantial benefits to the investors."  Judge Lowe also recognized that "[t]he opposition cannot argue that the TRO obtained by NYU, the discovery obtained by NYU, and its efforts in negotiating a receivership were not necessary actions because the [NYAG] took identical steps when it finally filed its own case.  Without question, the preservation of Ariel's assets during the five months that the [NYAG] took to bring its action conferred a substantial benefit." 

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