J. Ezra Merkin helps wipe out father’s legacy

By Carol Eisenberg

December 17, 2008 at 10:54am

It is a tragedy of almost Biblical dimensions: The late Hermann Merkin was a lion of Jewish philanthropy who gave millions to help build Yeshiva University, the Fifth Avenue Synagogue and Merkin Concert Hall, among other causes.

His son, J. Ezra Merkin, who took his father’s place as a director of many of those institutions, has managed to wipe out much of what Hermann Merkin spent a lifetime creating.

Ezra Merkin was “the Golden Boy controlling the Golden Goose,” as one trustee at Yeshiva University put it – the head of Gabriel Capital Group, a $5 billion money-management firm whose clients include wealthy families and university endowments. So it was not surprising that many institutions turned to him to help manage their endowments.

Merkin invested their money in a $1.8 billion fund he called Ascot Partners – telling no one that Ascot was invested entirely with his longtime friend, Bernard Madoff, the Wall Street trader accused last Thursday of defrauding investors through a $50 billion Ponzi scheme.

Now, all that money is presumed gone.

In a three-paragraph note sent out the day that Madoff was arrested, Merkin informed Ascot’s investors that the fund was now virtually worthless. He said he himself had “suffered major losses from this catastrophe.”

That was little consolation, however, to Yeshiva University, said to have lost $110 million of its endowment; or to Congregation Kehilath Jeshurun, the Ramaz School of Manhattan and SAR Academy in Riverdale, said to have lost substantial sums; or to several family foundations belonging to Merkin’s fellow trustees at Yeshiva University, including Robert M. Beren and Ludwig Bravmann.

Another Ascot casualty was a charitable trust founded by real-estate magnate Mortimer Zuckerman, the chairman of real-estate firm Boston Properties and owner of the New York Daily News and U.S. News & World Report. That lost $30 million.

Harry Susman of Houston law firm Susman Godfrey LLP, who has been retained by several well-to-do New York families, told the New York Times that none of those investors knew Merkin was giving all of the money to Madoff.

He said his clients are particularly incensed because Merkin was charging them an annual fee of 1.5 percent of their investments in exchange for his services, which now appear to be little more than turning over the money to another investor.

“People who went through Merkin, they had to pay for the privilege of being stolen from,” Susman said.

Indeed, even as he has portrayed himself as a victim, Merkin is being harshly criticized. Several people told Jewish Week that while they had been reluctant to invest with Madoff, they trusted Merkin completely.

“We thought we were investing in Ezra,” said one official of a Jewish institution, “and now find out we were invested with Madoff. We feel duped and outraged.”

One private investor said that several years ago he asked Merkin directly if his investment in Ascot was going into the Madoff fund and was told it was not.

…Merkin has served for the last several years as chairman of the investment committee at UJA-Federation of New York. But in part because the federation has a policy prohibiting members of the committee from directing funds, there was no exposure of its funds to Ascot Partners or Madoff.

“There were some on the board who grumbled about us missing out on a solid investment but we weathered the criticism,” one insider noted.

Merkin is expected to be off the UJA-Federation board by week’s end.

Yesterday, the first of what is expected to be a slew of investor lawsuits against Merkin was brought by New York Law School, which had invested $3 million in Ascot Partners.

The lawsuit, filed in U.S. District Court in Manhattan, alleges recklessness, gross negligence and breach of fiduciary duties by Merkin, the fund, Ascot Partners and its auditor, BDO Seidman LLP.

Merkin’s lawyer, Andrew J. Levander, offered this response:

“Mr. Merkin and his family are personally among the largest victims of the massive fraud confessed by Bernard Madoff. Like the other victims and the entire financial community, Mr. Merkin is shocked by these events. He intends to defend the lawsuit vigorously while seeking redress for himself and his investors from whoever perpetrated this fraud.”

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  • #1.   Bill 12.19.2008

    Correction: Paragraph 5

    First sentence - “Hebrew University” should be “Yeshiva University”

  • #2.   Carol Eisenberg 12.19.2008

    Thanks for spotting that. The fix is made.

  • #3.   onlooker 12.21.2008

    Why isnt there any news on Ezra Merkin in the Madoff scandal? He the largest asset collector for Madoff and also, coincidentally, in the top 5 beneficiaries of the government TARP program, through his ownership in Cerberus, GMAC and other entities he owns with Stephen Feinberg, the top TARP recipient. Why would a person central to the countries losses in Chrylser, GMAC, Mervyns (although he made money while thousands lost their jobs) and many other companies as well as the Madoff caper (which is far from solved, it could be the sons did it and the father is covering up) has received little attention for his leading role in major scandals?

    Also, the both funds, Cerberus and Gabriel, are so connected, dont they have fiscal responsibilities for each others holdings and liabilities? They share control of shareholdings as shown in the link below. So it would only stand to reason that Cerberus and Gabriel are connected and co-mingled on many or all assets.Please tell me this is not a trap door, so that a liability probelm at Gabriel Fund allows assets to escape and seal safely off in the safe Cerberus fund!

    Merkin the Asset Collector

    Co-mingled investments with Stephen Feinberg

    Stephen Feinberg and Cerberus

  • #4.   Brianne 01.04.2009

    Ivan Boeskys, Michael Milkens, Jack Grubmans, Martin Frankels, Marc Richs, Pincus Finkelsteins, Sal Wachsals, Myron Fagans, Marc Driers, Yehuda Belskys, Saul Israels, the Bernard Madoffs - These people behave this way, because there are no real consequences. Maybe if we keel-hauled a few of them (after a fair trial of course) this kind of stuff would come to an end

  • #5.   Hail 04.14.2009

    The game is continuing despite of Madoff in jail.

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