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Beverly Hills manager Stanley Chais sued by Madoff trustee

By Carol Eisenberg

May 5, 2009 at 11:29am

Jewish philanthropist Stanley Chais was there at the beginning, more than 30 years ago.

The Beverly Hills money manager was one of Bernard Madoff’s earliest investors, steering tens of millions of dollars of other people’s money to the convicted swindler, from the modest savings of family friends to the significant cash earned by Hollywood celebrities like Steven Spielberg.

Now, a court-appointed trustee in the Madoff case has accused Chais, 82, of routinely getting such “implausibly high” returns on his own accounts with Madoff - returns that averaged 40 percent annually and sometimes went as high as 300 percent - that Chais should have known that his longtime friend was engaged in fraud.

In a lawsuit filed Friday, Irving Picard also asserts that Chais and members of his family withdrew more than $1 billion from accounts with Madoff since 1995 and “untold additional funds” in previous years - money that Picard contends belongs to Madoff’s victims.

The lawsuit against Chais and his family is the first time that Picard, the trustee overseeing the liquidation of Madoff’s firm, has asserted that supposed victims of the fraud got such preferential treatment that they should have recognized it as a swindle.

Picard is attempting to recover at least some of the money paid out to the Chais family to help compensate Madoff’s victims. Federal investigators say that those victims lost an estimated $65 billion when Madoff confessed Dec. 11 that his money management business was, in fact, a giant Ponzi scheme.

A lawyer for Chais told the New York Times that his client, who recently relocated to New York, and his family suffered “astounding and ruinous losses” as a result of their investment with Madoff, and they were outraged at Picard’s lawsuit.

Chais is a prominent Jewish philanthropist revered in Israel for his contributions to educational and science institutions. He sits on the boards of the Weizmann Institute and the Hebrew University of Jerusalem.

But in his complaint, Picard described Chais as a beneficiary of Madoff’s Ponzi scheme going back at least 30 years. While Chais’ family funds reaped annual returns averaging 40 percent, those he ran for his clients - who ranged from family friends to Hollywood celebrities like Eric Roth and Jeffrey Trachtenberg - generated returns of 20 to 24 percent annually, Picard said.

The complaint contends that the lack of volatility and the extremely high profits - “whose only common denominator is the unlikelihood that they could result from legitimate trading” - should have told Chais that Madoff was engaged in a fraud.

And it claims that the special treatment and the outsized returns Chais got “were a form of compensation by Madoff” to Chais for steering millions of dollars of other people’s money into the Ponzi scheme.

The lawsuit also asserts that some tax losses reported by various Chais family accounts over the years were fictitious, the product of backdated transactions.

A lawyer working with Picard told the New York Times that similar complaints will be filed against other beneficiaries of the scheme in an effort to recover money that can be pooled to help compensate all investors.

Chais has already been sued by former clients, who invested with him through partnerships like Arbitrage, Popham, Lambeth and Brighton, which he served as general partner.

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