Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Andrew Levander

Former Fairfield Greenwich Executive To Sell Manhattan Townhouse

Walter Noel and FamilyThe Sunday January 25th 2009 edition of The New York Times has an article in its Real Estate section entitled Every Man for Himself. This article details how one Richard Murphy in 2007 paid $33 million for the 25-foot-wide town house at 7 East 67th Street.

At the time, this purchase was the highest price on record for an Upper East Side town house built on a standard 25-foot-wide lot. The home has 12,000 square feet of space on seven levels, including the basement. Apparently Mr. Murphy has been considering listing it now for $36 million. "But brokers were skeptical that he would get that price, with one suggesting it might eventually sell for $30 million at most, about 10 percent less than he paid." This story is indicative of how even Manhattan real estate is beginning to sag under the weight of Wall Street layoffs, hedge fund retrenchment and the economic recession.

Toomre Capital Markets LLC ("TCM") took particular note of this story because of the firm Mr. Murphy until very recently worked for: Fairfield Greenwich Group, the "feeder fund" group with the largest exposure to Bernie Madoff's fraudulent investment business. Fairfield Greenwich is reported to have had approximately $7.5 billion invested with Madoff at the time of his arrest. The article notes that Mr. Murphy is listed as one of the defendants, along with other Fairfield Greenwich partners, in lawsuits brought by disgruntled and aggrieved investors.

According to this court document, The New York Times may have gotten Mr. Murphy's first name wrong. The name listed in the lawsuit with other Fairfield Greenwich partners is Charles Murphy, who lives at 202 Round Hill Road in Greenwich, Connecticut — a short distance from 175 Round Hill Road and the home of Fairfield Greenwich Group founder, Walter Noel. Their Fairfield Sentry fund is said to have had substantially all of its approximate $7.2 billion in assets invested with Bernie Madoff.

Walter Noel and his wife Monica are parents to five daughters. The picture in the upper left of this post is from their 2005 Christmas card and show clockwise from the left, Lisina, Corina, Walter, Monica, Ariane, Marisa, and Alix. Each of the five daughters is now married and many of the son-in-laws became involved in Fairfield Greenwich Group business. Four of the five son-in-laws along with Walter Noel are named in the above referenced lawsuit.

Corina, the eldest, married a Columbian named Andres Piedrahita, who became a partner of Fairfield Greenwich. Corina and her husband apparently relocated to London some years ago and subsequently spent considerable time in Spain as well while raising funds from European and Latin American investors. Rumor has it that Andres Piedrahita "may have done something fatally stupid by placing 2x-3x-laundered Columbian Drug Cartel money into the FFG-Madoff sinkhole". The court document referenced above includes Andres Piedrahita as one of the defendants. According to that document, Mr. Piedrahita is being represented by Andrew Levander, the same lawyer who also happens to be representing Ezra Merkin and his "feeder funds" in lawsuits by other distraught Madoff investors.

Ezra Merkin and Madoff Feeder Funds Face More Lawsuits

At high noon on Monday January 12th 2009, a Federal magistrate will announce his decision about whether fraudster Bernie Madoff will remain free on bail confined to his penthouse apartment on Manhattan's Upper East Side. The magistrate might instead agree with Federal prosecutors who have argued in briefs filed last week that Bernie Madoff is a "danger to society" and hence he should be remanded until his trial where he almost assuredly will be convicted of at least one criminal act and then probably imprisoned for the remainder of his life.

Remand is an unusual order in most white-criminal cases. However, a fraud of approximately $50 billion and the mailing of "sentimental heirlooms" (in some cases worth more than a million dollars in a single mailing) in violation of court order are also highly unusual. Toomre Capital Markets LLC ("TCM") suspects that public pressure to see "crook" Madoff imprisoned and Madoff's reported decision to cease cooperating with investigators and prosecutors will lead the magistrate to order Bernie Madoff off to jail.

As Bernie Madoff contemplates his possible last few hours of freedom, one of his enablers (and feed fund managers), Ezra Merkin, apparently faces fresh lawsuits seeking as much as $100 million that investors claim he squandered (certainly without their knowledge nor possibly their consent) on Madoff's $50 billion Ponzi scheme. According to The Guardian in the article Hedge Fund Billionaire Sued For Investing in Madoff Scheme written by James Doran, Mr. Merkin, 55, was forced to close his $1.5 billion Gabriel Capital hedge fund in December 2008 after disclosing massive losses from investing in Madoff's business.

As TCM wrote in the post Update on Bernie Madoff Scandal and Feeder Funds last week, Mr. Merkin has already been sued by both New York Law School and New York University ("NYU"). NYU claims its investment was placed with Madoff without permission. "Until 12 December 2008, we had no knowledge that NYU's funds were instead being managed by Bernard Madoff," said an affidavit from NYU filed in New York state supreme court.

Update on Bernie Madoff Scandal and Feeder Funds

Four weeks ago, the alternative investment world was shocked by the arrest of Bernie Madoff after he allegedly confessed to running an investment Ponzi scheme that according to his own admission swindled investors out of close to $50 billion. In the days since, there has been daily news of this or that individual, family, foundation, organization or charity having suffered devastating losses because of Madoff's fraudulent behavior. In recent days, the receiver appointed by the courts to try to recover investor funds has sent out potential claim forms to more than 8,000 entities that had invested funds through Madoff in the last twelve months.

Before news of this scandal broke, Toomre Capital Markets LLC ("TCM") had tangentially heard of Bernard Madoff Investment Securities, primarily in connection with its market making in small illiquid NASDAQ common stocks and its early adoption of technology to support electronic trading. We had no sense, though, that Bernie Madoff was running an investment advisory business nor that he potentially had so many funds under management from such a wide and diverse group of entities.

Apparently, his annual registration statement filed in 2007 for the investment management subsidiary indicated that he had $17 plus billion under management from less than two dozen investors. While one never can be sure of what is truth with regard to what Bernie Madoff said or did, based on information that has come out since, both of these numbers appear to be wrong. TCM suspects that Madoff purposely understated both the amount of assets supposedly under management and the number of investors so as to reduce the chance of inspection from the SEC and FINRA.

The real numbers for his annual registration statement apparently should have been somewhere around $35 billion and (depending upon how one defines the term "customer") more than 5,000 investors. Had such numbers been reported to regulators on his investment advisor registration form, there is no doubt that Madoff's investment operation itself would have been subjected to a rigorous regulatory review, especially since there previously had been no review conducted and it only registered for the first time in 2006.

One of the curious items about the Madoff scandal is how there could be such a difference what he reported as customers and what the press has reported as victims of the Madoff fraud. The key lies in the various feeder funds that in essence bundled funds from multiple investors and then deposited most, if not all, of those funds with Bernie Madoff. These feeder organizations included Fairfield Greenwich, Tremont Capital, Banco Santander, Bank Medici and Ascot Partners. Most of these feeder funds have now been sued by one or more of their investors.