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Texas firm settles US charges it fraudulently took Madoff victims’ money

Texas firm settles US charges it fraudulently took Madoff victims' money © Reuters.

By Jonathan Stempel

NEW YORK (Reuters) – A Texas investment firm agreed on Friday to pay $2.51 million to settle a U.S. government lawsuit accusing it of fraudulently obtaining payments from a fund meant to compensate victims of Bernard Madoff’s massive Ponzi scheme.

The U.S. Department of Justice said Fulcrum Capital Partners violated the federal False Claims Act between October 2016 and October 2022 by causing the Madoff Victim Fund (MVF) to make inflated payouts to victims, which they then turned over to Fulcrum, a “non-victim” of Madoff’s fraud.

In a civil complaint filed in Manhattan federal court, the Justice Department said Fulcrum bought recovery rights from Madoff victims and required them to conceal from the fund how much it paid for those rights.

The Justice Department said Fulcrum specializes in trading distressed assets, including shares in “feeder funds” that sent investor money to Madoff.

“Fulcrum is a claim buying financial firm that never lost a penny from Madoff’s conduct,” Richard Breeden, the former U.S. Securities and Exchange Commission chairman who oversees the Madoff fund, said in a statement. “The inevitable consequence of orchestrating false reports to MVF was diminishing the help that… could be provided to real fraud victims.”

The settlement came after the Justice Department joined a private whistleblower lawsuit filed in 2018. Most of that case remains under seal. Fulcrum also agreed not to seek further payouts from the Madoff fund.

“Fulcrum fulfilled a critical need for victims of Mr. Madoff’s fraud by providing immediate compensation for claims,” Nicholas Leasure, Fulcrum’s managing director, said in a statement. “We concluded that resolving this dispute to avoid the expense and distraction of ongoing litigation was in the best interests of Fulcrum and our limited partners, and we are glad to put this matter behind us and look toward the future.”

The fund was created in 2013, mainly from settlements with Madoff’s former bank, JPMorgan Chase (NYSE:), and the estate of former Madoff investor Jeffry Picower.

More than $4 billion has been distributed by the fund. Another $14.6 billion has been recouped for former Madoff customers by the trustee liquidating the swindler’s firm.

Madoff pleaded guilty to 11 criminal counts after his fraud was uncovered in December 2008. He was serving a 150-year prison term when he died at age 82 in April 2021.

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