Ezra Merkin: Not Guilty, Just Stupid

Ezra Merkin, the disgraced money manager who poured billions of his clients' dollars into Bernie Madoff's funds, has cleared the first of the many legal hurdles he faces: a federal judge threw out the lawsuits by investors seeking to recover the money they invested with him.

Mr. Merkin and Gabriel Capital have denied wrongdoing. In a deposition in 2009, Mr. Merkin testified that he believed Mr. Madoff's returns were "achievable" and his company was provided copies of Mr. Madoff's purported trading tickets in part so they could track the profit-and-loss performance on a daily basis and examine the downside and upside risks.

. . . "The use of Madoff as a third-party manager here was made with the understanding that Madoff would, in turn, make investments that would comport with the funds' strategies," U.S. District Judge Deborah A. Batts said in a 40-page order."

The defense attorneys seem to be arguing that many of the investors knew damn well that Merkin was investing with Madoff, which wouldn't surprise me--Madoff apparently had people begging to get into his funds.

"We are pleased that, after careful consideration, Judge Batts held that Mr. Merkin did not deceive the sophisticated investors in his hedge funds," said Andrew J. Levander, a lawyer for Mr. Merkin. "As Judge Batts explained, the funds' offering memoranda expressly permitted the allocation of such funds to third party managers such as Madoff. In fact, investors overwhelming knew that Mr. Merkin worked with third-party managers and that substantially all of Ascot's assets were invested with Madoff."

Merkin is still probably going to have all his money seized by Irving Picard, the guy charged with clawing back the payouts from the Ponzi scheme.  And he faces prosecution from the state of New York. Still, I assume he's taking this as a very hopeful sign.