PORTLAND, Maine — A Bremen couple who lost more than $1 million in disgraced stock broker Bernard Madoff’s investment scam is suing the advisors they say talked them into the ill-fated fund.
A jury trial in the 4-year-old case is scheduled to begin Thursday in U.S. District Court in Portland.
In their initial complaint, Daniel and Suzanne Goldenson argued that accomplished Wall Street trader and once-trusted financial advisor John Steffens convinced them to invest millions in a fund entirely — but secretly — managed by Madoff.
Steffens was named in the initial lawsuit as a co-defendant alongside colleague Gregory Ho and various incarnations of his Spring Mountain Capital firm.
But the defendants countered that the Goldensons signed paperwork indicating they understood the risks involved with the investments and that other money managers — in this case, Madoff — could be used to handle their money.
According to court documents, Steffens argued that he was just as much a victim of Madoff’s swindle as the Goldensons, losing as much as $6.7 million in his own funds exposed to the scam.
Madoff, 76, was sentenced to the maximum 150 years in prison in 2009 after being convicted of running a nearly $65 billion Ponzi scheme — using new investors’ money as faux dividends for previous investors, instead of actual returns on their investments.
Madoff’s scam is considered the largest case of financial fraud in American history.
In their lawsuit, the Goldensons claimed that prior to 2001, they had never invested in hedge funds, instead choosing more “conservative” investment options, such as municipal bonds.
But the plaintiffs argued that Steffens — a neighbor of their Princeton, New Jersey, home at the time and a trusted advisor — continued to warn the couple that the municipal bonds “were not as secure … as [Daniel Goldenson] thought they were,” and ultimately urged them to consider hedge funds he and a business partner, Ezra Merkin, handled.
Daniel Goldenson, who had made his money in real estate and a series of other business ventures over the previous decades, agreed to invest in Merkin’s Ascot fund in December 2001 based on Steffens’ strong endorsement
Through a series of transactions between December 2001 and December 2008, the Goldensons invested nearly $2.9 million in the Ascot fund and withdrew about $1.75 million of their investments. That left at least $1.15 million in the fund that was lost when it was discovered as an empty part of Madoff’s Ponzi scheme, according to court documents.
The couple claimed in their lawsuit they were unaware that the entire time, Madoff was secretly entirely responsible for the Ascot account, and argued that, had they known, they would have pulled their money from the fund.
Even in 2001, Madoff was starting to come under suspicion, with several media reports at the time questioning how he was able to produce such unnaturally high and consistent returns.
The Goldensons argued that Steffens knew all along that Madoff was in charge of the Ascot fund and that he couldn’t be trusted.
Steffens was previously a top board member at Merrill Lynch, where Merkin not only said he told Steffens about Madoff’s oversight of the Ascot fund, but where he also was privy to red flags about Madoff’s activities, according to court documents.
Merrill Lynch had refused to invest with Madoff, as its analysts considered his success a “mathematical impossibility” and his approach “unnaturally weird,” according to court documents.
Yet, Daniel Goldenson claimed in court that despite this background, Steffens made no mention of Madoff’s involvement with the Ascot fund, instead selling Goldenson on a special investment algorithm — a “proprietary strategy” — devised by Merkin.
The defendants have countered that Goldenson’s recollection of his talks with Steffens and others is unreliable, and Merkin would later say he would never have claimed personal credit for Ascot’s successful track record.
Even after Madoff’s downfall, the Goldensons claimed the defendants sent the Goldensons correspondence reiterating that they had no direct investments with Madoff. The couple stated they only discovered their entire Ascot investment was lost by reading about it in the media.
In her statement filed with the court, Suzanne Goldenson recalled the moment of realization, as her husband walked “up the stairs … holding his head like somebody died.”
“You won’t — you just — you won’t believe this,” a shocked Daniel Goldenson told his wife after reading about the Ascot fund collapse, according to her testimony.
But the defendants in the case countered that Goldenson was a shrewd investor who shouldn’t have been blindsided.
Goldenson signed a confidential memorandum before investing in the Ascot fund that allowed the fund’s managing partner to delegate investment duties for any and all money to money managers — such as Madoff — according to court documents.
He signed a similar document prior to doing business with Steffens that acknowledged the investors couldn’t be held liable for any “mistakes of judgment” and that putting money in the fund involved “a high degree of risk, including the risk that the entire amount invested may be lost.”
Steffens claimed in court documents that neither he, nor his Spring Mountain Capital firm, directly managed the Ascot fund and shouldn’t be held accountable for its performance, even if he did recommend it or introduce Goldenson to its managing partner, Merkin.
Steffens also argued that, contrary to being part of the scam, he was working in the Goldensons’ best financial interests. The Goldensons made $1.6 million off of investments in two of Steffens’ other funds not associated with Madoff, according to court documents.