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Bart M. Schwartz Participates in $410 Million Settlement With J. Ezra Merkin for Alleged Secret Madoff Investments

Press Release – Bart M. Schwartz, the Receiver for Gabriel Capital L.P. and Ariel Fund Limited, announced that he has reached a settlement of his damages suit against J. Ezra Merkin, having worked with New York Attorney General Eric T. Schneiderman and his staff to settle both parties’ suits against Mr. Merkin and his management company. Both the New York Attorney General’s, and Mr. Schwartz’s suits concern Mr. Merkin’s alleged secret investments with Bernard L. Madoff Investment Securities.

In the settlement, Mr. Merkin is required to pay a total of $410 million in cash over a three year period as compensation to injured investors and to resolve pending disputes.

“I am satisfied with the settlement that’s been achieved, and I am grateful for the New York Attorney General’s leadership in the effort,” said Mr. Schwartz. “The monies realized from this settlement will help bring the Ariel and Gabriel funds’ investors closer to being made whole.”


The settlement provides for Mr. Schwartz to distribute to eligible investors in the Gabriel and Ariel funds, who elect to participate in the settlement, 42.5% of their net Madoff losses up to losses of $5 million. A provision has also been made for additional recovery for investors whose net Madoff losses exceed $5 million. Distributions to Ascot Fund investors will be made in the same proportions by the Receiver of that fund, David Pitofsky.

Excluding distributions to be made from this settlement with Mr. Merkin, Mr. Schwartz has already distributed, or has moved for the authority to distribute, more than $500 million of cash to injured investors in the Ariel and Gabriel funds. Regarding his ongoing efforts to maximize distributions to injured investors, Mr. Schwartz noted, “I will continue to focus my efforts on carefully and expeditiously monetizing the funds’ non-Madoff investment portfolios, without unduly sacrificing investment value, to return proceeds of those largely illiquid assets to investors as quickly as possible. I also will focus on achieving the best possible resolutions of the substantial remaining litigations to which the funds are parties, including those with the Madoff Trustee and others.”

The funds’ remaining non-Madoff investments have an aggregate remaining estimated value of approximately $970 million. The funds also have aggregate claims against the Madoff Trustee totaling approximately $350 million, which are the subject of ongoing litigation.

Mr. Merkin was alleged to have secretly invested more than one-fourth of the assets of Gabriel Capital L.P. and Ariel Fund Limited with Madoff.  Following revelation of Madoff’s fraud, and commencement of actions against Mr. Merkin by an investor in the funds and the New York Attorney General, all the assets in both funds were put into receivership.

Proceeds of the settlement with Mr. Merkin are expected to be distributed incrementally to investors who elect to participate in the settlement over the next 24 to 36 months. Within the next 60 to 90 days, Mr. Schwartz, in consultation with his legal counsel, James C. McCarroll of Reed Smith LLP, and the New York Attorney General, expects to send to investors of record detailed descriptions of the settlement, and solicitations of their interest to participate.

No action by investors is required in the interim, but investors are strongly encouraged to review carefully the materials and to elect to participate in the settlement.  All questions can be addressed to either Mr. Schwartz, Mr. McCarroll or Mr. Rittereiser.

The cases are The People of the State of New York v. J. Ezra Merkin, et al. (Index No. 450879/2009); and Bart M. Schwartz, as Receiver v. J. Ezra Merkin, et al. (Index No. 651516/2010)

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