The holders of more than two dozen retirement accounts have taken the Westport National Bank to Connecticut Superior Court in Stamford for its role in handling their investments in Bernard L. Madoff’s long-running Ponzi scheme. The lawsuit seeks to recover $60 million that the retirement plans lost when the Madoff fraud collapsed in December, as well as millions of dollars in fees that the bank charged customers who maintained the accounts.
The bank required each account holder to sign custodian agreement before it accepted any money to be invested with Mr. Madoff. The agreement, which is the focus of the lawsuit, states that the customer “has not relied on the bank in choosing” the Madoff firm. But it also indicates that the bank would take custody of whatever investments Mr. Madoff made on the customers’ behalf.
According to the bankruptcy trustee liquidating the Madoff estate, there was nothing for the bank to hold as custodian since Mr. Madoff never bought any securities for his investors. Instead, he used most of the cash he received from investors to cover dividends and redemptions paid to other investors.
The bank released a statement saying it had acted “in a ministerial capacity only” and had not invested any of its money with Mr. Madoff. The move came after its customers first complained publicly in January about its role in their Madoff accounts.
In addition, federal authorities have cracked down on an alleged $485 billion Ponzi scheme holding investments in the oil and gas business, with Provident Royalties LLC now facing a suit filed late Tuesday in Texas by the U.S. Securities and Exchange Commission. A federal judge agreed to freeze assets of the company. Three principals of the firm, Paul Melbye, Brendan Coughlin and Henry Harrison, were named in the suit.
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