Edwin Black: Why is the Fed giving Merkin $5 billion?


JTA contributor Edwin Black brings up a legitimate question on Cutting Edge News: Shouldn’t the Fed have some reservations about handing General Motors Acceptance Corp. $5 billion to turn itself into a bank, when its chairman just lost a couple of billion by recklessly investing his own hedge fund solely in Bernard Madoff’s Ponzi scheme?

The Fed, as part of its financial bail out of the auto industry gave GMAC that and another $1 billion from the Treasury department just before Christmas, despite that its chairman, J. Ezra Merkin lost some $1.8 billion after investing all of the assets of his Ascot Partners hedge fund in Madoff – and dragging down with him scores of Jewish philanthropists and Jewish nonprofits by getting them to invest their money with him.

His investors are not about to let Merkin off the hook, writes Black:

Lawsuits against Merkin for financial misconduct are mounting. New York Law School, which lost $3 million investing in the Ascot fund, was among the first to file a lawsuit against Merkin and its accountancy firm, BDO Seidman. The class action lawsuit filed in U.S. District Court in Manhattan said the defendants "recklessly or with gross negligence caused and permitted $1.8 billion, virtually the entire investment capital of Ascot" to be handed over to Madoff.
A second class action lawsuit charges that Merkin “facilitated” the Madoff scandal “recklessly or with gross negligence and/or in breach of fiduciary duties.” This suit was launched by Scott Berrie, a Gabriel investor. Berrie alleges, “Plaintiffs investment in Gabriel has been decimated as a direct result of defendant Merkin’s abdication of his responsibilities and duties as General Partner and Manager of Gabriel and its investment funds.” The Berrie suit specifies that Merkin is chairman of GMAC.
A confidential 60-page, 2006 Ascot memorandum obtained by The Cutting Edge News states on page 23, “All decisions with respect to the management of the capital of the Partnership are made exclusively by J. Ezra Merkin. Consequently, the Partnership’s success depends to a great degree on the skill and experience of Mr. Merkin.”
Wall Street financial analysts have been mystified by the manner in which GMAC engineered banking status. “We believe GMAC has been less than clear in detailing how it would achieve adequate capital levels,” CreditSights analyst Richard Hoffman recently declared. “But with the primary regulator on board, the capital raise machinations seem almost a moot point.”  

Recommended from JTA