Fairfield Greenwich Group

Fairfield Greenwich Group
Private company
Industry Investment management
Founded 1983
Founder Walter M. Noel, Jr.
Jeffrey Tucker
Andres Piedrahita
Headquarters New York City
Products Hedge funds
AUM $16 billion (as of 2008)
Number of employees
 140

Fairfield Greenwich Group is an investment firm founded in 1983 in New York City. The firm had among the largest exposures to the Bernard Madoff fraud.

History of the Firm

The firm was founded in 1983 by Walter M. Noel, Jr. (born 1930 in Alabama[1] and raised in Kenmore, New York[1]). At one time, the firm operated from Noel's adopted hometown in Greenwich, Connecticut, before relocating its headquarters to New York City.

In 1989, Noel merged his business with a small brokerage firm whose general partner was Jeffrey Tucker, who had worked as a lawyer in the enforcement division of the Securities and Exchange Commission. Both Noel and Tucker are semi-retired. [2]

Fairfield offered feeder funds of single-strategy trading managers.[3] Fairfield also started several fund of funds, each investing in a basket of hedge funds, though the offering of feeder funds has been the primary business of Fairfield. It described its investigation of investment options as “deeper and broader” than competitive firms because of Tucker’s regulatory experience.

Fairfield Greenwich's website says it "employs a significantly higher level of due diligence work than typically performed by most fund of funds and consulting firms."[4] It is an employee-owned firm with 140 employees, 21 of whom are shareholders. At one time, it reported $16 billion in assets under management.[5]

It is reported that foreign investors provided 95% of its managed assets, 68% from Europe, 6% from Asia, and 4% from the Middle East. Each of Noel's four daughters married into international families.[6]

In 2008, Fairfield Greenwich reported more than $14 billion in assets under management. [7]

Founding Partners

Walter Noel and Family

Presently, Walter Noel has a 17% ownership interest.[2]

Noel had previously been a private banker in Lausanne, Switzerland, then worked at Citigroup before becoming the head of Chemical Bank's international private banking practice in Nigeria, Switzerland, and Brazil.[4]

Noel met his Brazilian-born wife, Monica Haegler, who hails from a prominent Swiss family, while she was studying at Wellesley College in Massachusetts. They have five daughters and 19 grandchildren. Their daughters married into families that provided additional connections for the firm and helped funnel money into Madoff's fund:

Three of Noel’s sons-in-law eventually became partners, promoting the firm’s funds in their home countries and other regions, and funneled money into Bernie Madoff's funds. Piedrahita was named a Fairfield founding partner in 2007; he owns 22 percent[2] and became one of the firm’s dominant representatives of European and Latin American banking and investment. Della Schiava helmed Noel funds in Madrid and Lugano, Switzerland.[4] Toub was the “agent” for the Abu Dhabi Investment Authority, the Safra National Bank of New York, and the National Bank of Kuwait.[13][14] Monica Noel's niece, Bianca Haegler, a well-known Brazilian socialite, and her father, Alex, reportedly steered Brazilian investors to the firm, [15] as did her cousin Jorge Paulo Lemann, Brazil’s richest financier, co-owner of InBev, Budweiser’s parent company. [2]

Jeffrey Tucker

Jeffrey Tucker also had a 17% interest in the firm.[2] Though he is not as prominent as the Noels, Tucker benefited from Fairfield’s success. In 2007, Tucker, chairman of Empire Racing, led the group of thoroughbred investors, who sought to bid for New York State’s horse-racing franchise. [16]

Joint venture

In 2004, the firm formed a partnership with Lion Capital of Singapore, now Lion Global Investors, and created Lion Fairfield Capital Management, a joint venture meant to introduce Asian investors to the firm. Richard Landsberger, a Fairfield partner, is director.[14]

Merger

In September 2008, Banque Bénédict Hentsch, a private Swiss bank, managing $2 billion in assets, merged with Fairfield Greenwich Group, intending to yield $18 billion venture in combined assets. Bénédict Hentsch, founder and chairman of the board of directors, stated that clients would gain access to Fairfield Greenwich's funds, while Fairfield Greenwich clients would be able to access BBH's wealth management services. Bénédict Hentsch and Robert Pennone became directors of Fairfield Greenwich Group, and Charles Murphy and Mark McKeefry joined the board of Banque Bénédict Hentsch Fairfield Partners SA.[5]

In mid-December 2008, it terminated the merger due to the Madoff crisis. It had $47.5 million of client assets at risk with Madoff.

The founding shareholders of the bank have terminated their partnership with the Fairfield Greenwich Group. They have concluded an agreement with the latter whereby they have repurchased the total capital of the bank ... Banque Bénédict Hentsch have immediately taken all appropriate steps in order to protect the interests of its clients and those of the bank.[17]

Relationship with Bernard Madoff

Noel, a graduate of Vanderbilt University and Harvard Law School, and Tucker were introduced to Madoff in 1989 by Tucker’s father-in-law, from Scarsdale, New York, who knew Madoff and had invested with him.[18]

In 2006, the Securities and Exchange Commission, as part of an investigation into Madoff's activities, determined that Fairfield Greenwich had not properly disclosed that Madoff oversaw its investment decisions, though no evidence of fraud was found. Subsequently, Fairfield Greenwich formally disclosed Madoff's role – and in the process raised about $1.7 billion from investors in the US and Europe.[19]

During the summer of 2007, several private-equity firms were discussing taking a large investment in the firm, but Madoff ended any potential deal by refusing to grant the potential investors access for due diligence. [4]

By 2008, the firm had 48 percent of its capital tied to Madoff.[2]

Fairfield Sentry Fund

Noel and Tucker created the Fairfield Sentry fund in 1990 with $1 million in "seed money" and began expanding it a year later. At the time, Noel and Tucker said Madoff provided more information and transparency than most hedge funds, and operated a reputable Wall Street firm.[18]

The Fairfield Sentry fund required a $100,000 minimum investment, and was billed as a way to tap Madoff's trading expertise using "algorithmic technology" while Fairfield with due diligence conducted "systematic investment compliance".[19] It had more than $7 billion invested with Madoff, and became one of his largest victims. It was Fairfield's signature fund, one of several feeder funds through which money from wealthy foreign investors could capitalize on Madoff’s supposed investment acumen. Its marketing prospectus promised low volatility and steady returns, and boasted 11 percent annual return over the prior 15 years, with only 13 losing months, a record that grew increasingly desirable over recent years of volatility.[16] The fund was backed by loans from banks including Banco Bilbao Vizcaya Argentaria and Nomura Holdings, which invested about $304 million.[19]

The Mugrabis, extremely wealthy art collectors from Colombia who have lived in New York for more than 20 years, and long-time friends of Piedrahita (a Colombian who had married Mr. Noel’s eldest daughter, Corina), were investors.

"We had very little money with the fund — just under a million dollars — so I am not that upset personally," said Alberto Mugrabi, a son of the family patriarch. "It was a very informal thing. We know Andrés (Piedrahita) since forever, from Bogotá, he’s a great guy, and he says to us, ‘This is the Madoff thing, he’s the master.’ I trusted Andrés. I still trust him."[6]

In early 2005, The Abu Dhabi Investment Authority invested approximately $400 million. After redemptions in 2005 and 2006, it continued to $132 million, 2% of the funds assets. One of the largest of the world’s sovereign wealth funds, its assets were estimated in early 2008 to be approaching $700 billion.[14]

In August 2008, JPMorgan Chase pulled $250 million from this Madoff feeder fund account. Chase had become "concerned about lack of transparency", and had performed due diligence which had "raised doubts" about Madoff's operation.[20]

The firm set up feeder programs with such banks as Banco Santander, SA private banking unit, Banif, Swedish Bank Nordea, Zurich-based NPB Neue Privat Bank, Banque Bénédict Hentsch & Cie of Geneva, all conduits of fresh money to Madoff which extended his global reach. [4][6][21]

Fees

Fairfield's fee arrangement earned them approximately $400 million from 2005–08. The firm charged clients larger fees than most similar firms did, including a 20% share of profits on investments, about double what competitors charge that farm out clients' money to a variety of fund managers. In October 2004, it also began collecting a 1% fee on assets under management.[22] Madoff didn't charge additional fees, rather a commission on trades he allegedly executed. This arrangement raised suspicions and doubt among other money managers.[19]

Massachusetts regulators alleged that in 2007, Tucker earned more than $30 million in fees from Madoff,[23] and that even in down markets Madoff helped Fairfield earn steady returns.

New funds in 2008

As recently as December 11, 2008, the day Madoff was taken into federal custody, Madoff was working with Fairfield Greenwich to raise money for new funds, which promised about a 16% return, using more leverage than the 3–1 ratios he claimed he used in existing funds. It has been reported by one client that Fairfield warned investors they would be excluded from any future Madoff product if they declined to participate in the new fund and/or withdrew from any existing funds. [24]

Aftermath of Madoff's confession

Lawsuits

Investor Lawsuits

Fairfield Greenwich is a defendant in a class action which seeks to recoup losses resulting from Fairfield Greenwich funds' investments with Bernard L. Madoff Investment Securities.[25] The class action is a result of the consolidation of multiple cases filed in federal and state court against Fairfield Greenwich.[26] On September 29, 2009, a second amended consolidated complaint was filed.[27] The complaint also names as defendants the placement agent for the funds; Citco, the administrator and sub-custodian of the funds; and PricewaterhouseCoopers, the auditor of the funds. The complaint alleges fraud, violations of Rule 10b-5, violations of Section 20(a), negligent misrepresentation, gross negligence, breach of fiduciary duty, third-party beneficiary breach of contract, constructive trust, mutual mistake, negligence, negligent misrepresentation, aiding and abetting breach of fiduciary duty, aiding and abetting fraud, and unjust enrichment.[27]

Fairfield is also a defendant in a lawsuit filed in Miami against PricewaterhouseCoopers Ireland by investors in a fund marketed by defendant Banco Santander SA, Europe's second-largest bank by market value, which lost an estimated $3 billion.[28]

Massachusetts action

On April 1, 2009, the Commonwealth of Massachusetts filed a civil action charging Fairfield Greenwich with fraud, breaching its fiduciary duty to clients by failing to provide promised due diligence on its investments. The complaint sought a fine and restitution to Massachusetts investors for losses and disgorgement of performance fees paid to Fairfield by those investors. It alleges that in 2005 Madoff coached Fairfield staff about ways to answer questions from SEC attorneys who were looking into Harry Markopolos' complaint about Madoff's operations. [29][30] The Secretary of State had stated that he had no plans to settle the lawsuit in spite of Fairfield Greenwich's offer to repay all Massachusetts investors, and said he was going to force Fairfield to explain e-mails and other evidence that appear to show company officials knew about potential problems with Madoff but failed to disclose them to clients.[31][32] However, the action was settled on September 8, 2009. Fairfield Greenwich neither admitted nor denied wrongdoing, agreed to provide restitution to Massachusetts investors, and paid a civil penalty.[33]

Other lawsuits and investigations

On April 13, 2009, a Connecticut judge dissolved a temporary asset freeze from March 30, 2009, and issued an order for Walter Noel to post property pledges of $10 million against his Greenwich home and $2 million against Jeffrey Tucker's. [34] Noel agreed to the attachment on his house “with no findings, including no finding of liability or wrongdoing." Andres Piedrahita's assets continue to remain temporarily frozen because he was never served with the complaint. The principals are all involved in a lawsuit filed by the town of Fairfield's pension funds. The pension fund case is Retirement Program for Employees of the Town of Fairfield v. Madoff, FBT-CV-09-5023735-S, Superior Court of Connecticut (Bridgeport). [35] [36][37]

On May 18, 2009, Irving Picard sued Fairfield Greenwich Group seeking the return of $3.2 billion during the period from 2002 to Madoff's arrest in December 2008. $1.2 billion was withdrawn in the final three months of the fraud.[38] Since 1995, the Fairfield funds invested about $4.5 billion with Bernard L. Madoff Investment Securities LLC, or BLMIS, through 242 wire transfers. The funds are Fairfield Sentry Ltd., Greenwich Sentry LP, and Greenwich Sentry Partners LP.[39] However, the money may already be in the hands of Fairfield’s own clients, who are likely off-limits to Picard, since they weren’t direct investors with Madoff. [40]

On May 29, 2009, Fairfield Sentry, based in the British Virgin Islands, filed a complaint filed in New York State Supreme Court in Manhattan seeking to recover more than $919 million in investment management and performance fees that it paid to Fairfield, based upon “inflated net asset value reports of its investments with Bernard L. Madoff Investment Securities LLC... The Fairfield entity defendants recklessly disregarded their duties as the fund’s risk and investment adviser and their actions and inactions constitute gross negligence.” The lawsuit alleges breach of fiduciary duty, and unjust enrichment. It is “the largest victim of the fraud perpetrated by Bernard L. Madoff,” losing $7 billion.

The defendants include founders Noel and Tucker and other fund partners who the plaintiffs allege “failed to fulfill their contractual obligations to use best efforts to supervise the operations” of Madoff-related investments and to “oversee the day-to-day investment activities of the fund.” The case is Fairfield Sentry Ltd. v. Fairfield Greenwich Group, 601687/2009, New York State Supreme Court (Manhattan).[41]

On July 20, 2009, Justice Edward Alexander Bannister granted the request to liquidate the Fairfield Sentry funds, worth more than $7.2 billion in December 2008, now less than $70 million, incorporated in 1990 under the mutual fund statutes of the British Virgin Islands and technically under the control of their local directors. [42]

Spanish anticorruption prosecutors are investigating Fairfield Greenwich as well as Piedrahita to determine what they knew about Madoff's fraudulent funds when they sold them to Spanish clients.[9] According to Fairfield's offices in Spain, Spanish investments totaled $89.1 million. [4]

On November 19, 2010, both Greenwich Sentry, L.P. and Greenwich Sentry Partners, L.P. voluntarily filed for chapter 11 bankruptcy protection in New York. Court filings blamed the bankruptcy filings on the cost of the Madoff-related litigation and asserted a goal of reaching a global settlement of the litigation for the bankruptcy cases.[43]

Allegations of auditor shopping

On February 4, 2009, Madoff whistleblower Harry Markopolos testified before Congress. In his prepared statement, on page 20, he discussed Fairfield Greenwich's accounting practices regarding its choice of auditors and accused it of frequently switching them, or "auditor shopping." However, Markopolos did not distinguish between separate auditors for separate funds within Fairfield Greenwich, which did not actually change as he alleged.[44]

Effects on executives and other employees

Noel and Tucker sold a one-sixteenth shared interest in a Cessna 560XL private jet, purchased in late 2006. Tucker wants to sell his three horse farms, which he bought in 2004 for $18 million. They each include furnished homes. Most of his horses have been sold. [45]

Tucker's wife Melanie, an avid bridge player, was accustomed to using her husband's jet to fly herself, and the bridge pros hired to play on her team, to bridge tournaments across the country. She now has postponed attending tournaments requiring air travel.[46]

Executive Charles Murphy initially offered for sale his 1882, 12,000-square-foot (1,100 m2) limestone townhouse, located at 7 East 67th Street, Lenox Hill, Manhattan, but as of December 2009, the home was no longer listed.[47] He bought the residence from Seagram liquor heir Matthew Bronfman in 2007 for $33 million.[48]

Matthew Brown and his wife, Marisa Noel Brown, were forced to sell their Upper East Side townhouse at 12 East 78th Street for $9.75 million, $3.75 million less than what they had paid in January 2008.[49]

See also

References

  1. 1 2 1940 United States Census, Walter M. Noel Household, Tonawanda Township, Erie Co., NY
  2. 1 2 3 4 5 6 Ward, Vicky (March 21, 2012). "Greenwich Mean Time". Vanity Fair. Retrieved February 12, 2013.
  3. ↑ "Fairfield Greenwich Group relationship map". Muckety. Retrieved February 12, 2013.
  4. 1 2 3 4 5 6 Mollenkamp, Carrick (December 17, 2008). "Fairfield Group Forced to Confront Its Madoff Ties - WSJ.com". Online.wsj.com. Retrieved February 12, 2013.
  5. 1 2 "Wealth – News on Wealth Management, Private Banking and Luxury – Financial News". Wealth-bulletin.com. Retrieved February 12, 2013.
  6. 1 2 3 4 Henriques, Diana B. (December 19, 2008). "Madoff Scheme Kept Rippling Outward, Across Borders". The New York Times.
  7. ↑ Henriques, Diana B. (December 19, 2008). "Madoff Scheme Kept Rippling Outward, Across Borders". The New York Times.
  8. ↑ Published: May 21, 1989 (May 21, 1989). "Corina Noel Wed To a Consultant – New York Times". Nytimes.com. Retrieved February 12, 2013.
  9. 1 2 JosÉ De Cordoba And Thomas Catan (March 31, 2009). "The Charming Mr. Piedrahita Finds Himself Caught in the Madoff Storm - WSJ.com". Online.wsj.com. Retrieved February 12, 2013.
  10. ↑ https://web.archive.org/web/20070701192226/http://www.vss.com/team/senior_management/index.asp?d_Bio_ID=11. Archived from the original on July 1, 2007. Retrieved February 17, 2009. Missing or empty |title= (help)
  11. ↑ Published: October 27, 2002 (October 27, 2002). "WEDDINGS/CELEBRATIONS; Marisa Noel, Matthew Brown – New York Times". Nytimes.com. Retrieved February 12, 2013.
  12. ↑ Pressler, Jessica (June 15, 2009). "Marisa Noel Brown's Jewelry Now Available At Henri Bendel – Daily Intelligencer". Nymag.com. Retrieved February 12, 2013.
  13. ↑
  14. 1 2 3 Henriques, Diana B. (December 19, 2008). "Madoff Scheme Kept Rippling Outward, Across Borders". The New York Times.
  15. ↑ Fanelli, James (December 28, 2008). "Bernie Madoff A Ripoff 'Victim'". NYPOST.com. Retrieved February 12, 2013.
  16. 1 2 Henriques, Diana B. (December 19, 2008). "Madoff Scheme Kept Rippling Outward, Across Borders". The New York Times.
  17. ↑ "Wealth – News on Wealth Management, Private Banking and Luxury – Financial News". Wealth-bulletin.com. Retrieved February 12, 2013.
  18. 1 2 Arvedlund, Erin (2009). Too Good to Be True: The Rise and Fall of Bernie Madoff. Penguin Group. ISBN 978-1-59184-287-3.
  19. 1 2 3 4 "Wealth – News on Wealth Management, Private Banking and Luxury – Financial News". Wealth-bulletin.com. Retrieved February 12, 2013.
  20. ↑ Chew, Robert (March 25, 2009). "Madoff's Banker: Where Was JPMorgan Chase?". TIME. Retrieved February 12, 2013.
  21. ↑ Henriques, Diana B. (December 19, 2008). "Madoff Scheme Kept Rippling Outward, Across Borders". The New York Times.
  22. ↑ Lauricella, Tom (April 11, 2009). "Feeder Fees Topped $790 Million - WSJ.com". Online.wsj.com. Retrieved February 12, 2013.
  23. ↑ Dealbook (April 1, 2009). "Massachusetts Sues Madoff Feeder Fund for Fraud". Dealbook.blogs.nytimes.com. Retrieved February 12, 2013.
  24. ↑ Whitehouse, Kaja (December 18, 2008). "Bernie'S Bravado". NYPOST.com. Retrieved February 12, 2013.
  25. ↑ "Fairfield Greenwich Group – Securities Class Action". Securities.stanford.edu. Retrieved February 12, 2013.
  26. ↑ http://securities.stanford.edu/1042/FGG_01/2009106_f01k_0900118.html
  27. 1 2 http://securities.stanford.edu/1042/FGG_01/2009929_r01c_0900118.pdf
  28. ↑ Jeanne, Ianthe (February 18, 2009). "Accounting Firms That Missed Fraud at Madoff May Be Liable". Online.wsj.com. Retrieved February 12, 2013.
  29. ↑
  30. ↑ Frank, Robert (April 2, 2009). "Madoff Feeder Is Charged in Fraud". Online.wsj.com. Retrieved February 12, 2013.
  31. ↑ Healy, Beth (August 14, 2009). "Galvin won't settle Madoff case – The Boston Globe". Boston.com. Archived from the original on October 4, 2013. Retrieved February 12, 2013.
  32. ↑ Herbst, Svea (August 14, 2009). "Mass. regulator will not settle Madoff feeder suit". Reuters. Retrieved February 12, 2013.
  33. ↑
  34. ↑ "Fairfield Minuteman – regional and local news, sports, life and opinion". Zwire.com. Retrieved February 12, 2013.
  35. ↑ Weidlich, Thom (April 13, 2009). "Madoff-Linked Asset Freeze Lifted in Connecticut Suit (Update1)". Bloomberg. Retrieved February 12, 2013.
  36. ↑ "Judge freezes assets of Madoff sons, executives". Reuters. March 31, 2009. Retrieved February 12, 2013.
  37. ↑ "Town of Fairfield suit against NEPC and KPMG". Scribd.com. Retrieved February 12, 2013.
  38. ↑ Henriques, Diana B. (May 19, 2009). "Trustee Sues Hedge Funds Over Losses to Madoff". The New York Times.
  39. ↑ "Fairfield Is Sued by Madoff Trustee for $3.54 Billion". WallStNation.com. May 18, 2009. Retrieved February 12, 2013.
  40. ↑ Jones, Ashby (May 19, 2009). "Picard's Latest: A Huge Lawsuit Against Fairfield Greenwich". Blogs.wsj.com. Retrieved February 12, 2013.
  41. ↑ Sandler, Linda (December 23, 2009). "Fairfield Greenwich Asks to Dismiss Suits Over Madoff (Update2)". Bloomberg. Retrieved February 12, 2013.
  42. ↑ Henriques, Diana B. (July 22, 2009). "Judge Approves Liquidation of Madoff Feeder Funds". The New York Times.
  43. ↑
  44. ↑ "[Boston Globe Correction". Boston.com. June 6, 2009. Archived from the original on October 24, 2012. Retrieved February 12, 2013.
  45. ↑ "Fairfield Greenwich Founder Lists Horse Farms For $18M". FINalternatives. April 13, 2009. Retrieved February 12, 2013.
  46. ↑ Calaway, Libby (July 15, 2010). "Photos". Nypost.com. Retrieved February 12, 2013.
  47. ↑ "Apartments for Sale in All Upper East Side above $20,000,000". StreetEasy. Retrieved February 12, 2013.
  48. ↑ "Industry News-Institutional and Traditional Investment News-eVestment". Hedgefund.net. Retrieved February 12, 2013.
  49. ↑ Abelson, Max (January 25, 2009). "Marisa Noel Brown's Madoff-Tainted Townhouse Gets A Deal: $9.75 M.". Observer. Retrieved February 12, 2013.
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