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Madoff-Related New York Breach of Fiduciary Duty Claim Thrown Out


Posted on Jan 01, 2016

In a recent ruling, the US District Court for the Southern District of New York dismissed a complaint a breach of fiduciary duty lawsuit against J. Ezra Merkin and Gabriel Capital Corporation (“GCC”). Merkin and GCC together managed Ascot Fund Limited, an offshore hedge fund. The plaintiff in the matter had invested in Ascot in 2002 and again in 2004. Ascot invested substantially all of its assets with Bernard Madoff.

In its filing, the plaintiff, a non-profit, alleged:

  • The defendants made material misrepresentations and omissions about Ascot’s investment strategies.
  • The defendants breached their fiduciary obligations by allowing Ascot to invest assets with Madoff without conducting sufficient due diligence.
  • The defendants breached their fiduciary obligations by ignoring red flags about Madoff’s fraud.

Unfortunately for the plaintiff, the District Court dismissed many of its claims due to issues with timeliness. The plaintiff did not assert its claim against the defendants until more than four years had passed since Bernie Madoff’s Ponzi scheme was exposed. Similarly, more than four years had passed since the plaintiff learned that Ascot had invested with Madoff. Along with the breach of fiduciary duty claim, the judge dismissed the Plaintiff’s fraud and gross negligence claims. 

The plaintiff tried to get around the timeliness problem by arguing that the clock had tolled due to a pending private class action. In the alternative, the plaintiff argued that there was no problem with timeliness because of a settled 2009 enforcement action by the New York State Attorney General. The court rejected both of the plaintiff’s theories. 

To learn more about this and other breach of fiduciary duty matters, contact an experienced New York business litigation lawyer today. Call our office at (888) 497-3410 for a consultation.

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