When the Madoff scandal first broke, Walter Noel, the socialite founder of Fairfield Greenwich Group appeared ready for a fight, and for obvious reasons: He helped run the largest Madoff “feeder fund” funneling him $7.5 billion that was now gone. Investors wanted answers and blamed Noel and his firm for failing to uncover the fraud before it was too late.
Madoff’s not a flight risk, but authorities worry that he might take his own life or be killed before they can conclude their inquiry.
But Noel told his attorneys he was in many ways no different than the thousands of investors who lost money in Bernie Madoff’s $50 billion Ponzi scheme: A victim. For the past 19 years, Noel said, he trusted Madoff to tell him the truth, performed due diligence on Madoff’s operations and even lost a chunk of money in the scam; Fairfield partners personally lost about $60 million by investing with Bernie Madoff’s sham operation.
Noel initially appeared so confident that he went out and hired the toughest legal/PR team on Wall Street: Attorney Marc Kasowitz and PR impresario Mike Sitrick. For the past three years, Kasowitz and Sitrick have teamed up on controversial cases, mainly attacking hedge funds that “short” stocks of companies they represent. While market players have debated their success, no one debates their tactics: They love to fight.
That’s exactly what I expected when I heard Kasowitz and Sitrick were retained by Fairfield Greenwich a little more than a week ago. Sources close to both told me that they planned all out war. First they would sue Madoff as a way to underscore their victim status. Investors were blaming Fairfield Greenwich for missing obvious red flags in Madoff’s operations—such as the two-man shop in New City, New York, that audited his books. But Kasowitz had a counter attack: He would show that if Fairfield Greenwich failed, so did the SEC; he was already doing research on the SEC’s various examinations of Madoff’s operations, which failed to uncover the fraud for at least 10 years.
What a difference a week makes. Sitrick is still working for Fairfield Greenwich, but Kasowitz is gone and so is his take-no-prisoners strategy. Fairfield Greenwich is now being represented by the law firm Simpson Thacher & Bartlett (a spokesman for Kasowitz says he still represents William Tucker, one of Noel’s top partners) There will be no lawsuit against Madoff, at least not one filed any time soon, people close to Greenwich Fairfield tell me. Kasowitz referred all calls to Sitrick, and the usually vociferous Sitrick is toning down things as well. When I asked about the change in strategy, and what it meant, Sitrick spokesman Seth Faison said: “We are not commenting other than to say we plan to fully cooperate with all authorities.”
And that cooperation is important, as federal officials try to determine how Madoff got away with the largest Ponzi scheme in history—and who might have helped him. Many investors are obviously pointing to the feeder funds that placed them into the Madoff accounts as culprits; officials at the feeder funds all say they were duped by Madoff as well.
People with knowledge of the government’s inquiry into the alleged scheme tell The Daily Beast that officials from the Securities and Exchange Commission are now examining Fairfield Greenwich as part of their wide-ranging civil inquiry. Faison would not say if criminal authorities are looking at Fairfield Greenwich as well, but according to people close to the inquiry, SEC officials are examining documents and speaking with officials at the firm to determine if they knew anything about Madoff’s activities. It’s unclear if any of this means that Fairfield is in the crosshairs; Faison declined to characterize the government’s inquiry. Simpson Thacher’s Mark Cunha, the new attorney representing Fairfield Greenwich, didn’t return a call for comment.
The Madoff case has taken several twists and turns since it broke almost two weeks ago. This week, the co-founder of a European firm that invested and lost $1.4 billion with Madoff killed himself, slicing both of his wrists at his desk in New York. Now that the case in the hands of the courts and the Madoff firms in bankruptcy, sources tell me the trustee is preparing to bring legal action against anyone who redeemed shares over the past six years. Taking money out of an investment company during a fraud -- and investigators believe this fraud could have occurred over a 20 year period or longer—constitutes something call “fraudulent conveyance”; in such a case, the bankruptcy trustee can force redeemers to return their cash. How big is this pool of cash? One attorney who has been retained by a bank that redeemed money and expects to be sued said it could be in the billions of dollars given the size of the Ponzi scheme and since it went on for so long. Madoff himself is being guarded 24 hours day; sources tell me he’s not a flight risk, but authorities worry that he might take his own life or be killed before they can conclude their inquiry.
Then there’s controversy surrounding the feeder funds and whether they should have seen the multiple red flags surrounding Madoff and his operations. Fairfield Greenwich has garnered the most attention not just because it had funneled the most money to Madoff, but because the firm was founded by Walter Noel, a prominent from Manhattan and Greenwich, Connecticut. Noel and his family were featured in both Town & Country and a Vanity Fair article titled “Golden in Greenwich,” which chronicled and celebrated Noel and his family’s upper crust lifestyle.
People who know Noel say he was one of the best salesmen they ever seen, confident and assuring, adept at using his client list from prominent social circles in Manhattan and Greenwich to build Fairfield Greenwich into a prominent and highly profitable investment operation. But those days are over. Noel, his firm, and his partners Jeffrey Tucker and Andres Piedrahita have recently been sued in New York State Supreme Court by one group of investors who say they failed to complete proper due diligence on Madoff’s operations. More lawsuits are likely. Investors are yanking money out of his investment funds, even those unrelated to Madoff.
Noel’s confidence appears to be taking a hit as well. People close to his legal activities say he still isn’t sure how to fight back allegations that he and his firm looked past the red flags that kept big investors such as JP Morgan’s private bank away. Compounding the outrage is the fact that his partner, Jeffrey Tucker, was once an SEC lawyer, so presumably he understood how to spot fraud.
All of this, of course, doesn’t mean that Noel, or any of his partners knew that Madoff’s operations were a sham or that they should be held responsible for not digging deeper into his operations. But it does means one thing: Don’t expect Noel or his family to be feted in another puff piece by Vanity Fair anytime soon.
Charles Gasparino appears as a daily member of CNBC's ensemble. Gasparino, in his role as on-air Editor, provides reports based on his reporting throughout the day and has broken some of the biggest stories affecting the financial markets in recent months. He is also a columnist for Trader Monthly Magazine, and a freelance writer for the New York Post, Forbes and other publications.
