Connecticut Attorney General's Office
Press Release
STATE OF CONNECTICUT
NEWS RELEASE
ATTORNEY GENERAL RICHARD BLUMENTHAL
DEPARTMENT OF BANKING COMMISSIONERHOWARD F. PITKIN
Attorney General, Banking Sue Westport National Bank, Wilton Investment Manager Seeking $16.2 Million For Defrauded Madoff Investors
April 19, 2010
Attorney General Richard Blumenthal today sued Westport National Bank, a Wilton money manager and his company seeking to recover $16.2 million for investors in Bernie Madoff’s Ponzi scheme.
The lawsuit, filed in cooperation with Department of Banking Commissioner Howard F. Pitkin, charges the bank, Robert L. Silverman and his company PSCC, Inc. with multiple violations of state banking laws. The action alleges that they:
· Ignored repeated and obvious indications of fraud;
· Failed to fulfill their duty to verify Madoff’s claimed investments;
· Miscalculated fees, resulting in millions of dollars in overcharges;
· Provided no written information on fund risks and strategies;
· Acted as investment advisors without the necessary state license.
In addition, Westport National Bank allegedly collected $2.4 million in fees between 2000 and 2007 for performing various duties as custodian of its clients’ funds, but actually did little, handing over most responsibilities to Silverman and his company. The bank even provided Silverman with its blank stationary for communications with clients. Silverman’s firm earned a separate $13.8 million in fees, so much that Madoff himself complained, causing them to be lowered.
Blumenthal is seeking all $16.2 million in fees paid to the defendants as restitution for investors wiped out when Madoff’s Ponzi scheme collapsed.
“The bank and Mr. Silverman effectively aided and abetted Madoff’s massive fraud, ignoring clear and compelling signals that his investments were bogus,” Blumenthal said. “Screaming signs and sirens shouting fraud -- the same securities bought and sold on the same day, the same bonds with different maturity dates -- were repeatedly and reprehensibly disregarded.
“These investors were betrayed twice, first by Madoff and then by their advisors who charged them millions and then hurled them into the abyss. Not only did they mislead investors, but miscalculated fees to enrich themselves.
Silverman’s fees were so high even Madoff complained. These defendants deceived their clients and shirked their duties, anything to keep the gravy train running -- until it ran down their clients.
“The misdeeds in this case are staggering, revealing monumental moral rot and malfeasance. Westport National Bank charged consumers $2.4 million for turning over its supervisory duties to Mr. Silverman and his company. They even provided him with bank stationary, streamlining the lie that the bank was looking after its clients’ interests.
“I will fight to recover every penny -- $16.2 million -- for restitution to investors. They must make their former clients whole to the greatest extent possible, which is why we seek return of all $16.2 million in fees. In addition to restitution, my office will seek harsh penalties -- monetary fines, court orders and other actions -- to deter future fraud.”
Silverman and his company started doing business with Bernard L. Madoff Investment Securities in the late 1980s. In 1999, he hired a new custodian for his Madoff accounts, Westport National Bank in Westport. Silverman and the bank set up two investment funds to funnel money into Madoff’s scheme, one for general investing and the other for IRAs.
Blumenthal said that as custodian, Westport National Bank was supposed to handle billing, do administrative work and take legal possession of securities and other investments, verifying their purchase on behalf of investors. The bank, however, conducted none of these activities, handing them over instead to Silverman and his company.
Neither Silverman nor Westport National Bank ever properly verified that Madoff made investments he claimed. They also ignored discrepancies that indicated fraud. For example:
· Madoff would send the bank and Silverman notice of a stock purchase, but a statement issued about the same time would list the transaction as a sale, or vice versa;
· Madoff’s funds would provide notice of a U.S. Treasury Bill purchase listing a maturity date, but the same bond would have a different maturity date on the statement issued about the same time.
In addition to restitution, Blumenthal is seeking a $100,000 fine for each violation of state banking laws and the state’s legal costs.
Blumenthal said that 240 consumers -- of whom 97 live in Connecticut -- invested in the two Westport National Bank Madoff funds. He estimated that consumers originally invested about $10 million.
Because some investors withdrew money before the funds collapsed, possibly earning a profit, any restitution may be pro-rated, he said.
Blumenthal thanked Assistant Attorney General Patrick Ring and Assistant Attorney General Matthew Budzik, chief of the Attorney General's Finance Division, and for their hard work on the case.
View the entire Westport National Bank complaint - (PDF-1MB)