Posted On: March 16, 2011 by Blum Law Group

Investors Recoup Madoff Losses through FINRA Arbitration

This month a FINRA Arbitration panel awarded investors Jeffrey and Marisel Lieberman 100% of the losses they claimed as a result of their investments with a hedge fund which acted as a “feeder fund” for Bernard Madoff’s ponzi scheme.

The Liebermans were customers of broker-dealer Morgan Keegan & Company, Inc. in May 2007 when Morgan Keegan recommended they invest 100% of their account ($200,000) in a hedge fund, Greenwich Sentry, L.P. (“Greenwich”). Greenwich was a feeder fund for Madoff’s fraudulent investment scheme. A feeder fund is an investment advisory firm that incentivizes brokerage firms to solicit customers to invest with them. The feeder funds in turn invests the customers’ money with another fund (in this case, Madoff). Madoff paid the feeder fund fees and commissions. In turn, the feeder fund used those fees and commissions to pay the broker-dealer for the referral.

In this case, the arbitration panel found Morgan Keegan liable for failing to conduct “substantial due diligence” as required by Morgan Keegan’s own internal procedures. In other words, the panel felt that Morgan Keegan had a duty to do their homework before selling its customers this investment and failed in its duty. The arbitration panel also noted in their ruling that not only do Morgan Keegan’s internal procedures require them to perform this due diligence, but this obligation extends to ALL brokerage firms that recommend these types of investments to their customers.

The arbitrators found Morgan Keegan’s misconduct was so egregious, they awarded the Lieberman’s punitive damages on top of their losses, in addition to attorney fees and costs.

Blum Law Group is investigating potential claims on behalf of investors who lost money by entrusting money to their broker who recommended the purchase of hedge funds. If you invested in feeder hedge funds such as Greenwich, through your broker, contact the Law Offices of Blum Law Group at (954) 255-8181 or toll-free at 1-877-STOCKLAW.
Blum Law Group specializes in representing investors nationwide in securities fraud cases. We have years of experience successfully recovering investment losses for our clients.