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Money manager Ezra Merkin has been hit with a new lawsuit over client money he allegedly secretly steered to Ponzi schemer Bernard Madoff, Reuters reported yesterday. Keren Matana, an Israeli charity, sued to recover $1.5 million it lost by investing in the Ascot Fund, an offshore hedge fund managed by Merkin that fed money to Madoff. The charity is also seeking $5 million in punitive damages. Merkin agreed last year to a settlement of $405 million for investors in his hedge funds whose assets went to Madoff, ending a lawsuit brought by the New York attorney general's office. In its lawsuit filed last Thursday, Keren Matana claimed it cannot collect through the settlement. Keren Matana said a Merkin lawyer, an unnamed partner at Dechert, claimed that the charity is excluded from the settlement unless Benjamin Jesselson, a former member of its executive committee, waives his right to an arbitration award against Merkin. Jesselson won a $1.5 million award over investments made by his family trusts in Madoff feeder funds.

For the second time in history, federal regulators have accused an American state of securities fraud, finding that Illinois misled investors about the condition of its public pension system from 2005 to 2009, the New York Times reported today. In announcing a settlement with the state yesterday, the Securities and Exchange Commission accused Illinois of claiming that it had been properly funding public workers’ retirement plans when it had not. In particular, it cited the period from 2005 to 2009, when Illinois also issued $2.2 billion in bonds. The SEC’s Municipal Securities and Public Pensions Unit, formed in 2010, first took action that year in accusing New Jersey of fraud in connection with pension disclosures that said a special reserve had been set up to pay for pension increases. "Time after time, Illinois failed to inform its bond investors about the risk to its financial condition posed by the structural underfunding of its pension system," said George S. Canellos, acting director of the SEC's Division of Enforcement.

Irving Picard, the trustee for Bernard Madoff’s bankrupt firm, made “absurd” claims about money being withheld from the Ponzi scheme’s victims while fighting to stop a $410 million settlement, a lawyer for New York Attorney General Eric Schneiderman said, Bloomberg reported yesterday. Picard said last month that the settlement, negotiated by Schneiderman with former Madoff investor J. Ezra Merkin, will allow Merkin to use money stolen from customers to help fend off Picard lawsuits demanding $500 million. A lawyer for Picard called Merkin’s $410 million agreement to compensate victims, sealed in federal court in Manhattan, “illusory.” While lawyers defending Merkin in other cases will be paid and Schneiderman will recoup $5 million for three years of litigation against Merkin, most of the money will go to Ponzi victims, he said. The case is Picard v. Schneiderman, 12-cv-06733, U.S. District Court, Southern District of New York (Manhattan).

A federal judge in California has sentenced Philip Horn, a former Wells Fargo broker who pleaded guilty to defrauding more than a dozen clients, to two years in jail, the New York Times DealBook blog reported yesterday. Horn was a broker for Wells Fargo in Los Angeles. For more than two years, he executed and canceled trades in clients' portfolios, pocketing the profits. Wells Fargo uncovered the fraud in the fall of 2011. Last year, Horn pleaded guilty to two counts of wire fraud.

Money stolen from victims of the Bernie Madoff Ponzi scheme is earmarked for someone who may have been an accomplice in the fraud, and the agreement is being kept secret by a federal district judge. That's the first item on the new video with Bloomberg Law's Lee Pacchia and Bloomberg News bankruptcy columnist Bill Rochelle. Click here to view.

A federal appeals court ruled on Friday that building-trade worker benefit funds that invested in feeder funds to Bernard L. Madoff Investment Securities LLC will not be able to recover money from the Ponzi schemer's estate, Bloomberg News reported on Friday. The pension, health care and benefit funds for bricklayers, construction workers, electrical workers and others do not qualify as "customers" of Madoff under the Securities Investor Protection Act and are not eligible for recovery, according to the appeals court. The funds invested in Spectrum Select LP and Spectrum Select II LP, which in turn invested in hedge funds Rye Select Broad Market Fund LP and Rye Select Broad Market Prime Fund LP, according to the ruling. The Rye funds funneled capital to Madoff's firm, according to the ruling.

A federal appeals court rejected a bid by former Bernard Madoff investors, including a charitable foundation for Sen. Frank Lautenberg (D-N.J.), to pursue claims against family members of the imprisoned swindler, Reuters reported yesterday. The Lautenberg Foundation, the town of Fairfield, Conn., and other investors had sought to pursue claims against Madoff's brother Peter, as well as Madoff's son Andrew and the estate of his late son, Mark. But a panel of the U.S. Court of Appeals for the Second Circuit upheld a February 2011 injunction issued by Bankruptcy Judge Burton Lifland in favor of Irving Picard, the trustee liquidating Bernard L. Madoff Investment Securities LLC and recovering money for its former customers. "The preliminary injunction serves the legitimate purpose of preserving the debtor's estate for the creditors and funneling claims to one proceeding in the bankruptcy court," the three-judge panel said in an unsigned order.

R. Allen Stanford's receiver and investors' committee sued Antigua, the Eastern Caribbean Central Bank and 23 former Stanford Financial Group Co. executives over allegations they aided the financier’s $7 billion fraud, Bloomberg News reported yesterday. The Official Stanford Investors Committee seeks repayment of at least $90 million in documented loans Stanford made to the dual-island nation of Antigua and Barbuda and accuses its elected officials of having been "Stanford's partners in crime." The nation’s leaders shielded Stanford’s scheme and traded choice real estate for as much as $230 million in loans that have not been repaid, according to the lawsuit.

The U.S. Circuit Court of Appeals for the Sixth Circuit said that Michael Peppel, the former chief executive of the audio-visual technology company MCSi Inc., must be resentenced for his 2010 guilty plea to charges of conspiracy to commit fraud, false certification of a financial report, and money laundering, Reuters reported on Friday. U.S. District Judge Sandra Beckwith in Cincinnati abused her discretion in sentencing Peppel to an "unreasonably low" week behind bars based almost solely on her belief that the defendant was "a remarkably good man," the appeals court said. Prosecutors had charged Peppel in December 2006 over an alleged fraud they said that had begun six years earlier, amid financial difficulties at his publicly traded, Dayton, Ohio-based company. Peppel was accused of working with his chief financial officer to inflate results through sham transactions involving a firm called Mercatum Ltd., and companies such as FedEx Corp. that were not implicated in wrongdoing. Prosecutors said he also sold $6.8 million of MCSi stock during this time.

Lehman Brothers Holdings Inc. is seeking to question Bruno Iksil, the former JPMorgan Chase & Co. trader known as the London Whale, about losses Lehman says spurred unnecessary collateral calls that helped force it into bankruptcy, Bloomberg News reported yesterday. JPMorgan in May disclosed billions of dollars in losses by London-based Iksil, who got his nickname because his positions were so big. Lehman, which has been fighting JPMorgan over $8.6 billion since 2008, said in a court filing yesterday that Iksil may have knowledge of the role JPMorgan's chief investment office played in managing exposure to Lehman. Lehman, which is gathering money to pay creditors an average of 18 cents on the dollar, said that it realized Iksil could help it after JPMorgan disclosed "risk management failures." Iksil was "central" to a dispute with JPMorgan over valuing derivatives, New York-based Lehman said.