A New York federal judge has again certified a class of investors accusing PriceWaterhouseCoopers LLP and Citco Group Ltd. of misleading them about the quality of feeder funds involved in Bernie Madoff’s Ponzi scheme. The Second Circuit Court of Appeals had vacated his previous decision in 2014. The court said that classwide evidence established that the investors had allegedly relied on erroneous valuations and audit reports from Citco and PwC in choosing to invest in funds managed by Fairfield Greenwich Ltd., which included the single largest feeder fund involved in Madoff’s scheme.
The class of about 1,000 individuals and businesses lost at least $7.5 billion to the Ponzi scheme as a result of their investments with Fairfield Greenwich. U.S. District Judge Victor Marrero agreed with the investors’ argument that their relationship with PwC and Citco was close enough to establish a “duty of care” under New York law. Judge Marrero pointed to emails from Fairfield Greenwich to PwC stating that “investors have been requesting the audits for the past couple months” to show that PwC knew the Plaintiffs were relying on its reports.
Judge Marrero said, as for Citco, that its internal-procedures manual explicitly stated that shareholders and partners will make investment decisions based on its net asset value reports, and stressed the importance of producing correct, reliable and timely information. The investors can also use common evidence to support their claims that Citco misled them by concealing its “grave doubts” about the funds’ assets, the judge said.
The Second Circuit said the district court certified the class based on claims against the Fairfield Greenwich funds without considering the investors’ claims against PwC and Citco, which acted as auditor and administrator to the funds, respectively. The case was sent back to the District Court, which led to the current ruling.
After Madoff’s massive scheme unraveled in 2008, the funds created and managed by Fairfield Greenwich Group lost all of its investors’ money. The investors sued the funds shortly thereafter and also brought claims against PwC and Citco, which weren’t directly involved with the investments, but had serviced the funds. In 2013, Judge Marrero approved the investors’ $80 million settlement with Fairfield Greenwich Group.
The following year, the Second Circuit rejected a challenge to that settlement by PwC and Citco after finding they lacked standing. The investors relied heavily on the reports from Citco and PwC, and they never would have put money into Fairfield Greenwich had they known that information they contained was incorrect.
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