PricewaterhouseCoopers LLP (PwC) has agreed to pay $55 million to settle a class action lawsuit that claimed it failed to recognize and alert investors to red flags in funds invested in Bernie Madoff’s Ponzi scheme. This brings an end to seven years of litigation. PwC Canada and PricewaterhouseCoopers Accountants NV, or PwC Netherlands, agreed to pay $55 million to owners of shares or limited partnership interests in Fairfield Greenwich Ltd.-managed funds that were invested in Bernie L. Madoff Investment Securities LLC to end claims they were negligent in auditing the funds and failed to recognize red flags in the Ponzi scheme. The settlement was reached just before the case would have headed to trial.
The settlement is pending approval. The remaining Defendants have already reached settlements with the investors. With the PwC settlement, the total recovery by investors in the suit will be at least $235 million. Named Plaintiffs Pasha and Julia Anwar first filed suit in New York state court in December 2008, later bringing the suit to federal court and consolidating their claims with a class of about 1,000 individuals and businesses who alleged they 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 certified the class for the first time in February 2013, but that certification was vacated by the Second Circuit in June 2014. Judge Marrero granted certification a second time in March 2015, accepting investors’ arguments that their relationship with PwC and co-Defendant Citco Group Ltd. was close enough to establish a “duty of care” under New York law. PwC and Citco initially said they would challenge the certification order, but Citco reached a $125 million settlement with the investors in August, ending claims the fund manager helped funnel investors’ money into Madoff’s Ponzi scheme.
The parties first agreed in principle to the settlement in November 2015, seeking to avoid a trial scheduled for Jan. 4 in which PwC was the sole remaining Defendant. Fairfield Greenwich and GlobeOp Financial Services LLC, which provided fund management services, previously settled out of the case in 2013. GlobeOp agreed to pay $5 million, paid by its insurance carriers, while Fairfield Greenwich paid $80.25 million. The Second Circuit upheld the Fairfield Greenwich deal in June 2014 in the face of a challenge from PwC and Citco. There is $30 million from the Fairfield Greenwich deal being held in escrow while the fund litigates claims brought by the trustee overseeing the liquidation of BLMIS, meaning the total settlement fund for the feeder fund investors could reach more than $255 million if the trustee’s claims are unsuccessful.
The lead Plaintiffs are represented by David A. Barrett, Stuart H. Singer, Howard L. Vickery II, Carlos Sires, Sashi Bach Boruchow and Eli J. Glasser of Boies Schiller & Flexner LLP, Robert C. Finkel of Wolf Popper LLP, and Christopher Lovell and Victor E. Stewart of Lovell Stewart Halebian Jacobson LLP. The case is in the U.S. District Court for the Southern District of New York.
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