Toomre Capital Markets LLC

Real-Time Capital Markets -- Analytics, Visualization, Event Processing, and Intelligence

Stanley Chais, A Fund Feeder to Bernie Madoff

Stanley ChaisStanley Chais, 82, is a private investor who has been active in a wide range of Israeli and American Jewish charitable activities over the past 30 years. Apparently, over the past thirty years, Mr. Chais has combined his business activities with a wide range of philanthropic endeavors for the benefit of Jewish communities in the United States, the former Soviet Union (FSU) and Israel. He believes that “all Jews are responsible for each other", and therefore, he, who can afford it, should support areas that promote learning and culture.

Stanley Chais also is the head of a limited partnership or investment management firm, Brighton Co. of Beverly Hills, California, that apparently served as a "feeder fund' to Bernie Madoff's investment scheme. It had invested and hence lost about $250 million with Bernie Madoff. From The Los Angeles Times, one might learn that apparently Mr. Chais previously served on more than one charitable boards with Bernie Madoff. Stanley Chais and his firm also have been sued by one Michael Chaleff of Arlington, VA, a former Justice Department lawyer. Mr. Chaleff's lawyer, a certain Reed Kathrien, with the Oakland firm of Hagens Berman Sobol Shapiro, indicates that many of Brighton's investors were in the investment business and lost small fortunes "because they'd been in [the investment funds] for 10 or 20 or 30 years."

According to the suit, Mr. Chaleff was part of a 50-member investment group called CMG that lost $75 to $80 million it gave to Brighton Co. Mr. Chais apparently managed about 10 such groups of investors and substantially all of those collective funds were invested in Bernie Madoff's fraudulent scheme.

The class-action suit filed on Mr. Chaleff's behalf alleges that the Brighton firm was "aware of, or recklessly disregarded, the misuse and mismanagement of investment funds." Subsequent to Bernie Madoff's arrest, Stanley Chais indicated that he had not only personally invested with Madoff, but also had "facilitated" others who desired to do likewise. He also claimed that he and his family also were "swindled" and had lost "a huge amount of money."

A bit ominously for Mr. Chais, both the Securities and Exchange Commission and the California Department of Corporations reported that they could not find any records of Chais registering as an investment advisor or broker. Also of concern, Mr. Chais apparently took a piece of the partnership's profits as management fees, usually according to one investor about 3.8%, from a partnership that was a "kind of private, hush-hush fund" geared toward "private arbitrage accounts." That same investor indicated that he and his wife thought the partnership funds were invested in currencies, stocks and other securities. More ominously, Bernie Madoff's name and his investment firm never were mentioned.

According to The Wall Street Journal, New Jersey state Sen. Loretta Weinberg lost her entire life savings in the Madoff scheme. She too had invested her savings with Stanley Chais in what he called "the arbitrage partnerships." Until the time of Bernie Madoff's arrest, Ms. Weinberg had never heard of Bernard Madoff or that Mr. Chais had invested her funds in the Madoff scheme.

Toomre Capital Markets LLC ("TCM") notes that this is the fourth of the Madoff "feeder funds" that did not disclose (or at best had very obscure disclosure) that the funds in fact were invested with Bernie Madoff. First, there were the investor notes peddled by Avellino & Bienes ("A&B"). Then, there were the allegations that the Fairfield Greenwich Group did not (or at best in a limited way) disclose that Bernie Madoff had received the bulk of their "feeder funds." More recently, it has been disclosed that Ezra Merkin and his three firms, Gabriel Capital Corp., Ariel Fund Ltd. and Ascot Partners L.P. have been subpoenaed and/or sued for entrusting billions of dollars of his investors' funds with Madoff. NYU has sued Mr. Merkin alleging that he did not disclose that he had turned over substantial of the investment from their endowment over to Madoff.

A common theme to each of these "feeder funds" is a lack of disclosure to their investors about Bernie Madoff being the ultimate "investment manger". The recurrence of this theme makes one wonder whether they were not in fact in cahoots with one another and Bernard Madoff. Each of the principals behind each of these "feeder fund" organizations became fairly rich and had some type of direct or personal relationship with Bernard Madoff. Is the investing public really to believe that there never were any discussions about keeping the Madoff scheme "hush-hush" and there never were any hard questions about just how Madoff supposedly made those amazingly consistent returns?

But there truly never was a hint that one man alone could commit such an amazingly large fraud against so many people for more than thirty years? Really??? Call Toomre Capital Markets LLC highly skeptical of the "feeder fund" defenses offered to date. The weeks and months to come certainly will be interesting as the various litigation matters move forward. Reader comments and thoughts are most welcome.