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State Wrapping Up Yearlong Fraud Probe In Aftermath Of Madoff Ponzi Scheme

April 9th, 2010

Disgraced financier Bernard Madoff has been jailed for more than a year, but there is still plenty of fallout in Connecticut from his monumental, $65 billion investment fraud.

The state banking department and the attorney general’s office confirmed Tuesday that they are wrapping up a yearlong investigation involving alleged fraud by a bank and a pension consultant in lower Fairfield County tied to Madoff’s Ponzi scheme.

The probe focuses on PSCC Services Inc., a Westport-based pension consultant; its founder and owner, Robert L. Silverman; and Westport National Bank.

Attorney General Richard Blumenthal said that the investigation could lead to legal action to recover money lost by investors — estimated at about $60 million — plus fees paid to the consultant and the bank.

State investigators have been “looking into allegations that Westport National Bank created one or more investment funds for clients of PSCC Services and utilized Madoff’s company … as the funds’ investment manager,” state Banking Commissioner Howard Pitkin said. The probe found evidence that PSCC and Silverman steered clients to those funds, Pitkin said.

Clients received statements from Westport National showing their investments in one of two funds, according to allegations. In return, PSCC and Silverman were paid fees estimated at more than $14 million and Westport National was paid $2.5 million, the investigation showed.

Fund investors have already filed a class-action lawsuit accusing the bank and PSCC of systematically deceiving them about the safety of their money and charging them millions in fees for transactions that never took place.

The suit claims that the bank falsely told clients that the bank would act as custodian of the investments Madoff made on their behalf.

By acting as a custodian, the bank was essentially guaranteeing that it would hold the securities, safeguarding their value.

In reality, the suit claims, the bank took custody of no securities from Madoff and the retirement accounts were worthless when the scheme finally imploded.

Gov. M. Jodi Rell said Tuesday that she was “deeply troubled” by possible securities violations uncovered in the state’s probe and the failure by PSCC and the bank “to conduct minimal due diligence and to make important disclosures to investors.”

Westport National and Silverman could not be reached for comment late Tuesday