Former CEOs Daniel Tully and David Kornansky, along with former Merrill investment-banking chief Barry Friedberg, personally invested in hedge funds with Bernard Madoff. Former Merrill brokerage chief John “Launny” Steffens ran exposure efforts with Madoff, according to The Wall Street Journal.
Merrill, now a Bank of America unit, and Morgan Stanley, were reluctant to point clients toward Madoff’s opaque investment strategy. JP Morgan Chase yanked $250 million of its own funds from a Madoff feeder fund after a midyear review of its hedge-fund risks.
Steffens had exposure to Madoff’s Ponzi scheme via investments made by funds run by Spring Mountain Capital. Steffens formed the partnership between Spring Mountain and J. Ezra Merkin, a top Madoff investor, in 2001. Spring Mountain invested in three Merkin-led funds, and Steffens says he was aware of heavy Madoff exposure in one.
Ten days after the Ponzi scheme was exposed in mid-December, Steffens announced plans to close down the Spring Mountain funds of hedge funds, even though some of had positive returns. The firm as another $1.2 billion in separately managed accounts.
It’s unclear how much money the Merrill executives had invested. Steffens informed investors in an email shortly after the Ponzi scheme revealed that some of his funds had Madoff exposure. A week later, he sent a letter specifying the exposure to Madoff’s scheme. Even after the Madoff losses, the QP fund had cumulative returns of 31.6 percent since January 2003. Steffens is currently developing a “new platform” for future investments.