Jacob Ezra Merkin (born 1954) is a money manager, and financier. He was a close business associate of Bernard Madoff, and is alleged to have played a significant part in the Madoff fraud. He served as the Non-executive Chairman of GMAC until his resignation on January 9, 2009, at the insistence of the U.S. government. He is the general partner of Gabriel Capital LP, a $5 billion group of hedge funds.
On April 6, 2009, Merkin was charged with civil fraud by the State of New York, for "secretly steering $2.4 billion in client money into Bernard Madoff's Ponzi fraud without their permission." On May 18, 2009, Merkin agreed to New York Attorney General Andrew Cuomo's demands to step down as manager of his hedge funds and place them into receivership.
Personal
He is the son of Hermann Merkin, a prominent banker, philanthropist, and Ursula Merkin. He is the brother of Daphne Merkin, a writer. He and his wife, Lauren, have four children.
On May 20, 2009, he resigned as President of his synagogue, which was founded by his father in 1959. Members include some of his largest Madoff-related investors, losing in total, more than $ 1 billion.
Merkin attended Ramaz, an Upper East Side Modern Orthodox prep school, two yeshivas in Israel, then Columbia University and Harvard Law School.
In 1995, he paid $11 million for an 18-room duplex formerly owned by Ron Perelman, a member of his synagogue, at 740 Park Avenue, "the world's richest apartment Building," In 2003, he began to collect 12 Mark Rothko paintings, the largest private collection in the world, worth an estimated $150 million.
Merkin also owns a home in Atlantic Beach, New York, valued at $1.7 million, and a property in Eagle County, Colorado, worth $506,000.
Business background
“It’s very, very difficult for Ezra to make decisions. He worried about the big picture, fretted over allocations. His gift was that he was a world-class salesman. He recognized that many people didn’t have (investment decision) confidence, that if people had confidence in him, then he could give them confidence,” said one money manager who worked with him over the years.
From 1979-82, he worked for the law firm, Milbank Tweed , and worked at Halcyon Investments from 1982 to 1985. He moved on to Wall Street finance, his father’s business, working at a hedge fund run by Alan Slifka, his father's friend. There he met Joel Greenblatt, who founded Gotham Capital in 1985, where Merkin worked until 1988, as an analyst and a managing partner in Gotham Capital LP and Ariel Capital LP.
In 1988, he started Gabriel Capital to raise capital, and funnel it to managers in exchange for a fee. By 1992, Merkin was raising money and co-managing securities with and for Stephen A. Feinberg, a manager whose private-equity firm Cerberus Capital Management, later bought controlling shares in Chrysler (80%) and GMAC (51%, at a cost of $ 6.4 billion), the financing arm of General Motors. Merkin invested his funds into Cerberus and its portfolio companies. His Gabriel fund invested $79 million in Chrysler, $66 million in GMAC, and $67 million in Cerberus partnerships, according to year-end statements.
On March 30, 2009, it was announced that Cerberus would lose its controlling stake in Chrysler.
In 2005, Cerberus and Gabriel bought a 9.9% combined interest in Bank Leumi, but in April 2009, decided to sell in order to boost liquidity due to their substantial financial losses in 2008.
Merkin manages Ascot Partners LP, a hedge fund which was valued at $1.8 billion prior to the collapse of Bernard L. Madoff Investment Securities LLC.
GMAC debacle
In 2006, Cerberus appointed Merkin as nonexecutive Chairman.
In a statement, on December 10, 2008, GMAC said, "GMAC LLC, the auto and home lender seeking federal aid, hasn’t obtained enough capital to become a bank holding company and may abandon the effort, casting new doubt on the firm’s ability to survive. A $38 billion debt exchange by GMAC and its Residential Capital LLC mortgage unit to reduce the company's outstanding debt and raise capital hasn’t attracted enough participation." This was in part because Cerberus had raised the credit requirements for car loans so high, virtually eliminating leasing, that they have been responsible for a sizable chunk of lost sales at GM due to customers' inability to secure financing, in order to pressure GM into selling or trading their remaining stake in GMAC. GM stands to write-off over a billion dollars in lost residuals– which they paid up front to GMAC. GMAC's exposure to the gap in residual values is around $3.5 billion.
As of October 15, 2008, GMAC had $173 billion of debt against $140 billion of income-producing assets (loans and leases), some which are almost worthless, in addition to GMAC Bank’s $17 billion in deposits (a liability). Even if GMAC liquidated the loans and leases, it couldn’t pay back all of its debt.
In January 2009, Merkin resigned from his chairmanship as a condition of the U.S. government. Five days earlier, the Federal Reserve granted GMAC bank holding company status, so it could obtain access to bailout money.
On December 29, 2008, the U.S. Treasury gave GMAC $5 billion from its $700 billion Troubled Asset Relief Program (TARP).
Victor Teicher debacle
Victor Teicher specialized in merger-related investments. In 1988 he was indicted for insider trading, convicted in 1990, and in 1994 jailed for a year.
In August 1998, Merkin again hired Teicher to manage about $1 billion as an independent operator, paying him $1 million a year plus incentives. In 1988 Merkin began putting a substantial portion of the money he raised for Gabriel Capital with Teicher. From 1988 to 1998, Teicher actually managed Merkin’s off-shore, Ariel fund and Gabriel Capital. Merkin “occupied himself primarily with raising money for the funds using his extensive social and professional network.”
While in jail, Teicher was running about $375 million from Merkin's investors. In January 1995, Merkin took over Teicher's staff, put Gabriel Capital’s name on the door, and hired Nathan Leight to manage the money.
Teicher had told Merkin not to invest with Madoff because such steady returns were impossible. After Madoff's arrest, Teicher immediately sent some emails to Merkin:
“You, however, took a brilliant career and actively, willingly, wiped your ass with it when it was obvious that you (knew what you) were doing.”
“The Madoff news is hilarious; hope you negotiate out of this mess as well as possible ....Unfortunately, you’ve paid a big price for a lesson on the cost of being greedy.”
"I guess you did such a good job in fooling a lot of people, you ultimately fooled yourself...a man's name tells you who he is; Madoff made off with the money.
Bernard Madoff scandal
Merkin kept two 2001 news articles questioning Madoff's returns – one published in Barron' s and one by a hedge fund newsletter called MARHedge .
In the early 1990s Jack Nash, former chairman of Oppenheimer & Company and a pioneer of the modern hedge fund industry, had briefly invested with Madoff, but pulled his cash out after a closer look. He told Merkin numerous times over the years that he was suspicious of Madoff's steady profits. Madoff had given vague answers to questions about his investment strategy in meetings with Nash and his son Joshua, also a successful investor. In 1982, Nash co-founded the hedge fund Odyssey Partners after selling Oppenheimer for $163 million. He and his partner, Leon Levy, built Odyssey into a $3.3 billion investment firm before closing the fund in 1997. During its 14 years, the firm earned an average return of 22.4 percent a year for its investors.
Merkin's sister, Daphne has opined in writing, that investors considered Madoff as being part of an extended Jewish family, giving the appearance he was trustworthy, having their best interests at heart, and a nice guy.
By 1992, Bernie Madoff began underwriting Merkin's lifestyle. Merkin collected an annual fee of 1 - 1.5% of the funds' total assets. By 2005, Merkin earned about $35 million a year simply for funneling money to Madoff. Merkin invested personally and through family trusts and foundations $7 million in Ascot in its first six years, and less than $2 million over the following 10 years. He did not reinvest his $169 million in management fees for the years 1995 to 2007 back into his Ascot.
On December 11, 2008, Federal Bureau of Investigation agents arrested Bernard Madoff on a tip-off from his sons, Andrew and Mark, and charged him with one count of securities fraud. On the day prior to his arrest, Madoff told his senior executives at the firm that the management and advisory segment of the business was "basically, a giant Ponzi scheme."
In an official letter distributed to alumni, students, faculty, and administration, Yeshiva University President Richard Joel stated that Merkin, who was Chairman of the University Investment Committee, managing its endowment of almost $1.8 billion (as of about 2 years ago), had invested about $112 million in his own hedge fund, Ascot Partners, which was almost solely invested with the Madoff fund. In actuality, it was an initial investment of $14 million that became falsely inflated to $112 million over time. As such, Merkin collected an initial fee of one percent and later 1.5 percent, standard for all of Yeshiva’s money managers on whose Board of Trustees he sat. He collected over $2 million i
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