Glimmer of hope for Madoff's victims

A Connecticut hedge fund manager who put $7.2bn of his clients' money into Madoff's fake investment business is being sued for misleading investors and negligence, and the securities regulator who brought the action says it is just the first.

"This turns the page to a new chapter in the Madoff matter, and if there is any hope of getting any return for Madoff victims, we have to look at the entities that brought people to him," said Massachusetts secretary of state William Galvin.

The fund manager being sued, Walter Noel and his Fairfield Greenwich investment business, was the single most important source of new money for Madoff. The Madoff Investment Securities business was a giant pyramid scheme, needing cash from an ever-increasing number of new clients to pay exiting investors. Madoff's claims to be investing the money and generating steady returns were lies, and the $65bn he claimed to have in 4,800 client accounts was not in fact there.

Mr Noel is a fixture of the Connecticut social scene, and his five glamorous daughters even more so. Four of their husbands worked for Fairfield, tapping up an extensive network of rich clients around the globe and harvesting a fee for making the introductions.

"They had a blind spot when it came to Madoff," Mr Galvin said of Fairfield executives. "We allege that it was because of the remarkable fees they were getting from him."

Central to the lawsuit is a transcript of a conversation Madoff had with a Fairfield executive to coach him in how to deal with questions from the Securities and Exchange Commission, the regulator, which investigated fraud allegations against Madoff in 2005. Madoff opens by saying: "Obviously, first of all, this conversation never took place, Mark, okay?"

The SEC ultimately failed to discover the fraud. Madoff only confessed last December, and pleaded guilty to 11 criminal charges last month.

Fairfield says it is a victim of Madoff's pyramid scheme along with its clients and it will vigorously contest Mr Galvin's lawsuit.

Earlier this week, a Connecticut judge froze the assets of five hedge fund industry officials, including three Fairfield executives. And yesterday, US marshals seized a 56-foot yacht called "Bull" and a smaller boat in Davie near Fort Lauderdale, Florida, and a $9.4 million mansion in Palm Beach, all belonging to Madoff and his wife, Ruth.