Connecticut sues Fairfield bank, investment firm for $16 million in Madoff losses

Conn. sues bank, investment firm in Madoff losses

HARTFORD, Conn. — Connecticut’s attorney general sued a Fairfield County bank and investment adviser on Monday, claiming they “aided and abetted” disgraced financier Bernard Madoff’s massive investment fraud.

Richard Blumenthal, suing on behalf of the state Department of Banking, said the lawsuit seeks to recover $16.2 million in fees investors paid to Westport National Bank, Wilton pension consultant PSCC Services Inc. and PSCC’s founder and owner, Robert L. Silverman.

Blumenthal, who is seeking the Democratic nomination for U.S. Senate, said they ignored “repeated and obvious” indications of fraud, miscalculated fees that resulted in millions of dollars in overcharges and acted as investment advisers without a state license.

The lawsuit claims 240 investors, including 97 in Connecticut, put money into two Westport National Bank funds that they thought the bank was going to manage. But instead, the suit claims, the money was turned over to Madoff, who is serving a 150 year prison term after pleading guilty in a multibillion-dollar fraud that burned thousands of investors.

“The bank and Mr. Silverman effectively aided and abetted Madoff’s massive fraud, ignoring clear and compelling signals that his investments were bogus,” Blumenthal said.

Blumenthal and banking officials said the securities were not registered with the state and were held by Madoff and Bernard L. Madoff Investment Securities, although clients were told the bank would be the custodian.

In a statement, Richard T. Cummings Jr., president of Westport National Bank, said the bank denies the allegations and will vigorously defend itself. He called Blumenthal’s press release about the suit “inflammatory” and said it contained “numerous inaccuracies and fabrications” concerning the bank’s role and conduct.

“We never introduced anybody to Madoff or recommended that anybody invest with Madoff,” he said. “We are shocked and disappointed by the actions of the attorney general.”

Messages seeking comment from PSCC and Silverman were not immediately returned.

State Banking Commissioner Howard F. Pitkin said he was unaware of any other Connecticut-based bank that had faced such charges.

Banking officials said the bank was “utterly derelict” in fulfilling its obligations as custodian by allowing Silverman to decide how and when his fees were deducted from clients’ assets and permitting Silverman to control all contact and communication with clients.

For example, Silverman returned calls investors made to the bank, and the bank’s vice president signed letters prepared by Silverman on bank letterhead, the attorney general said.

Of the $16.2 million the state is seeking to recover, $2.4 million was paid in fees to the bank that it did not properly earn, according to the lawsuit. About $13.8 million is being sought in fees paid to Silverman’s firm.

The lawsuit claims that until 2005, the bank paid PSCC a fee totaling 3.5 percent of assets, “which was so high that even Madoff himself questioned the amount.” From 1998 to about mid-2007, PSCC collected fees from the Madoff investments of $13.8 million, according to the suit.

The lawsuit also accuses the bank, Silverman and PSCC of “dishonest and fraudulent billing practices.” It says they calculated fees using a method not outlined in its custodian agreement and for a period of time that was not associated with the billing period.

Neither Silverman nor the bank properly verified that Madoff made investments he claimed and they ignored discrepancies that indicated fraud, Blumenthal said.