Texas Investment Firm Settles Lawsuit Over Fraudulent Payments in Madoff Ponzi Scheme

Texas-based investment firm, Fulcrum Capital Partners, has agreed to pay $2.51 million to settle a lawsuit filed by the U.S. Department of Justice. The lawsuit accused the firm of fraudulently obtaining payments from the Madoff Victim Fund (MVF), which was established to compensate victims of Bernard Madoff’s Ponzi scheme.

According to the Justice Department, Fulcrum Capital Partners violated the federal False Claims Act by causing the MVF to make inflated payouts to victims, which were then transferred to Fulcrum, a non-victim of Madoff’s fraud. The firm purchased recovery rights from Madoff victims and required them to conceal the amount paid for those rights from the fund.

Fulcrum specializes in trading distressed assets, including shares in “feeder funds” that funneled investor money to Madoff. The settlement was reached after the Justice Department joined a private whistleblower lawsuit filed in 2018, with most of the case remaining under seal.

Richard Breeden, the former chairman of the U.S. Securities and Exchange Commission who oversees the Madoff fund, stated that Fulcrum had never lost any money due to Madoff’s conduct. He emphasized that the false reports orchestrated by Fulcrum diminished the assistance that could be provided to genuine fraud victims.

As part of the settlement, Fulcrum agreed not to seek further payouts from the Madoff fund. A spokesperson for the firm expressed satisfaction with resolving the dispute to avoid ongoing litigation, stating that it was in the best interests of Fulcrum and their limited partners.

The Madoff Victim Fund was established in 2013, primarily funded by settlements with JPMorgan Chase and the estate of former Madoff investor Jeffry Picower. Over $4 billion has been distributed by the fund, and an additional $14.6 billion has been recouped for former Madoff customers by the trustee liquidating Madoff’s firm.

Bernard Madoff pleaded guilty to 11 criminal counts in 2008 after his massive Ponzi scheme was uncovered. He was serving a 150-year prison term when he passed away in April 2021 at the age of 82.

The settlement with Fulcrum Capital Partners marks a step towards resolving the legal issues surrounding the Madoff Ponzi scheme and providing compensation to the victims.