The Madoff Massacre
|Back to News|
|Edwin Black||December 30th 2008|
The Federal government is using billions in taxpayer money to convert General Motors Acceptance Corp, known as GMAC, into a bank, as part of a backdoor Detroit bailout. In the process, it will rescue a company headed by J. Ezra Merkin, a cohort of Bernard Madoff, who engineered a $50 billion international Ponzi scheme.
The chairman of GMAC is J. Ezra Merkin. Merkin has been broadly accused of facilitating Madoffâ€™s Ponzi scheme by deliberately feeding him billions in investor money through two hedge funds Merkin controlled.
On December 29, 2008, $5 billion went directly to GMAC from the Troubled Asset Relief Program, also known as TARP, and up to $1 billion is due to come from U.S. Treasury via a loan to General Motors so it can channel the money to GMAC, 49 percent of which is owned by General Motors.
By way of background, J. Ezra Merkin is the man who lost billions of dollars for investors via the ill-fated Ascot Fund and Gabriel Fund. Both funds, under Merkinâ€™s personal direction, fed all or most of its investment monies to Madoffâ€™s Ponzi scheme.
Merkinâ€™s chairmanship of GMAC has been widely reported by the media. Numerous calls from Wall Street and the financial press have called for Merkin to resign from GMAC as a condition of the bailout. But federal bailout officials are proceeding despite the scandal surrounding Merkin, despite a spate of lawsuits for misuse of funds, and in spite of demands that he resign from numerous boards whose assets he helped direct. A spokesperson for GMAC declined to comment except to confirm that the federal funds are committed and Merkin is still chairman of the board.
Lawsuits against Merkin for financial misconduct are mounting. New York Law School, which lost $3 million investing in the Ascot fund, was among the first to file a lawsuit against Merkin and its accountancy firm, BDO Seidman. The class action lawsuit filed in U.S. District Court in Manhattan said the defendants "recklessly or with gross negligence caused and permitted $1.8 billion, virtually the entire investment capital of Ascot" to be handed over to Madoff.
A second class action lawsuit charges that Merkin â€œfacilitatedâ€ the Madoff scandal â€œrecklessly or with gross negligence and/or in breach of fiduciary duties.â€ This suit was launched by Scott Berrie, a Gabriel investor. Berrie alleges, â€œPlaintiffs investment in Gabriel has been decimated as a direct result of defendant Merkin's abdication of his responsibilities and duties as General Partner and Manager of Gabriel and its investment funds.â€ The Berrie suit specifies that Merkin is chairman of GMAC.
A confidential 60-page, 2006 Ascot memorandum obtained by The Cutting Edge News states on page 23, â€œAll decisions with respect to the management of the capital of the Partnership are made exclusively by J. Ezra Merkin. Consequently, the Partnership's success depends to a great degree on the skill and experience of Mr. Merkin.â€
Wall Street financial analysts have been mystified by the manner in which GMAC engineered banking status. â€œWe believe GMAC has been less than clear in detailing how it would achieve adequate capital levels,â€ CreditSights analyst Richard Hoffman recently declared. â€œBut with the primary regulator on board, the capital raise machinations seem almost a moot point.â€
GMACâ€™s transition to a bank diminishes the threat of credit evaporating for GM dealers who use the company to finance most of their inventory. GMAC also makes a third of the car loans that go to GM car and truck buyers.
The Fed used its emergency powers Christmas Eve to grant GMACâ€™s bank conversion, stating that it had to act in order to avoid further turmoil in the nationâ€™s economic downward spiral.
Edwin Black is the New York Times best selling investigative author of IBM and the Holocaust, Internal Combustion and his just released book, The Plan: How to Save America When the Oil Stopsâ€”or the Day Before (Dialog Press). More information about The Plan can be found at www.planforoilcrisis.com.