California AG sues alleged middleman for Bernard Madoff

Disgraced financier Bernard Madoff had a middleman in Beverly Hills, and his name is Stanley Chais. That’s the chief allegation in a lawsuit state attorney general Jerry Brown filed today against Chais. More on the story from KPCC’s Brian Watt.

Brian Watt: For 40 years, the lawsuit begins, investment adviser Stanley Chais recklessly delivered hundreds of millions of investors’ dollars to his friend and associate Bernard Madoff. The attorney general says Chais led his clients to believe he was actively managing their investments

Jerry Brown: He did not disclose his tight connection and friendship with Bernie Madoff. So Stanley Chais was really California’s own version of Bernie Madoff. Similar people got hurt – elderly people. Similar scam.

Watt: Madoff pleaded guilty seven months ago to 11 felony counts and admitted to defrauding thousands of investors of billions of dollars.

California’s Deputy Attorney General Alexandra Robert Gordon says Stanley Chais worked a lot like Madoff. He focused largely on Los Angeles County’s Jewish community.

Alexandra Robert Gordon: Basically lawyers and doctors and playwrights, people in writing groups, people at the Mulholland Tennis Club talked to each other about these terrific returns that they were getting from this seeming financial genius Mr. Chais. It was all very exclusive, it was all somewhat hush-hush. People were really lining up to invest with Mr. Chais.

Watt: Gordon says it was hard to not line up. The Madoff ponzi scheme seemed to work, and Stanley Chais was running three investment funds that produced returns of 20 to 25 percent – even in bad years.

The suit alleges that Chais claimed a quarter of those profits in annual fees, and that netted him about $270 million. Gordon says it was hard to detect the way Chais funneled money to Madoff because the Californian didn’t register as an investment adviser.

Gordon: You do have to remember that no one complains when they’re getting 25 percent returns. They complain when they realize it’s a Ponzi scheme and their life savings are gone.

Watt: The attorney general’s civil suit seeks at least $25 million in penalties and restitution. It’s similar to a suit the federal Securities and Exchange Commission filed against Chais three months ago. Chais has reportedly moved to New York.

In a statement, his attorney refuted the claims that Chais lured unsuspecting investors or misled them in any way. He added that Chais and his family were also victims of the Madoff fraud, and that the notion that he participated in that fraud is outrageous.