Ex-Merrill Chief Steffens Cleared by Jury Over Madoff Losses

Jul 24, 2014 11:37 am ET

(Updates with lawyer’s comments in fourth paragraph.)

July 24 (Bloomberg) -- Former Merrill Lynch & Co. brokerage chief John “Launny” Steffens and his investment firm Spring Mountain Capital LP were cleared by a jury in a trial over customer losses in Bernard Madoff’s $17.5 billion fraud.

Following a nine-day trial, a federal jury in Portland, Maine, yesterday found Steffens and Spring Mountain not liable on all claims made by former investors Daniel and Suzanne Goldenson, according to a clerk for U.S. District Judge John Woodcock Jr., who oversaw the case.

The Goldensons claimed New York-based Spring Mountain invested money in a Madoff feeder fund without their knowledge, resulting in losses. The couple sought the return of $4.8 million plus damages for mental anguish.

“The charges were utterly baseless and should never have been brought,” David Spears, Steffens’s lawyer, said in an e- mail. “Spring Mountain Capital made a large amount of money for the investors who brought the suit.”

The couple sued in 2010, claiming Spring Mountain invested without their knowledge in the Ascot Fund, a Madoff feeder fund controlled by Spring Mountain co-founder J. Ezra Merkin. Merkin funneled billions of dollars to Madoff’s investment advisory business and faced his own lawsuits over the losses.

Madoff, 76, was arrested in December 2008 and pleaded guilty to running the biggest Ponzi scheme in U.S. history. He is serving a 150-year sentence.

$17.5 Billion Fraud

The fraud wiped out $17.5 billion in principal invested by thousands of customers around the world and erased $47 billion in fake profit they believed was being held in their accounts.

Thimi Mina, the lawyer for the Goldensons, didn’t immediately return a call for comment on the verdict.

Much of the money invested with Madoff came through outside feeder funds whose clients may not have known they invested with him, prosecutors in related criminal cases said.

Steffens was considered by Wall Street executives to be a top candidate to take over Merrill in the early 1990s, when former Chairman and Chief Executive Officer Daniel P. Tully was seeking a successor. Steffens left Merrill in 2001 and is senior managing director of Spring Mountain, a firm he founded that year with Merkin.

Spring Mountain said after Madoff’s arrest that it invested about $40 million with the con man. Spring Mountain, which runs a fund of funds that at the time oversaw $800 million, invested about 5 percent of its money with Merkin’s Ascot, the investment firm said at the time.

Merkin in 2012 reached a $410 million settlement with New York Attorney General Eric Schneiderman over claims that he and his Gabriel Capital Corp. defrauded investors. Merkin controlled four funds that fed more than $2.4 billion of investor money into Madoff’s fraud.

The case is Goldenson v. Steffens, 2:10-cv-00440, U.S. District Court, District of Maine (Portland).