A key to the long-running success of Bernard L. Madoff's $65-billion Ponzi scheme was its secrecy and exclusivity. You had to know someone to get a piece of the action.
In Hollywood, that someone was often Beverly Hills money manager Stanley Chais, authorities say. On Monday, the Securities and Exchange Commission offered new details about how big a player regulators believe Chais was.
When the Ponzi scheme collapsed, Chais investors' accounts were valued at nearly $1 billion, authorities said. Although those accounts may now be worthless, Chais and his family took out nearly $546 million in ill-gotten profits from Madoff accounts from 1995 to 2008, the SEC said in a civil complaint.
On top of that, Chais collected nearly $270 million in fees from investors, the government said.
Madoff's misdeeds have been known for months, but the SEC lawsuit provided the most significant glimpse yet into the "feeder funds" that provided the new cash that allowed Madoff's operation to thrive.
Through his attorney, Chais denied wrongdoing and insisted that he too was a victim of the Madoff scheme.
Chais was prominent in Jewish philanthropy for decades.
To clients, he cast himself as an "investing wizard," never revealing that Madoff was actually pulling the strings, the complaint said. What's more, the SEC said that Chais knew, or was reckless in not knowing, that Madoff was running a Ponzi scheme.
From 1999 to 2008, for example, Madoff did not report a single loss on thousands of purported stock trades on Chais' accounts, "which should have made clear to Chais that Madoff's reports to Chais were false," the SEC said.
The sweeping accusations were contained in a lawsuit against Chais filed in federal court in Manhattan.
While thousands of investors lost money in the Madoff scheme, the SEC said it was a profitable arrangement for the 82-year-old Chais, who had more than 40 accounts with Madoff for himself, his family and related entities.
That news infuriated some Southern California investors, still reeling from their enormous financial losses.
Mark Peel, executive chef and part owner of Campanile restaurant, said he lost $6 million from investments that Chais allegedly made secretly with Madoff.
"The allegations against Stanley are definitely deeply disturbing," said Peel, who said he was forced to sell his Hancock Park home as a result of his loss and is now renting nearby. Four of his five children lost their college funds as well, he said.
