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Sex, drugs alleged in suit against Madoff associates

October 21, 2009|E. Scott Reckard

Bernard Madoff's investment firm had a "diversion-filled office environment" featuring a culture of "sexual deviance" and drug use, says a lawsuit filed Tuesday against companies that dealt with the Ponzi-scheme mastermind.

Starting in 1975, Bernard L. Madoff Investment Securities had an employee supply the office with drugs, according to the lawsuit.

The complaint says the employee was fired in 2003 when Madoff, 71, who is now serving a 150-year prison sentence, worried that the drugs could draw the attention of prosecutors who might discover his financial fraud.

The accusations expand a suit filed in February against Madoff family members.

They resulted from an investigation by lawyers for a Madoff investor, including an exclusive four-hour interview with Madoff at a North Carolina federal prison.

The suit says some of Madoff's "special investors" knew that his employees were providing drugs to the office, and some of his "feeders" -- the financial advisors who funneled investor funds to him -- participated in the sexual revelry. The investors, feeders and employees were not identified.

According to the suit, employees described "wild office parties sans spouses" featuring topless entertainers serving as waitresses, and sexual encounters on "their boss' sofa."

"Madoff's affinity for escorts, masseuses and attractive female employees was well known in the office culture," the complaint says. "A significant amount of the money stolen from investors went towards these lavish indulgences as well as other expenses for his employees, family and favorite feeders."

The lawsuit seeks financial damages from more than a dozen companies and individuals associated with Madoff. They include JPMorgan Chase & Co. and Bank of New York Mellon, which handled some Madoff accounts, and the accounting firm KPMG, whose British affiliate audited the books at Madoff's office in London.

The complaint alleges that the banks and the accounting firm should have detected Madoff's fraud and blown the whistle on it. A KPMG spokesman said the firm does not comment on litigation. Representatives of JPMorgan Chase and Bank of New York Mellon declined to comment on the suit.

The suit describes plaintiff Jay Wexler as a New York resident who lost hundreds of thousands of dollars in Madoff's huge fraud.

Besides damages for himself, Wexler is seeking to represent the interests of other investors in the feeder fund he used.

Madoff attorney Ira Lee Sorkin said he could see no reason for plaintiff attorney Joseph Cotchett to include the sex and drug allegations if his purpose was to help victims recover damages from the professional institutions.

"Is this in here because he wants to win the case, or to attract attention from People magazine?" Sorkin said.

But Cotchett, a prominent plaintiff lawyer from Burlingame, near San Francisco, said the decadent culture at Madoff's firm should have alerted the bankers and lawyers that something was amiss.

"If you're doing business with someone who regularly does women and drugs . . . you've got to ask yourself what kind of guy this is, don't you?"

Establishing that the bankers and auditors knew of the sex and drugs will be a focus of his firm's investigation, Cotchett said.

"Those are some of the dots I still need to connect."

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scott.reckard@latimes.com

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