Since the beginning of the Bernard Madoff scandal, I have stated that the people who need to be scared (other than Mr. Madoff and his cohorts) are the “feeder funds.” They may have money. They probably have some duty and they’re still in existence. This is a stark contrast to Madoff’s entities.

I have spoken with several Madoff investors. As I explained to them, it is unfortunate to have this happen to them and that they had a direct relationship with Madoff. In this circumstance, they are simply creditors of Madoff’s entities and have to deal with the receiver and SIPC Trustee. On the other hand, I always said that a good claim could probably be made against the solicitors and feeder funds.

This appears to be the case in at least one situation. HedgeFund.net reports that a Madoff investor was successful in asserting a breach of fiduciary duty claim in arbitration against Ascot Investors, a feeder fund. This article and others report that the arbitrators found that the Ascot Fund was 99% invested with Madoff and that the fund’s management was “neither equipped nor willing to seriously probe what he was told by Madoff.” I’ll bet they were able to spend the money they were making, though.

This decision came to light by way of a Motion to Confirm the Arbitration Award made by the former investor. Such a Motion is necessary to turn the arbitration award into a court judgment. This means that Ascot has not voluntarily paid the award. In fact, Ascot’s attorney is quoted as saying that the arbitrators “manifestly disregarded the law.” That’s usually lawyer-speak for “we’re not paying without another fight.” Good luck, fellas, you’ll need it.

The other interesting part seems to be that there was a confidentiality provision of some sort. The investor’s lawyers are seeking to lift that restriction. This does not appear to be a FINRA arbitration.

That’s the nearly-half-century-old view of one Lawyer from Jupiter, Palm Beach County, Florida. I’m Marc Dobin.