Federal regulators on Monday reached a settlement with a New York brokerage firm and its executives to resolve allegations resulting from a probe into Bernard Madoff's epic fraud.
Cohmad Securities Corp., Robert Jaffe, Maurice "Sonny" Cohn and Marcia Cohn agreed not to break securities laws and will pay civil fines and restitution to be decided later, the Securities and Exchange Commission said.
The firm and former Madoff associates didn't admit or deny the SEC's charges that they made misrepresentations and omissions by referring hundreds of investors to Madoff and his firm. Those investors provided Madoff with more than $1 billion, the SEC said.
Jaffe, who is vice president of Cohmad, former CEO Maurice Cohn and former president Marcia Cohn, his daughter, "were aware of and failed to disclose facts that should have raised serious questions about the propriety of the Madoff investment," the SEC said.
Madoff co-owned and secretly controlled Cohmad and used it to procure a steady stream of funds for his multibillion-dollar fraud, according to the SEC. Cohmad's main office formerly was in the Lipstick Building on Manhattan's Third Avenue _ the same address as Madoff's investment and securities brokerage firms.
While channeling the investor funds to Madoff, the associates together collected several hundred million dollars in fees from the now-disgraced money manager, the SEC alleged.
The agency said they were crucial to the success of Madoff's fraud scheme, targeting affluent yet financially unsophisticated investors by burnishing the impression that one could only get in as an investor with Madoff with special access and as a favor. Cohmad was said to have gained nearly all its revenue from introducing investors to Madoff in a well-oiled marketing operation.
The SEC accused Jaffe and the Cohns of securities fraud in June 2009. A federal judge in Manhattan dismissed those charges last February, calling them "speculative and flimsy." He said the SEC's complaint "supports the reasonable inference that Madoff fooled the defendants as he did individual investors, financial institutions and regulators."
The judge gave the SEC permission to refile the charges if it could provide facts to back them up.
The amended complaint filed Monday doesn't allege fraud but rather negligence.
"The Cohns have decided that resolving this matter with the SEC and avoiding lengthy litigation is in the best interest of their family," said their attorney, Clifford Thau. "The Cohns are pleased there is no allegation that they had sought to deceive anyone or knowingly participated in Bernard Madoff's Ponzi scheme," Thau said in a statement.
Stanley Arkin, an attorney for Jaffe, said his client was "relieved" to have reached the settlement.
"Like many others, including those far more financially sophisticated than he, Mr. Jaffe was deceived and fooled by Madoff and badly victimized and harmed by the fraudulent scheme," Arkin said.
Madoff is serving a 150-year sentence in federal prison after admitting that he operated a giant pyramid scheme for at least two decades, cheating thousands of individuals, charities, celebrities and institutional investors out of billions of dollars. Losses are estimated at around $20 billion from the biggest investment fraud in U.S. history.
Jaffe, who lives in Palm Beach, Fla., previously led Cohmad's Boston office. He is a son-in-law of Carl Shapiro, a prominent Boston-area businessman and philanthropist whose family was said to have lost hundreds of millions of dollars by investing with Madoff.