(Madoff lawsuit story updated for Bank of New York Mellon unit's comments)
NEW YORK ( TheStreet) -- Attorney General Andrew Cuomo of New York is suing a Bank of New York Mellon (BK - Get Report) fund of funds unit, Ivy Asset Management, for sitting by idly and doing nothing to warn investors about Bernie Madoff's massive fraud.
Attorney General Cuomo is alleging in the suit that emails and internal documents between former top officials of Ivy Asset Management show that the fund of funds unit of the Bank of New York Mellon allowed its investors to lose $227 million in Madoff funds to protect its own fee generation.
The lawsuit alleges that Ivy Asset Management former officials had discovered that Madoff was not being straight about his investing, yet kept a lid on their concerns as they earned about $40 million between 1998 and 2008 for advising Madoff investors.Cuomo's suit alleges that Ivy officials figured out that Madoff was clearly cooking the books as early as 1997. Cited in the lawsuit is data on the volume of outstanding options tied to the Standard & Poor's 100 Index supporting only half of the Madoff assets under management. The lawsuit includes this from an Ivy internal memo: "This is a clear example of our inability to make sense of Madoff's strategy, and one where his trades for our accounts are inconsistent with the independent information that is available to us." Ivy's former chief executive, Lawrence Simon, and its former chief investment officer, Howard Wohl, are named in the lawsuit brought by the New York attorney general, who is also planning a run for the governorship of New York State. "Ivy and its former co-principals saw the trouble with Madoff coming around the bend, but instead of guiding their clients through the financial waters, they sold them down the river," Mr. Cuomo said in a statement. "They shamelessly profited off of their own clients' impending misfortune and we are holding them accountable for their actions." Yet Cuomo says that the former Ivy officials did anything but act on the evidence. In fact, in 1999, a letter from Ivy to clients reported that "