Illness leads to Madoff lawsuit request

Stanley Chais, a Beverly Hills money manager and philanthropist who steered hundreds of millions of dollars into investments overseen by Bernard L. Madoff, has fallen ill, relocated to New York and wants to move lawsuits against him from state court to federal court in Los Angeles.

Investors have filed at least three lawsuits against Chais, accusing him of failing to properly safeguard their money and of not disclosing that he was investing with the disgraced New York swindler.

Chais, 82, collected hundreds of millions of dollars and invested with Madoff, according to an investor lawsuit in Los Angeles County Superior Court. It seeks class-action status to represent all Chais clients.

The suit by Hancock Park investor Daphne Brogdon accuses Chais of “breach of fiduciary duty� for failing to account for how Madoff handled the investments. She said the money was from an individual retirement account she started at age 16.

“On the one hand, you feel like a knucklehead for getting in it. But a lot of people were in it who seemed to be doing well,� she said.

Reed Kathrein, a Berkeley attorney representing Brogdon and other investors, said the evidence at this point best supports a claim that Chais failed to notice “red flags� that Madoff was operating a massive Ponzi scheme.

The lawyer said Chais should have looked at where Madoff was putting the money, “who was doing the audits, who was the custodian, so then it would be safe. The returns were unrealistic. It had the earmarks of a Ponzi scheme, which sophisticated investors did realize.�

Earlier this month, Madoff pleaded guilty in federal court in Manhattan to 11 securities-related fraud counts related to his $65-billion investment fraud that victimized an estimated 4,800 people.

Many of Madoff’s victims invested through third parties such as Chais. Because Madoff’s assets are tied up in federal Bankruptcy Court and are worth only a fraction of the loss, many victims are targeting money managers such as Chais in an effort to recoup their losses.

Until his assets were obliterated in Madoff’s fraud, Chais had been known as a major philanthropist, giving millions of dollars to Jewish charities here and abroad. The Chais Family Foundation -- which reported assets of $178 million in 2007 -- was wiped out in the Madoff fraud, his attorney said.

Chais attorney Eugene Licker said his client had no knowledge that Madoff, a former Nasdaq chairman, was running a Ponzi scheme. Instead, Chais was a victim like the other investors, said Licker, of the law firm Loeb & Loeb.

“My client lost virtually everything he had. His kids and grandchildren lost their entire investment. Their losses are staggering. There can be no better evidence of what ought to be obvious: He had no knowledge of the Madoff fraud,� Licker said.

Chais’ attorneys have sought to move Brogdon’s lawsuit from Superior Court to federal court in Los Angeles, a move that ultimately could lead the case to be transferred to New York. Chais suffers from a rare blood disorder that can best be treated at Memorial Sloan-Kettering’s urgent care facility in New York, Licker said.

Licker’s firm has also sought to move a lawsuit filed by screenwriter Eric Roth -- another Madoff victim -- to federal court. Roth, whose credits include “The Curious Case of Benjamin Button,� is one of many Hollywood celebrities victimized by Madoff.

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