Two of the most prominent solicitors for Bernie Madoff's investment fund, Philip Toub and Sonja Kohn, were well known around the Gulf.
Gulf key target for Madoff pair
In the early part of the past decade, two of the biggest solicitors of cash for Bernard Madoff's investment scheme could regularly be found in the cities of the Gulf pitching their funds over lunch meetings and boardroom presentations.
Sonja Kohn, the Austrian founder of Bank Medici, and Philip Toub, an executive at Fairfield Greenwich Group, were regularly seen in Abu Dhabi, Dubai and Bahrain with investment managers and sovereign wealth funds.
"They were all over the region pitching their funds and often local investors loved the idea," said one UAE financial adviser who was involved with several deals for funds to be invested with Madoff.
Abu Dhabi Investment Authority (ADIA), the largest sovereign wealth fund in the world, originally placed US$400 million (Dh1.46 billion) with Madoff through Fairfield Greenwich but eventually redeemed $268m of it. The fund has publicly admitted it had $132m invested in a fund with exposure to Madoff.
Other investors across Bahrain, the UAE and Kuwait managed to redeem hundreds of millions of dirhams invested with Madoff before the collapse of the Ponzi scheme, according to a financial adviser involved with the deals. Some of these investors are being targeted in a series of lawsuits from the court-appointed liquidators involved in the Madoff case. They are seeking to recover profits made before the collapse, which would be distributed among victims.
The deadline for those suits ended yesterday, but not all the cases have emerged.
Like funds and investors around the world drawn into the scheme, the allure of the exclusivity of Madoff's fund and the seemingly bulletproof returns attracted Gulf investors, said sources familiar with the transactions.
Mrs Kohn, who stood out in her travels around the region as a grandmotherly Austrian banker and who wore a large red wig because of her adherence to Orthodox Judaism, was seen as a European power broker with strong ties to the elite Swiss banking world.
Introduced by a former trade commissioner of Austria, she frequently boasted of her close relationship with Madoff, according to a financial adviser to a local investor.
"She was a good marketer with lots of connections around the world," said the adviser.
On Friday, Mrs Kohn was accused by Irving Picard, the court-appointed liquidator of Madoff's estate, of being the single largest source of funds for the Ponzi scheme and an accomplice to the crimes he committed. She and 53 others involved in the alleged "Medici enterprise" are being sued for $19.6bn - triple the amount lost because of the allowance for penalties under US law.
"Sonja Kohn went by many names and operated under many guises, creating an international network of spurious investment entities and masterminding an illegal scheme not only to support the Madoff fraud but also to enrich herself, her family, and the largest banks in Austria and Italy," said Timothy S Pfeifer, Mr Picard's attorney. Mrs Kohn could not be reached for comment.
Mr Toub, described by a fellow investment banker who encountered him while he was promoting the fund in the region as "slick, Miami Beach-type guy", was responsible for maintaining Fairfield Greenwich's relationships with some of the region's institutional investors, including ADIA. Married to a daughter of the founder of the Connecticut fund, Mr Toub rose up the ranks of the company to become responsible for investors in the Middle East and Brazil.
In an e-mail to his colleagues in August 2008, disclosed as part of the lawsuits originated by Mr Picard, he described how he was trying to raise new money from an Oman sovereign wealth fund to replace money being redeemed by investors during the financial crisis. Two years after the revelation that Madoff's investment fund was the largest Ponzi scheme in history and the source of widespread financial ruin, encounters with Mrs Kohn and Mr Toub are serving as a reminder of the need for due diligence and a healthy dose of scepticism when it comes to investments, say bankers.
"Few regional investors will even touch hedge funds right now," said Kamran Malik, an executive director of the Dubai office of Julius Baer - which did not invest in Madoff. "Cases like Madoff make them more sceptical about non-regulated entities."
But investors can often have a short-term memory when it comes to frauds, said John McGaw, a senior adviser at Golden Oryx Business Development in Abu Dhabi.
"The whole concept of risk has been highlighted by problems overseas, especially cases like Madoff," he said. "Probably the mentality for a lot of the Emirati investors is to hang on to what cash there is and at the same time to try and deal with investments that have gone wrong. Inevitably though, they will start getting bold again and risks will increase."
* with additional reporting by Asa Fitch