The Faber Report

Published: Tuesday, 30 Jun 2009 | 2:04 PM ET

Text Size

Insurance on $300 million worth of paintings by Mark Rothko and Alberto Giacometti can get pretty expensive. Just ask Ezra Merkin, the disgraced financier who is fighting civil charges from N.Y. Attorney General Andrew Cuomo.

Merkin, sources tell me, was spending as much as $60,000 a month to keep his vaunted collection of Rothko’s on the walls of his apartment. That expense and the fact that Merkin’s art was used as collateral on some of his personal debt, was a central reason he decided to sell it.

Merkin found one buyer for the entire collection (unknown, but likely to be a large international art dealer).

It was Merkin who initiated the sales, not the Attorney General’s office, but in learning of the sale, the N.Y. AG stepped in and got a judge to make sure the proceeds from the sale are kept safely in a so called “lock box” pending the outcome of the litigation against Merkin. The sale fetched $310 million, but after paying back loans and taxes the lock box will receive roughly $191 million in proceeds.

The N.Y. AG is seeking restitution on behalf of Merkin’s investors for the $2.4 billion he lost them as a result of investing most of the funds under his control with Bernie Madoff. If you haven’t read the complaint (filed on April 6) it’s worth taking a look. While Merkin has not been charged criminally, if all the charges in the complaint are true (Merkin’s attorney says they are without merit) he can count himself lucky he’s not facing a criminal indictment. While that would force prosecutors to prove intent, a high bar, the complaint does raise some interesting questions.

• CNBC.com Slideshow: Rogues Gallery of Financial Crime

A few of my favorites are the apparent self dealing Merkin was doing as the “chair” of a non-profit when it came to its investment decisions (page 48). The fact that Merkin invested less than $2 million of his own money in his Ascot Fund, which was investing all of its more than a billion dollars with Madoff (page 10) and perhaps most surprisingly that only one year ago, Merkin had 62.5% of the $1.2 billion in assets in his Gabriel Capital fund invested with the private equity firm of Cerberus.

Clearly, diversity of risk was not at the forefront of Merkin’s investment decisions.

_____________________________

• The Dow 30 in Real Time
• The CNBC Stock Blog

_____________________________

Questions?  Comments?  Write to

Print

Email

Text Size