Death of money manager tied to Madoff may not end lawsuits

The weekend death of Beverly Hills money manager Stanley Chais, who steered hundreds of millions of dollars to the Ponzi scheme operated by Bernard L. Madoff, puts an end to a criminal investigation by the U.S. attorney’s office in New York.

But a spate of civil lawsuits will probably continue as the government and angry investors try to lay claim to any assets he left behind.

Chais, 84, who died Sunday in New York, had been under criminal investigation since January 2009, suspected of operating a so-called feeder fund that channeled millions of dollars from clients to Madoff while telling investors he was making huge gains through equities and other financial instruments. Prosecutors had been considering conspiracy, money laundering and wire fraud charges, an assistant U.S. attorney said in an affidavit filed last year. No charges were filed.

In addition to the criminal review, Chais was facing lawsuits filed by the trustee liquidating Madoff’s assets, the Securities and Exchange Commission, California Atty. Gen. Jerry Brown and investors. The lawsuits alleged that Chais knew, or should have known, that Madoff was operating a Ponzi scheme because he had produced unfathomable profits, year after year, despite market conditions.

The SEC lawsuit alleged that Chais made about $270million in fees for investing his clients’ wealth with Madoff and that he withdrew hundreds of millions more from his Madoff accounts than he deposited. The lawsuits will probably continue, with the focus switched to Chais’ estate and survivors.

“We’re sorry to hear about the death of Mr. Chais. Claims against a defendant who is deceased survive and can be assigned to his successor-in-interest,” Brown’s spokeswoman Christine Gasparac said Tuesday. “But there are procedural issues to consider, and we are now contemplating the best course of action.”

SEC spokesman John Nester declined to comment on whether the commission intended to pursue the civil charges it filed against Chais in June 2009. A judge had suspended the lawsuit since December at the request of the U.S. attorney’s office in New York, which said the litigation would have interfered with its ongoing criminal investigation.

Chais had vehemently denied wrongdoing, saying he too was a victim of Madoff and not a participant in the largest and longest-running Ponzi scheme in U.S. history.

“I have been accused of some terrible and untrue things,” Chais said in a 2009 letter to the judge overseeing the lawsuit filed against him by Irving H. Picard, the trustee liquidating Madoff’s assets on behalf of investors. “Almost all of my money was lost in the Bernard Madoff fraud.”

In the spring, Chais spent several days testifying in videotaped depositions as part of lawsuits brought against him by investors, said Barry Weprin, an attorney for the plaintiffs. Because of Chais’ failing health, the depositions were limited to three hours a day and could take place no more than three consecutive days. Weprin said he was prohibited from discussing the details of Chais’ testimony.

“He did tend to tire during the course of the three hours. I know he was undergoing substantial treatment,” Weprin said. “We’d go three days and then we’d have to wait a month. He was very ill, but he seemed lucid.”

If the lawsuits go to trial, video of Chais’ testimony could be played before the jury, Weprin said. He said he hoped the trial would be held in 2011.

“We are certainly planning to pursue our … case on behalf of the investors,” said Weprin, a partner in the New York office of Milberg. The investor and Brown lawsuits have been consolidated before Los Angeles County Superior Court Judge Elizabeth Allen White. “We think liability will be easy to establish,” Weprin said.

Chais had moved from Southern California to New York because he was receiving medical treatment at Memorial Sloan-Kettering Cancer Center near his Fifth Avenue apartment. He had spent decades as a private investment advisor, managing money for several prominent figures, including Oscar-winning screenwriter Eric Roth, who wrote “The Curious Case of Benjamin Button,” and Mark Peel, executive chef and part owner of Campanile restaurant in Los Angeles.

Many of Chais’ investors’ lost their life savings when the Madoff scheme was exposed, Weprin said. Madoff, who pleaded guilty to 11 felony charges, is serving a 150-year sentence.

“None of my clients even knew the name Bernie Madoff,” Weprin said. “They invested with Stanley Chais because they trusted him.”

stuart.pfeifer@latimes.com