Financial advisor Stanley Chais sued in Bernie Madoff scheme

Beverly Hills financial advisor Stanley Chais, accused of steering hundreds of millions in investor dollars to Bernard L. Madoff’s Ponzi scheme, was sued Tuesday by California Atty. Gen. Jerry Brown.

The lawsuit, filed in Los Angeles County Superior Court, seeks restitution for victims and at least $25 million in civil penalties.

Chais operated three funds that offered returns of up to 25%. He told clients that he achieved the returns using a complex combination of derivatives, stock, currency and futures trading, Brown said.

Instead, the lawsuit alleged, Chais turned all of the funds over to Madoff, who pleaded guilty in March to a $65-billion Ponzi scheme that was the largest and longest-running in U.S. history.

The scheme, said to have begun more than two decades ago, is estimated to have caused at least $13 billion in actual losses to investors. Madoff was sentenced to 150 years in federal prison.

“For decades, Stanley Chais posed as an investment wizard. But in truth, he was nothing more than a Madoff middleman,” Brown said at a news conference in Los Angeles.

Chais is alleged to have attracted a number of wealthy Southern California investors, among them Oscar-winning screenwriter Eric Roth, who wrote “The Curious Case of Benjamin Button,” and Mark Peel, executive chef and part owner of Campanile restaurant. Roth has sued Chais for breach of fiduciary duty and negligence.

Deputy Atty. Gen. Alexandra Robert Gordon said Chais attracted clients through word of mouth. Potential investors had to know someone to get into one of his funds. And questions about the investment practices were discouraged, she said.

“It was all very exclusive and somewhat hush-hush,” she said.

The attorney general’s lawsuit comes three months after the Securities and Exchange Commission filed a similar lawsuit, which is pending.

Chais’ attorney, Eugene R. Licker, issued a statement that said Chais was unaware that Madoff was operating a Ponzi scheme and was himself a major victim of the fraud.

“The claims that Mr. Chais misrepresented himself or the investments, that he lured unsuspecting investors, and that he in any way misled investors are simply untrue,” said Licker, of Loeb & Loeb in New York. “Although it is understandable that certain disappointed and now-desperate investors would seek to point the finger at someone to try to recoup some of their losses, that does not condone making reckless and baseless allegations.”

Brown said that Chais knew or should have known that Madoff was engaged in a massive fraud, in part because Madoff paid huge returns to investors regardless of how the financial markets performed.

Financial institutions have voluntarily frozen many of Chais’ assets, a move that could enable the government to recover some investor money, Gordon said.

The scheme lasted so long, in part, because investors regularly received returns, which came from new investors, Gordon said.

“No one complains when they’re getting 25% returns,” Gordon said. “They complain when they realize it’s a Ponzi scheme and their investments are gone.”

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stuart.pfeifer@latimes.com