Stanley Chais target of federal criminal investigation
Federal prosecutors disclosed Friday that they were conducting a criminal investigation of Beverly Hills money manager Stanley Chais, who is accused of serving as the Southern California link to a Ponzi scheme operated by disgraced financier Bernard L. Madoff.
Assistant U.S. Atty. William J. Stellmach revealed the criminal investigation in a motion that sought to postpone for six months a civil lawsuit filed by the Securities and Exchange Commission against Chais in June.
Stellmach said that proceedings in the SEC lawsuit, if not suspended, could interfere with an “ongoing, parallel criminal investigation” of Chais. FBI special agents have conducted interviews during the investigation and reviewed materials provided by the SEC, Stellmach said.
Chais’ attorney, Eugene R. Licker, said Chais was a victim of Madoff and had no knowledge of the scam. He issued a statement that said he would not oppose the proposed delay and said the criminal investigation was expected.
“The government of course feels compelled to investigate, and we are confident that the investigations will support Mr. Chais’ denials of any wrongdoing,” said Licker, of the New York firm Loeb & Loeb.
The government’s motion marked the first public confirmation that Chais, 83, could face criminal charges. In addition to the SEC’s lawsuit, California Atty. Gen. Jerry Brown filed a lawsuit against Chais that sought to recover investor money.
Stellmach said charges that Chais and others could face include conspiracy, mail fraud, wire fraud, securities fraud and money laundering. A decision on whether to pursue criminal charges against Chais should be made by June, Stellmach said.
The SEC lawsuit said Chais portrayed himself as an investment “wizard,” without disclosing that he merely funneled hundreds of millions of investor dollars to Madoff, who made all investment decisions. Chais operated in Beverly Hills but has moved to New York.
Chais attracted several 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.
“This is news to me, but I’m not surprised,” Peel said after learning of the criminal probe. Peel had an account balance of about $6 million when the Ponzi scam collapsed one year ago. He said he was forced to sell his home in Hancock Park as a result and now leases a home.
“He thought he had some great scheme where he didn’t have to do anything and everybody would love him and he would be a big mensch,” Peel said. “He got caught up in a huge way by his arrogance and hubris.”
The SEC said Chais knew, or was negligent in not realizing, that Madoff was operating a Ponzi scheme. From 1999 to 2008, for instance, Madoff did not report a single investment loss. When Madoff’s scheme collapsed a year ago, Chais’ investor accounts were valued at nearly $1 billion. But much of that money was from phantom gains that never existed.
By that time, Chais and his family had already withdrawn $500 million more than it invested with Madoff, according to the lawsuit. In addition, Chais collected $269 million in fees from investors, according to the SEC.
Madoff pleaded guilty in March to running a $65-billion Ponzi scheme, the largest and longest-operating 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 is serving a 150-year sentence.