State eyes Chais’ role in Madoff scheme

The California attorney general’s office has launched a preliminary investigation into the role that former Beverly Hills money manager Stanley Chais played in funneling millions of dollars into the giant Ponzi scheme run by convicted felon Bernard L. Madoff, said people familiar with the matter.

Investigators from Atty. Gen. Jerry Brown’s office are looking into Chais’ relationship with Madoff and whether Chais misrepresented to investors that he was placing their money with the disgraced financier, said the people, who spoke on condition of anonymity.

The inquiry is in its early stages and may not result in action against Chais, the sources said. A spokesman for Brown declined to comment.

Chais’ attorney said his client was unaware of Madoff’s actions and that Chais and his family lost much of their life savings in the fraud.

“As Mr. Chais has made clear, he had absolutely no knowledge of the Madoff Ponzi scheme as evidenced by the staggering personal losses suffered by Mr. Chais, his children, his grandchildren, his wife’s pension plan and his charitable foundation,” said the attorney, Eugene Licker.

Bob Chew, who lost $1.2 million he had invested with Chais, said that “justice will get done here,” although he expected it to be “a grind.”

“In the 20 to 30-odd years that my wife’s family was invested, he never told anybody that the money was going to Bernard Madoff,” Chew said.

Madoff pleaded guilty in March to running an epic scheme in which he paid off earlier investors with funds he solicited from newer investors. He is in prison awaiting sentencing in June.

Chais, 82, was a well-known investment advisor and philanthropist who steered millions to Jewish charities.

Scrutiny of Chais by state and federal authorities has intensified in recent weeks after a scathing lawsuit was filed by Irving Picard, the trustee handling the liquidation of Madoff’s defunct investment firm.

The suit alleges that Chais “knew or should have known that Madoff was engaged in fraud rather than real trading activity” because of the “unrealistically high” returns earned by Chais’ clients and the even more spectacular returns taken in by Chais and his family.

Chais’ clients had annual returns of up to 24% with Madoff, while Chais and his family averaged nearly 40%, the suit said. The returns sometimes topped 100% and reached as much as 300%, the suit alleged.

“Improbable as the rates of return were for the Chais Fund accounts, they pale in comparison to the fantastical rates of return for the Chais Family Accounts,” the Picard suit said.

The returns “were a form of compensation by Madoff to Chais for perpetuating the Ponzi scheme by investing and maintaining millions of dollars of other people’s money” with Madoff, according to the suit.

Chais and his family withdrew more than $1 billion from Madoff since December 1995, according to the suit. Chais also ordered Madoff to report fictitious losses in some family accounts, apparently to offset gains in other investments and lower tax bills, the suit said.

Licker, Chais’ attorney, said that there were inaccuracies in the Picard suit and that “despite the astronomical numbers . . . in his complaint, the bulk of the funds alleged to have been distributed to Mr. Chais were in fact distributed to his investors.”

Federal prosecutors in New York have expanded a criminal investigation to examine whether Chais and several other purported victims were complicit with Madoff, according to a report Monday in the Wall Street Journal.

Given the trustee’s inaccuracies, Licker said, “rumors of a criminal investigation are hardly surprising.”

He said Chais had moved to New York to be closer to doctors treating him for a rare blood disorder at Memorial Sloan-Kettering.

Chais is a defendant in at least three lawsuits in California and has asked for court approval to transfer the cases to U.S. District Court, the first part of an effort to move the cases to New York.

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walter.hamilton@latimes.com

Times staff writer Stuart Pfeifer in Los Angeles contributed to this report.