See Part I here.

More evidence of Ezra Merkin’s innocence led astray.

One of the top advisers to the money manager J. Ezra Merkin, who invested $2 billion of his clients’ money with Bernard L. Madoff, is a convicted felon who worked for Mr. Merkin while still in federal prison, according to recently filed court documents.

The adviser, Victor Teicher, who had been convicted of federal securities fraud and was barred from the securities industry, advised Mr. Merkin on the management of his Ariel Fund Ltd. through phone calls made to Mr. Merkin’s Park Avenue office from a New Jersey prison.

Information about Mr. Teicher’s relationship with Mr. Merkin was contained in court papers filed by New York University, one of several institutions now suing Mr. Merkin. The university lost $24 million from its investment in the Ariel Fund, which turned over $300 million of its assets to Mr. Madoff, without disclosing the arrangement to Ariel investors.

… In a memorandum filed in New York Supreme Court this week, the university said that none of the Ariel fund prospectuses disclosed that “Victor Teicher, a convicted felon, and his staff were the persons actively managing the majority of the Ariel assets, and that hundreds of millions of dollars of Ariel’s funds had also been delivered for management to Madoff — even though Teicher had warned Merkin than Madoff’s returns were not possible.”

Mr. Teicher began advising Mr. Merkin’s Ariel fund in 1993 after Mr. Teicher had been convicted of several counts of securities fraud, including using insider information in trading puts and calls. Mr. Teicher, according to the filing, advised Mr. Merkin until 2001, during which time New York University increased its Ariel investment.

1993. Began to lose his way sixteen years ago.

‘WHERE MERKIN LOST HIS WAY’ headlines a Wall Street Journal blogger who invites us to regard Bernard Madoff’s middleman (as the blogger points out, Ezra Merkin did things like “put about $15 million of [Yeshiva’s] endowment into [his] Ascot [fund]. He thus captured a 1.5% annual fee for himself, even though Yeshiva could have given its money directly to Bernie Madoff — who was later treasurer of the university’s board — for nothing.”) as a lost sheep.

Now, sadly, Mr. Merkin seems to have become the latest testament [The writer means testimony.] to the emotional struggle even the greatest investors must undertake to resist temptation. Of all the seductions that can lead a value investor to stray from the true path, perhaps the worst is simply making too much money.

Reader comments are … harsh. (There are twelve comments. The link only opens two of them, so to see them all you need to click on previous.)