At least three buyout veterans have fallen victim to Bernard Madoff’s fraudulent investment scheme, which the former NASDAQ chairman has said amounts to a $50 billion Ponzi scheme.
Blue Star Investors, a fund of hedge funds controlled by private equity veteran Thomas H Lee, and the founders of Boston-based private equity firm Audax Group were on a client list made public in a bankruptcy filing Thursday. The list, which includes more than 13,000 contacts of Madoff’s firm, did not detail how much any client had invested.
No Audax investor money was tied up with Madoff’s firm, according to Geoffrey Rehnert, co-chief executive of Audax. He and fellow co-founder Marc Wolpow, both former Bain Capital partners, had only invested personally with the firm.
“The amount lost was painful, but it wasn’t a significant loss,” Rehnert said. He declined to disclose the amount.
Lee, the founder of eponymous buyout firms Thomas H Lee Partners and Lee Equity Partners, is the largest investor in Blue Star, according to a December Wall Street Journal article. The Journal said that Lee was considering shrinking or closing the two funds, which at one point controlled $1.5 billion. The funds, which provide capital to a number of underlying hedge funds also manage Lee Enhanced Offshore Fund, reportedly suffered losses of about 40 percent in 2008.
Many funds of hedge funds have been tied to the Madoff scandal, though it is not Lee’s first investment exposed to fraud.
Thomas H Lee Partners, which Lee founded in 1974 and left in 2006, was infamously caught up in the collapse of financial services company Refco. After the buyout firm purchased Refco for $2.25 billion in 2004, it took the company public the following year and nearly tripled the value its investment. Later in 2005, however, TH Lee discovered a holding company owned by Tone Grant and Phillip Bennett, the company’s respective president and chief executive, owed Refco roughly $430 million in debt. It was subsequently revealed that Grant, Bennett and other Refco executives had since 1999 been masking hundreds of millions of dollars in trading losses by transferring them to the holding group.
After watching its stock price plummet and client base flee, Refco filed for Chapter 11 bankruptcy protection in October 2005. A consortium led by financial services specialist JC Flowers purchased the embattled firm for $768 million and TH Lee lost roughly $245 million in the debacle. Grant was last year sentenced to 10 years in prison, charged with felony counts of securities fraud, wire fraud, bank fraud, money laundering and conspiracy.
Lee did not return a call for comment Thursday.
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