December 24, 2008

Bernstein Liebhard LLP filed a class action lawsuit on December 24 in the United States District Court for the Southern District of New York against Rye Select Broad Market Fund, LP (“Rye Select”), Rye Investment Management, Tremont Partners, Inc., Tremont Group Holdings, Inc., Robert Schulman, and Jim Mitchell. The suit, 08-CV-11212, filed on behalf of all persons who purchased limited partnership interests in Rye Select from May 10, 1994 through December 22, 2008, alleges that defendants made false and misleading statements regarding their investments with Bernard L. Madoff Investment Securities (“BMIS”) and breached their fiduciary duties to the proposed class by failing to conduct appropriate due diligence into the operations of BMIS before entrusting all of Rye Select’s capital to be managed by BMIS and its founder, Bernie Madoff.

On December 11, 2008, Madoff was arrested by federal authorities who say Madoff admitted to operating a $50 billion Ponzi scheme in which Madoff used the principal investments of new clients to pay fictitious “returns” to other clients. Although Madoff had only a few individual clients that invested directly with him, individuals and institutions across the world invested indirectly and sometimes unknowingly in Madoff’s scheme through “feeder funds” – including Rye Select, a fund managed by Tremont Partners, Inc. and its parent company, Tremont Group – whose sole purpose was to funnel money to BMIS. As a result of Madoff’s scheme, the Rye Select fund and its limited partners have been substantially wiped out.

The complaint, captioned Brainson v. Rye Select Broad Market Fund LP, et al., alleges that defendants made false and misleading statements in Rye Select’s private placement memorandum, financial statements, and other documents in violation of federal securities laws. Throughout the class period, defendants represented to its investors that Tremont, as general partner for Rye Select, was conducting careful due diligence, thorough manager research, and advanced risk allocation. These statements were materially false and misleading because defendants in fact conducted no due diligence with regard to its investments with Madoff, or its due diligence was so lacking as to constitute recklessness.

The complaint also alleges that Rye Select and its general partner, Tremont Partners, breached their fiduciary duties to the class by ignoring dozens of red flags warning that BMIS and the investment strategy it employed were not capable of generating the consistent double-digit annual returns for which Madoff was famous. For example, a 2005 letter to the Securities Exchange Commission identified 29 red flags and described in great detail how Madoff’s operation could not be legitimate. In addition, some hedge fund managers and investment advisers who performed proper due diligence on Madoff identified additional warning signs and urged their clients not to invest with Madoff. The complaint alleges that if defendants had conducted proper due diligence as investment professionals, they would have come across at least some of these red flags and would have warned their investors about the potential risks of investing with Madoff. The complaint also alleges common law fraud and negligent misrepresentation.

If you would like to join this suit, discuss this action, or have any other questions concerning your rights or interests, please contact Jeffrey M. Haber or Jeffrey D. Lerner at (877) 779-1414.

Bernstein Liebhard is one of the preeminent plaintiffs’ class action law firms in the country, having pursued hundreds of securities and consumer cases and recovering approximately $2 billion for its clients. It has been named to The National Law Journal’s “Plaintiffs’ Hot List” in each of the last six years.