As part of an investigation into Bernard Madoff's alleged Ponzi scheme, Massachusetts Attorney General Martha Coakley requested documents from Tufts last month.
Meanwhile, Jacob Ezra Merkin, the general partner at Ascot Partners, has come under renewed scrutiny after New York University (NYU) alleged in a lawsuit that the prominent investor received a warning several years ago about red flags in Madoff's investment strategy.
Coakley served the university in February with a civil investigative demand, which is similar to a subpoena and mandates cooperation.
"The university was required to produce the documents requested by the attorney general," Martin Oppenheimer, Tufts' senior counsel for business and corporate affairs, said in an e-mail.
Still, Oppenheimer suggested that the university would have helped Coakley's office even absent the demand.
"In any event, we believe it is in our interest to cooperate with the attorney general's investigation," he said.
Director of Public Relations Kim Thurler would not comment on the contents of the documents that Tufts turned over. "We're unable to get into details of our response since this is an ongoing investigation," she said in an e-mail.
Coakley spokesperson Amy Breton also declined to comment on the documents, citing an office policy preventing her from even confirming that the investigation exists. "We do not confirm or deny investigations," she told the Daily.
According to Oppenheimer, Coakley's probe focuses on whether Madoff or any of his intermediaries engaged in deceptive practices.
One potential target is Robert Jaffe, a Newton native who served a prominent middleman for Madoff. In January, Massachusetts Secretary of State William Galvin sued Jaffe after he ignored a subpoena to testify before state regulators about his involvement with Madoff.
As Coakley's investigation proceeds, it remains to be seen if she has any interest in determining whether or not Tufts investors acted appropriately when they invested $20 million in Ascot Partners, a hedge fund that funneled virtually all of its $1.8 billion in holdings to Madoff.
"We can't speculate about the attorney general's interests, but we believe that the university acted properly and conducted its usual and reasonable due diligence before investing in Ascot Partners and that [Coakley] would reach the same conclusion," Oppenheimer said.
And while they consider potential legal action against Madoff and Merkin, administrators are hoping that a judge would agree too. In the meantime, Tufts has retained the corporate law firm Ropes & Grey LLP to help formulate the university's legal strategy, which remains in the planning stages.
All of this comes as Madoff appears to be posturing for a guilty plea, which could come this Thursday at his arraignment, and as Merkin faces heat for his dealings with a convicted felon.
NYU, which lost $24 million when Madoff's alleged scheme ran out of gas, is suing Merkin and charging that he was taking investment tips from Victor Teicher, a disgraced investor who had been convicted of several counts of securities fraud. According to the lawsuit, Teicher was advising Merkin from his New Jersey prison cell.
Still, it is unclear how much the allegations, if true, will help Tufts, since Teicher was supposedly providing advice on Merkin's Ariel Fund, not on Ascot Partners. And his involvement with the fund reportedly ended in 2001, four years before Tufts made its $20 million investment.
But the suit also says that Teicher warned Merkin in 1994 that Madoff's returns were too consistently high to be believable. Allegedly, Merkin merely asked Madoff if the charge was true and did not investigate any further.
His supposed failure to dig deeper and potentially even alert his clients to the possible fraud could expose him to additional legal liability.
"It's plausible that there's a viable lawsuit that [Merkin] didn't pass on the information," Harvard Law School Professor Mark Roe told the Daily.
Economics Lecturer Christopher McHugh, the chief financial officer for the hedge fund New Generation Advisors, said that Merkin's responsibility to alert his investors would be proportional to the credibility of the threat.
"I don't know if I'd go running to my investors right away, but eventually, if you're running an honest shop, you have to," he said.
McHugh also criticized Merkin's ties to Teicher, noting that in the financial industry, one of the most basic principles is not to associate with tarnished figures.
"People do that – the sleazier investors might – but any type of reputable investor should know you should stay away," he said. "Once you get any type of blemish on your record in this business, you're a persona non grata."
