Financial advisor Stanley Chais remains under Madoff’s cloud

Beverly Hills financial advisor Stanley Chais made a fortune serving as Bernard L. Madoff’s connection to Southern California’s rich and powerful. He hobnobbed with Hollywood elite, won praise as a generous philanthropist and kept homes on both coasts.

These days, the 84-year-old Chais spends the bulk of his time shuttling from one medical appointment to the next, tormented by an ongoing federal criminal investigation and myriad lawsuits that could ruin him financially.

Eight months have passed since the U.S. Attorney’s Office in Manhattan disclosed that it was considering criminal charges against Chais, but there has been no indictment and little explanation of where the case stands.

A ruling earlier this year casts doubt on whether federal authorities can prove in civil lawsuits that the Chais and other investment advisors should have known that Madoff was operating a fraud.

Nevertheless, prosecutors said they are pushing forward with their investigation into Chais, who has maintained that he did nothing wrong. They won a court order delaying proceedings in a Securities and Exchange Commission lawsuit against Chais, arguing that depositions and discovery in the civil case could give Chais’ defense team access to their witnesses and could interfere with the criminal investigation of him and others.

“The conduct under investigation has spanned decades and the government is continuing to review millions of pages of documents,” Asst. U.S. Atty. Lisa A. Baroni told the court in seeking the delay. She said prosecutors hope to decide by December whether to present the case to a grand jury.

The criminal investigation, prosecutors said, covers allegations similar to those in the SEC lawsuit: that Chais steered nearly $1 billion of investor money to Madoff’s massive Ponzi scheme, generating some $270 million in fees.

The SEC accused Chais of telling investors he was investing the money himself, but instead giving it all to Madoff. He also is accused of giving false account statements to investors, disguising how the money was invested.

Robert Chew, a Los Angeles marketing consultant who said he lost hundreds of thousands of dollars invested with Chais, said he hopes Chais is arrested and prosecuted.

Chew and his wife, now divorced, invested $700,000 with Chais from 2004 to 2008 and watched their balance swell to $1.2 million with fictious returns that sometimes reached 20% a year. When Madoff’s fund collapsed in 2008, Chew’s nest egg was wiped out.

“I’ve never had anybody die or murdered in my family.… But when it comes to the financial devastation of my family, it’s about as bad as you can get. It’s a financial mass murder,” Chew said.

He said Chais lied about how he was investing the money, an act that he said should lead to criminal charges.

“He took all of our money and told us he was the guy making the trades. Instead, he shunted it over to Madoff and collected a hefty fee for doing nothing,” Chew said. “It’s a criminal act and a person should have to pay a penalty for that.”

Chais’ attorney, Eugene Licker, has maintained that Chais had no idea that Madoff was operating a Ponzi scheme.

“Mr. Chais and his family were major victims of the Madoff fraud,” he said. “The notion that he was complicit in it is outrageous.”

To date, six people — Madoff and five employees — have been prosecuted in connection with Madoff’s fraud, the largest Ponzi scheme in U.S. history.

No investment advisors who funneled money to Madoff face criminal charges; Chais is the only advisor prosecutors have identified as a subject of a criminal investigation.

The SEC has filed lawsuits against other advisors, including longtime Madoff associates Maurice J. Cohn, Marcia B. Cohn and Robert M. Jaffe. The SEC has accused Jaffe of steering more than $1 billion of investor money to Madoff.

But a judge dismissed most of those allegations earlier this year, saying the SEC’s complaint failed to show how the Cohns and Jaffe should have known that Madoff was operating a fraud.

The allegations do not show that the advisors “knew of or recklessly disregarded Madoff’s fraud,” U.S. District Judge Louis L. Stanton said in a February ruling. The judge also noted that the high returns Madoff obtained for clients “were not generally perceived, even by professionals, as a badge of fraud.”

Stanton, who also is overseeing the SEC’s case against Chais, gave the agency until October to file a more detailed case against the Cohns and Jaffe.

The judge’s decision is a sign that the SEC’s case against Chais also might be in jeopardy, said Chris Clark, a former federal prosecutor in New York who now a white-collar defense lawyer.

“You could tell by the opinion the judge was underwhelmed by the case,” Clark said. “It seems that nobody wants the SEC case to go forward. And Chais, it seems, would have a pretty darn good defense.”

Chais, meanwhile, can only wait along with his wife to see what happens next. He suffers a rare blood disorder that requires regular dialysis treatment.

“My husband is in very bad health,” said Chais’ wife, Pamela, from the couple’s New York apartment. “I spend most of my time between the apartment, taking care of it, and the hospital. It’s a nightmare for him and me. Thank God we love each other.”

stuart.pfeifer@latimes.com