California probes Madoff-Chais dealings

State prosecutors in California are investigating money manager Stanley Chais’s dealings with investor Bernard Madoff, sources close to the office said.

Madoff is in jail awaiting sentence after pleading guilty to a operating a scheme that lost investors up to $65 billion.

The investigation into Chais’s dealing with Madoff is in its early stages, but follows a lawsuit filed by court-appointed trustee Irving Picard that claims Chais knew or should have known Madoff was engaged in fraud, the Los Angeles Times reported Tuesday.

A spokesman for Attorney General Jerry Brown declined to comment, the Times said.

Mr. Chais has made it clear he had absolutely no knowledge of the Madoff Ponzi citing staggering personal losses" suffered by Chais’s and his family, Chais’s attorney Eugene Licker said.

Prosecutors are concerned, however, with Chais’s handling of investors’ funds and the returns of up to 300 percent on the Chais family’s personal accounts, the Times said.

Chais’s own returns were a form of compensation by Madoff to Chais for perpetuating the Ponzi scheme by investing and maintaining millions of dollars of other people’s money, the suit says.