Madoff Investment Scam

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Investors who put their fortunes in the hands of arrested New York
money manager Bernard Madoff are waiting to hear how much of their
stake is left.

The roster of potential victims in what prosecutors said was
a $50 billion (S$74.6 billion) Ponzi scheme has grown exponentially
longer in the past few days.

Madoff, 70, said in regulatory filings that he only had
around 25 clients, but it has become apparent that the list of people
who lost money may number in the hundreds or even thousands.

Among those who have acknowledged potential losses so far:
Former Philadelphia Eagles owner Norman Braman, New York Mets owner
Fred Wilpon and J. Ezra Merkin, the chairman of GMAC Financial
Services.

A charity in Massachusetts that supports Jewish programs, the
Robert I. Lappin Charitable Foundation, said it had invested its entire
$8 million endowment with Madoff. The organisation’s executive director
said she doesn’t expect it to survive.

Other institutions that believed they had lost millions
included The North Shore-Long Island Jewish Health System and the
Texas-based Julian J. Levitt Foundation.

Hedge funds and other investment groups looked like big
losers too. The Fairfield Greenwich Group said it had some $7.5 billion
in investments linked to Madoff. A private Swiss bank, Banque Benedict
Hentsch Fairfield Partners SA, said it had $47.5 million worth of
client assets at risk.

The losses may have extended far beyond the coffers of the wealthy and powerful.

The town of Fairfield, Connecticut, said it placed nearly 15
percent of its retiree pension fund with Madoff. Officials were
scrambling to determine how much of the $42 million remained.

Mr Harry Susman, an attorney in Houston, said he represents a
group of clients who had unknowingly become entangled in the scandal by
investing in a hedge fund managed by Mr Merkin, which then put almost
all of its $1.8 billion in capital in Madoff’s hands.

‘They had no idea they had exposure,’ Mr Susman said. He said
his clients were now dumbfounded as to how the fund came to invest all
of its holdings with just one man, especially since concerns had been
circulating for years about Madoff’s operations.

For decades, Madoff had dual reputations among investors.
Many wealthy New Yorkers and Floridians considered him a reliable
investment whiz. Others, more skeptical, had questioned whether his
returns were real, pointing to the firm’s secrecy and lack of a
big-name auditor.

But when he met privately with a family member at his firm earlier this month, something clearly was amiss.

First, federal authorities say the 70-year-old Madoff surprised
the unidentified family member by saying he wanted to pass out hefty
annual bonuses two months earlier than usual, court papers said.

Then, when challenged on the idea, he said he ‘wasn’t sure he
would be able to hold it together’ if they continued the discussion at
the office, and invited him to his apartment.

It was the beginning of a stunning meltdown for the former Nasdaq stock market chairman.

Madoff himself described his investment business as an
unsophisticated ‘Ponzi scheme’, according to investigators who
interviewed him.

Perhaps more startling than the loss was that it apparently
caught regulators and investigators off guard, only coming to light
last week when Madoff’s own family turned him in.

The core of the scheme – taking investments from one client
to pay returns to another – ‘has been around since the beginning of
time’, said Mr Marc Powers, a former Securities and Exchange Commission
enforcement chief and head of the securities practice at Baker
Hostetler.

The firm somehow pulled off the fraud despite being subject
to examination by the SEC, Mr Powers added. ‘You wonder how these
things escaped the normally careful review of these regulatory
organisations’.

The latest dose of bad news in the world of finance has left
Madoff’s clients ‘panicked’, said Mr Stephen A. Weiss, a lawyer for
several dozen investors. ‘These people are sorrowful. These people are
angry. And many are now destitute.’

The wave of ill will – fuel for inevitable lawsuits – was
aimed at a man who had cultivated an image as a straight-shooter with a
personal touch.

The day after his arrest, his company’s Web site still
boasted that ‘in an era of faceless organisations … Bernard L. Madoff
Investment Securities LLC harks back to an earlier era in the financial
world: The owner’s name is on the door’.

It went on to say ‘Bernard Madoff has a personal interest in
maintaining the unblemished record of value, fair-dealing, and high
ethical standards that has always been the firm’s hallmark’.

Madoff’s resume was the stuff of Wall Street legend: He
founded his company in 1960 with $5,000 he earned in part working as a
lifeguard on Long Island beaches while putting himself through Hofstra
University Law School.

It eventually became one of five broker-dealers that
spearheaded the formation of the Nasdaq Stock Market, where he served
as a member of the board of governors in the 1980s and as chairman of
the board of directors in the early ’90s.

By 2001, Madoff’s firm was one of the three top market makers
in Nasdaq stocks and the third-largest firm matching buyers and sellers
of securities on the New York Stock Exchange, according to Baron’s.

Investigators say Madoff’s crime originated in a separate and secretive investment-advising business.

Madoff apparently kept the loss a secret even from his two sons
and other family members who work at the firm until he and two of them
retreated to his apartment occupying the entire 12th floor of an Upper
East Side building on Dec 9, according the complaint drawn up by an
arresting FBI agent.

‘It’s all just one big lie,’ he told his family. He confided
he had blown the money in what was ‘basically, a giant Ponzi scheme,’
the complaint added.

Several attorneys representing investors, however, have
questioned how he could have acted alone, given the size of the alleged
fraud and vast holdings of his firm.

According to the court complaint, Madoff told his family he
expected to end up behind bars, but wanted to execute his own version
of a bailout package by doling out $200 to $300 million he had left to
family, friends and employees.

After the meeting, a lawyer for the family contacted regulators, who alerted the federal prosecutors and the FBI.

Madoff was in a bathrobe when two FBI agents arrived at his
door unannounced at 8.30 am on Dec 11. He invited them in, then
confessed after being asked ‘if there’s an innocent explanation’, the
complaint said.

Responded Madoff: ‘There is no innocent explanation.’

More about Madoff:
Wikipedia – Bernard L.Madoff