Tuesday, December 16, 2008

List of duped investors in $US50bn Wall St pyramid scam grows

NEW YORK (AP) - The list of investors who say they were duped in one of Wall Street's biggest pyramid schemes is growing, snaring some of the world's biggest banking institutions and hedge funds, the super rich and the famous, pensioners and charities.

The alleged victims who sunk cash into veteran Wall Street money manager Bernard Madoff's investment pool include real estate magnate Mortimer Zuckerman, the foundation of Nobel laureate Elie Wiesel, and a charity of movie director Steven Spielberg, according to the Wall Street Journal.

Among the world's biggest banking institutions, Britain's HSBC Holdings, Royal Bank of Scotland and Man Group, Spain's Grupo Santander, France's BNP Paribas and Japan's Nomura Holdings all reported that they had fallen victim to Madoff's alleged $US50 billion (NZ$91bn) Ponzi scheme.

The 70-year-old Madoff, well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested Thursday in what prosecutors say was a $US50 billion scheme to defraud investors. Some investors claim they've been wiped out, while others are still likely to come forward.

"There were a lot of very sophisticated people who were duped, and that happens a great deal when you've had somebody decide to be unscrupulous," said Harvey Pitt, a former chairman of the Securities and Exchange Commission, a regulator in charge of monitoring investment funds like the one Madoff operated.

The extent of the potential damage prompted a leading fund manager in London to lash out at US regulators for failing to detect the fraud earlier.

"I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they haven fallen down in the job," Nicola Horlick, the manager of Bramdean Alternatives, which has 9 per cent of its funds invested in Madoff's scheme, told the BBC.

"All through the credit crunch this has been apparent," Horlick added. "This is the biggest financial scandal, probably, in the history of the markets."

Among US investors, the Boston-based Robert I. Lappin Charitable Foundation, a charity that financed trips for Jewish youth to Israel, sacked its staff after revealing that the money for its operations was invested with Madoff.

New Jersey Senator Frank Lautenberg, one of the wealthiest members of the Senate, entrusted his family's charitable foundation to Madoff. Lautenberg's attorney, Michael Griffinger, said they weren't yet sure the extent of the foundation's losses, but that the bulk of its investments had been handled by Madoff.

Reports from Florida to Minnesota included profiles of ordinary investors who gave Madoff their money. Some had been friends with him for decades, others were able to invest because they were a friend of a friend. They told stories of losing everything from $40,000 to an entire nest egg worth well over $1 million.

They join a list of more powerful investors that have come forward, all worried about the extent of their losses. The roster of names include former Philadelphia Eagles owner Norman Braman, New York Mets baseball team owner Fred Wilpon and J. Ezra Merkin, the chairman of GMAC Financial Services, among others.

Among those overseas confirming exposure on Monday, Banco Santander, the largest bank in the euro zone by market capitalisation, said its clients have 2.33 billion euros ($3.07 billion) in exposure with Madoff, mostly through a fund called Optimal Strategic US Equity.

HSBC, Britain's largest bank, said a "small number" of its insitutional clients had exposure totalling some US$1 billion in Madoff funds.

It added that it has custody clients who have invested with Madoff, but it did not believe those "custodial arrangements should be a source of exposure to the group."

Royal Bank of Scotland - Britain's second-largest bank, which is now 58 per cent owned by the British government - said it could lose around 400 million euros pounds ($600 million) through exposure in trading and collateralised lending to funds of hedge funds invested with Bernard L Madoff Investment Securities LLC.

Man Group, the world's largest publicly traded fund manager that reported exposure of around $360 million on Monday, said "it appears that a systematic and comprehensive fraud may have been committed, evading a range of structural controls."

Nomura Holdings said it has 27.5 billion yen ($US306 million) in exposure, but added that any losses were likely to be limited compared to its capital base.

On Friday, representatives from major US banks - Bank of America Corp., Citigroup Inc., PNC Financial Services Group Inc. and Merrill Lynch declined to comment on if they had exposure to Madoff's company. Both BlackRock and Goldman Sachs said they had no exposure.

4 Opinion(s):

Vanilla Ice said...

Great post GG. There has always been the myth that the rich and famous somehow have a monopoly on access to wealth creators. This myth is being shattered at the speed of light.

Grumbleguts said...

Vanilla Ice @ 03:09
Yip, I have read a few articles on the scam, and find it strange that he's the only one that's been arrested so far. I once did a study on Charles Ponzi, and this guy has done EXACTLY the same thing. He borrowed from Peter to pay Paul. The ripples will carry all over the world, as it seems that quite a lot of retirement companies invested with him. I can't think where the money has gone!!

Grumbleguts said...
This comment has been removed by the author.
James Raider said...


The corruption trench is deep and wide, much requires cleaning-up on Wall Street…