The master fraudster and his $50bn 'A-list' of victims

Bernard Madoff milked investors ranging from banks to celebrities to some of the world's richest people. As lawsuits fly and probes gather pace, David Randall asks how he got away with the scam for so long

The worldwide economy may be teetering on the brink of a depression, but Bernard Madoff's one-man financial- chaos industry goes from strength to strength. In the past week or so alone, the old saboteur of Wall Street has seen the fallout from his fraudulent enterprise spawn lawsuits on several continents; official investigations in the UK, Spain, Switzerland and Ireland, as well as the US; subpoenas; and the claim that, of the alleged $50bn (£35bn) he milked from investors, a mere $1.2bn now remains. It may even be far less than that.

Most startling of all is a suggestion from one US regulator about Madoff's share-dealing scam, in which he paid out returns to old investors with deposits from new ones. The Financial Industry Regulatory Authority has discovered he did no share dealing through his own firm's brokerage arm. This leaves only two possibilities: that he did so through outside firms (highly unusual, and for which there is no evidence), or that he did no trading whatsoever, meaning that his company's books were not so much cooked as rustled up out of his head.

The warped mastermind behind all this – capable of looking charities straight in the eye while taking their cash and frittering it; capable, too, of taking $14m off one investor just five days before his arrest – is now confined to his $7m Upper East Side home. The only airing he gets is for court appearances, and on Wednesday he caused quite a stir by arriving at a Manhattan federal courthouse sporting a flak jacket. Some may have thought this excessive, since his wealthy clients' traditional weapon of choice has been nothing more lethal than social ostracism. But perhaps they were unaware of two of the week's other revelations: that among those defrauded by him are a Russian billionaire – who tried to get his cash out just weeks before the collapse, but was refused – and a gentleman representing a Colombian drugs cartel.

The list of known losers is lengthening by the day. They include Madoff's own sister, Sondra Wiener, a 74-year-old who is reported to have lost around $3m, and now "has nothing". She and her husband are trying to sell their home in a gated Palm Beach enclave. Another who has lost a large part of his retirement funds is Stephen Greenspan, professor of psychiatry at the University of Colorado. He is, in one of the choicer ironies of this saga, the author of a book called Annals of Gullibility: Why We Get Duped and How To Avoid It.

The famous names who got clipped by Madoff include Steven Spielberg, actors Kevin Bacon and his wife Kyra Sedgwick, along with other big Hollywood players like Jeffrey Katzenberg, the chief executive of DreamWorks Animation. Then there is Liliane Bettencourt, the controlling shareholder in cosmetics giant L'Oréal and one of the richest women in the world; the property developer and publisher Mort Zuckerman; Spain's wealthiest woman, Alicia Koplowitz, who lost $20m; and Nobel Laureate Elie Wiesel.

There are also countless individuals of formerly high net worth, including a large number of New York and Florida socialites, many of them Jewish, whose names register no further than their own party invitation lists. They are not a group for whom sympathy naturally wells up, but some have been cleaned out, among them victims who had no idea of Madoff's existence until, following his arrest, they were informed their life savings had been entrusted to the old fraud. Palm Beach, Florida – at the heart of the Madoff financial quake and once described as a sunny place inhabited by shady people – will, say some observers, never be the same again. You wouldn't bet on it.

One sphere that will take years to recover is the charities and foundations that Madoff rooked. Mark Charendoff, president of the Jewish Funders Network, is on record saying: "It's an atomic bomb in the world of Jewish philanthropy."

And then there are the victim companies – led by Fairfield Greenwich's $7.5bn and notable this side of the Atlantic for the $3.2bn losses of Santander, Bank Medici's $2.1bn, HSBC's $1bn, and Swiss bank Union Bancaire Privée's $700m.

Around half of the Madoff losses are said to be from outside the US. Many of these sums – impersonally corporate though they may seem are aggregations of the monies of many individuals, not all of whom will regard the loss as so much mislaid small change. Some of the funds that put money Madoff's way are being seen by their clients as little more than his accomplices, or certainly his dupes. Sonja Kohn, founder of Austria's Bank Medici, had to deny she was in hiding from Russian clients upset at their losses. One feeder, Thierry Magon de la Villehuchet, has already committed suicide.

Implicated more directly are the characters who acted as go-betweens for investors eager to get on to Madoff's exclusive bandwagon, which delivered consistent annual returns of 10 to 15 per cent. One of the more prominent was Robert Jaffe, a leading Florida philanthropist, vice-president of Madoff's Cohmad Securities subsidiary and a man who could deliver access to the New Yorker's gravy train. Associates claim he was unaware of Madoff's fraud, but Jaffe is now a sought-after witness. Subpoenaed to appear before a Massachusetts state inquiry last week, he failed to show, pleading a doctor's note. He is now the subject of an order compelling him to testify.

Lawsuits between the various layers in the Madoff labyrinth now grow apace. Three have been filed by investors against Fairfield Greenwich, while HSBC's Irish arm, HSBC Institutional Trust Services, is being sued by two Irish funds that lost money to Madoff. A Luxembourg court has already ruled in favour of French finance house Oddo in its suit against Swiss bank UBS, through which it had, indirectly, $39.4m with Madoff. Spanish law firm Cremades & Calvo-Sotelo is due to file a US class action on behalf of Madoff investors, and legal action against banks including HSBC and UBS are due to be launched in France. The Man Group is reportedly planning to sue as it tries to recover some of the $360m it had with Madoff, while US financier J Ezra Merkin, who plunged client money into Madoff, is now facing a number of lawsuits from investors.

The legal actions, however, will take years to grind their way to conclusion. The most immediate prospect of insights into Madoff's operations lies in the investigations being mounted by the FBI, the Securities and Exchange Commission and the US Attorney's New York office. And on Tuesday the Senate Banking Committee begins its inquiry. Questions to which they will be seeking answers include: when did Madoff's scheme go from legit to Ponzi (if indeed it ever was legit)? Did he actually do any trades? Why did regulators not pick up the signals that now seems so obvious, like Madoff's use of a one-man accountancy business to audit his books? And where has all the money gone? Madoff's lifestyle, while not flashy, was certainly not modest, with the 38ft yacht and the homes in Manhattan, Long Island, Palm Beach and Antibes in France. While much of his take must have gone to pay annual returns to clients, there remains the tantalising prospect of some serious treasure buried in property or deposits.

But there are other, less obvious, questions. Is it conceivable that Madoff operated the whole shebang on his own? The world has learnt before (Robert Maxwell comes to mind) that one man can commit large-scale corporate larceny for some considerable time before being rumbled, but did no one in Madoff's brokerage arm ask why none of the fabulous sums being invested with him were going through them? And, if they did, what did they do with the answer? Did none of his family – many of whom, like wife Ruth, sons Mark and Andrew, brother Peter, nephew Charles, and niece Shana, worked in the business – ever suspect that all was not quite kosher?

And there are questions perhaps even more fundamental. Madoff, within hours of his arrest in December, put the size of the losses at $50bn. If the sums claimed to have been lost by known major victims are totted up, they reach $34.5bn. Where is the remaining $15.5bn ? Or does "the rest" even exist? Were many of his investors leaving their generous annual profits with Madoff to "grow" on paper (but, in reality, be entirely fictitious)? If so, would this account for the discrepancy between the claimed losses and the paper losses of $50bn reported by Madoff? And would it also mean that even the $34.5bn claimed is part comprised of fantasy profits?

Finally, there's another nagging issue. Individuals and corporations who invested directly with Madoff had a responsibility not just to take the gravity-defying returns but to question the basis for them – and if they were rebuffed (as some were), to pursue inquiries still more vigorously. Everyone is now wise after the event, but there are some – not all of them regulators – who could and should have been wise before it.

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