Banks fear for billions in Wall St 'scam'

Financial giants revealed potential losses of almost £4 billion today as they joined a queue of investors caught up in an alleged fraud by investment manager Bernard Madoff.

The Royal Bank of Scotland, HSBC and Abbey owner Santander as well as France's BNP Paribas and Japan's Nomura Holdings all reported they had fallen victim to Madoff's alleged 50-billion US dollar (£33 billion) pyramid scheme.

The Wunderkinder charity connected to film director Steven Spielberg and the foundation of Nobel laureate Elie Wiesel were also reportedly among the investors.

Madoff, 70, a well respected investment manager and former chairman of New York's Nasdaq stock exchange, was arrested last week after apparently telling his employees his operations were "all just one big lie" and "basically, a giant Ponzi scheme".

A Ponzi scheme is a fraudulent investment vehicle which pays very high returns to existing investors paid for by money put into the fund by newcomers.

The arrest has raised questions about the competence of financial regulators.

Hedge fund giant Man Group said: "Based on information available to date, it appears that a systematic and comprehensive fraud may have been committed, evading a range of structural controls."

The company, which said it had approximately 360 million US dollars (£239 million) of exposure, said Madoff Securities was registered with the Securities and Exchange Commission (SEC), which monitors investment funds.

Madoff Securities was also a member of five self-regulatory organisations, including US independent securities regulator Finra and the Nasdaq.

Nicola Horlick, who manages Bramdean Alternatives, which had 9% of its funds invested with Madoff's scheme, said the SEC had given it a "clean bill of health".

"I think now it is very difficult for people to invest in things that are meant to be regulated in America because they have fallen down on the job," she told the BBC Radio 4 Today programme.

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

She added that even if Bramdean Alternatives was forced to write off its entire investment in Madoff's scheme it would still only be down 4% on the year while the stock market had fallen 35%.

The Royal Bank of Scotland - 58% owned by the taxpayer - said £400 million was at risk while Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley, said its potential exposure was around £2.1 billion.

HSBC said it believed it had a potential exposure of around 1 billion US dollars (£668 million) from providing finance to "a small number" of clients who then invested with Madoff.

Nomura, Japan's largest securities company, had £204 million invested with Madoff, while Switzerland's Reichmuth & Co said the private bank had £218 million of exposure. BNP Paribas estimated its exposure to Madoff's fund could lead to £311 million in losses.

The FBI said members of Madoff's own family turned him in after he confessed.

According to court documents released by the SEC, Madoff told two senior staff members that he was "finished" and he had "absolutely nothing". He said he planned to hand himself in, but would first use his remaining 200 to 300 million US dollars (£130 to 196 million) to pay certain employees, family and friends.

The documents said Madoff told the pair his business was insolvent and had been for years, they also said he estimated the losses from his scheme were £33 billion.

Many of the victims of the alleged fraud were connected to Madoff's reputation as a philanthropist.

New Jersey Senator Frank Lautenberg - one of the wealthiest members of the US Senate - entrusted his family's charitable foundation to Madoff and the Wall Street Journal reported Steven Spielberg's fund, alongside the Elie Wiesel foundation and money from property magnate Mortimer Zuckerman were also affected.

Reports from Florida to Minnesota in the US included 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 £26,000 to an entire nest egg worth almost £1 million.

Harvey Pitt, a former chairman of the SEC, said the fact that foundations and charities could lose out is the "real tragedy".

The assets of Bernard L Madoff Investment Securities were frozen last Friday in a deal with US government regulators and a receiver was appointed to manage the firm's financial affairs. Madoff is on £6.6 million bail.

Life and Style
Small winemakers say the restriction makes it hard to sell overseas
food + drink
Arts and Entertainment
A comedy show alumni who has gone on to be a big star, Jon Stewart
tvRival television sketch shows vie for influential alumni
Arts and Entertainment
Carrie Hope Fletcher
booksFirst video bloggers conquered YouTube. Now they want us to buy their books
News
Clare Balding
peopleClare Balding on how women's football is shaking up sport
PROMOTED VIDEO
Arts and Entertainment
Damien Hirst
artCoalition's anti-culture policy and cuts in local authority spending to blame, says academic
Sport
premier leagueMatch report: Arsenal 1 Man United 2
Arts and Entertainment
Kirk Cameron is begging his Facebook fans to give him positive reviews
film
News
i100
Sport
Jonny May scores for England
rugby unionEngland 28 Samoa 9: Wing scores twice to help England record their first win in six
Life and Style
fashionThe Christmas jumper is in fashion, but should you wear your religion on your sleeve?
News
ebooksNow available in paperback
Arts and Entertainment
Jason goes on a special mission for the queen
tvReview: Everyone loves a CGI Cyclops and the BBC's Saturday night charmer is getting epic
Arts and Entertainment
Jerry Hall (Hand out press photograph provided by jackstanley@theambassadors.com)
theatre
Sport
Tony Bellew (left) and Nathan Cleverly clash at the Echo Arena in Liverpool
boxingLate surge sees Liverpudlian move into world title contention
Voices
Neil Findlay
voicesThe vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Life and Style
food + drinkMeat-free recipes and food scandals help one growing sector
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Reach Volunteering: Trustee – PR& Marketing, Social Care, Commercial skills

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Age Concern Slough a...

Reach Volunteering: Charity Treasurer

Voluntary Only - Expenses Reimbursed: Reach Volunteering: Crossroads Care is s...

SThree: Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £35,000: SThree: We consistently strive to be ...

Ampersand Consulting LLP: Markit EDM (CADIS) Developer

£50000 - £90000 per annum + benefits: Ampersand Consulting LLP: Markit EDM (CA...

Day In a Page

Mau Mau uprising: Kenyans still waiting for justice join class action over Britain's role in the emergency

Kenyans still waiting for justice over Mau Mau uprising

Thousands join class action over Britain's role in the emergency
Isis in Iraq: The trauma of the last six months has overwhelmed the remaining Christians in the country

The last Christians in Iraq

After 2,000 years, a community will try anything – including pretending to convert to Islam – to avoid losing everything, says Patrick Cockburn
Black Friday: Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Helpful discounts for Christmas shoppers, or cynical marketing by desperate retailers?

Britain braced for Black Friday
Bill Cosby's persona goes from America's dad to date-rape drugs

From America's dad to date-rape drugs

Stories of Bill Cosby's alleged sexual assaults may have circulated widely in Hollywood, but they came as a shock to fans, says Rupert Cornwell
Clare Balding: 'Women's sport is kicking off at last'

Clare Balding: 'Women's sport is kicking off at last'

As fans flock to see England women's Wembley debut against Germany, the TV presenter on an exciting 'sea change'
Oh come, all ye multi-faithful: The Christmas jumper is in fashion, but should you wear your religion on your sleeve?

Oh come, all ye multi-faithful

The Christmas jumper is in fashion, but should you wear your religion on your sleeve?
Dr Charles Heatley: The GP off to do battle in the war against Ebola

The GP off to do battle in the war against Ebola

Dr Charles Heatley on joining the NHS volunteers' team bound for Sierra Leone
Flogging vlogging: First video bloggers conquered YouTube. Now they want us to buy their books

Flogging vlogging

First video bloggers conquered YouTube. Now they want us to buy their books
Saturday Night Live vs The Daily Show: US channels wage comedy star wars

Saturday Night Live vs The Daily Show

US channels wage comedy star wars
When is a wine made in Piedmont not a Piemonte wine? When EU rules make Italian vineyards invisible

When is a wine made in Piedmont not a Piemonte wine?

When EU rules make Italian vineyards invisible
Look what's mushrooming now! Meat-free recipes and food scandals help one growing sector

Look what's mushrooming now!

Meat-free recipes and food scandals help one growing sector
Neil Findlay is more a pink shrimp than a red firebrand

More a pink shrimp than a red firebrand

The vilification of the potential Scottish Labour leader Neil Findlay shows how one-note politics is today, says DJ Taylor
Bill Granger recipes: Tenderstem broccoli omelette; Fried eggs with Mexican-style tomato and chilli sauce; Pan-fried cavolo nero with soft-boiled egg

Oeuf quake

Bill Granger's cracking egg recipes
Terry Venables: Wayne Rooney is roaring again and the world knows that England are back

Terry Venables column

Wayne Rooney is roaring again and the world knows that England are back
Michael Calvin: Abject leadership is allowing football’s age-old sores to fester

Abject leadership is allowing football’s age-old sores to fester

Those at the top are allowing the same issues to go unchallenged, says Michael Calvin