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.

News
peopleHowards' Way actress, and former mistress of Jeffrey Archer, was 60
Sport
Romelu Lukaku puts pen to paper
sport
News
Robyn Lawley
people
Arts and Entertainment
Unhappy days: Resistance spy turned Nobel prize winner Samuel Beckett
books
PROMOTED VIDEO
News
people
Life and Style
Troy Baker and Ashley Johnson voice the show’s heroes
gamingOnce stilted and melodramatic, Hollywood is giving acting in video games a makeover
News
i100
News
people
Extras
indybest
Life and Style
Phones will be able to monitor your health, from blood pressure to heart rate, and even book a doctor’s appointment for you
techCould our smartphones soon be diagnosing diseases via Health Kit and Google Fit?
Travel
Ryan taming: the Celtic Tiger carrier has been trying to improve its image
travelRyanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?
News
ebookA unique anthology of reporting and analysis of a crucial period of history
Sport
Usain Bolt confirms he will run in both the heats and the finals of the men's relay at the Commonwealth Games
commonwealth games
Life and Style
Slim pickings: Spanx premium denim collection
fashionBillionaire founder of Spanx launches range of jeans that offers 'thigh-trimming construction'
News
Sabina Altynbekova has said she wants to be famous for playing volleyball, not her looks
people
News
i100
Life and Style
tech'World's first man-made leaves' could use photosynthesis to help astronauts breathe
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

Senior Investment Accounting Change Manager

£600 - £700 per day + competitive: Orgtel: Senior Investment Accounting Change...

BA/PM,EMIR/Dodd-Frank,London,£450-650P/D

£450 - £650 per day + competitive: Orgtel: My client, a leading bank, is curre...

Senior Analyst - ALM Data - Banking - Halifax

£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...

Java developer - Banking - London - Up to £600/day

£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...

Day In a Page

Save the tiger: The day America’s love of backyard tigers led to a horrific bloodbath

The day America’s love of backyard tigers led to a horrific bloodbath

With only six per cent of the US population of these amazing big cats held in zoos, the Zanesville incident in 2011 was inevitable
Samuel Beckett's biographer reveals secrets of the writer's time as a French Resistance spy

How Samuel Beckett became a French Resistance spy

As this year's Samuel Beckett festival opens in Enniskillen, James Knowlson, recalls how the Irish writer risked his life for liberty and narrowly escaped capture by the Gestapo
We will remember them: relatives still honour those who fought in the Great War

We will remember them

Relatives still honour those who fought in the Great War
Star Wars Episode VII is being shot on film - and now Kodak is launching a last-ditch bid to keep celluloid alive

Kodak's last-ditch bid to keep celluloid alive

Director J J Abrams and a few digital refuseniks shoot movies on film. Simon Usborne wonders what the fuss is about
Once stilted and melodramatic, Hollywood is giving acting in video games a makeover

Acting in video games gets a makeover

David Crookes meets two of the genre's most popular voices
Could our smartphones soon be diagnosing diseases via Health Kit and Google Fit?

Could smartphones soon be diagnosing diseases?

Health Kit and Google Fit have been described as "the beginning of a health revolution"
Ryanair has turned on the 'charm offensive' but can we learn to love the cut-price carrier again?

Can we learn to love Ryanair again?

Four recent travellers give their verdicts on the carrier's improved customer service
Billionaire founder of Spanx launches range of jeans that offers

Spanx launches range of jeans

The jeans come in two styles, multiple cuts and three washes and will go on sale in the UK in October
10 best over-ear headphones

Aural pleasure: 10 best over-ear headphones

Listen to your favourite tracks with this selection, offering everything from lambskin earmuffs to stainless steel
Commonwealth Games 2014: David Millar ready to serve up gold for his beloved Scotland in the end

Commonwealth Games

David Millar ready to serve up gold for his beloved Scotland in the end
UCI Mountain Bike World Cup 2014: Downhill all the way to the top for the Atherton siblings

UCI Mountain Bike World Cup

Downhill all the way to the top for the Atherton siblings
Save the tiger: The animals bred for bones on China’s tiger farms

The animals bred for bones on China’s tiger farms

The big cats kept in captivity to perform for paying audiences and then, when dead, their bodies used to fortify wine
A former custard factory, a Midlands bog and a Leeds cemetery all included in top 50 hidden spots in the UK

A former custard factory, a Midlands bog and a Leeds cemetery

Introducing the top 50 hidden spots in Britain
Ebola epidemic: Plagued by fear

Ebola epidemic: Plagued by fear

How a disease that has claimed fewer than 2,000 victims in its history has earned a place in the darkest corner of the public's imagination
Chris Pratt: From 'Parks and Recreation' to 'Guardians of the Galaxy'

From 'Parks and Recreation' to 'Guardians of the Galaxy'

He was homeless in Hawaii when he got his big break. Now the comic actor Chris Pratt is Hollywood's new favourite action star