Fall-out from Madoff affair to hit big banks

The extent of the fall-out from the alleged Bernard Madoff fraud started to become apparent yesterday, as dozens more institutions and individuals across the globe were revealed to have had some exposure to the funds that his firm managed.

Spanish newspapers revealed that Banco Santander had more than $3bn (£2bn) of clients’ money invested in Mr Madoff’s products, while Royal Bank of Scotland, BNP Paribas, Nomura Holdings and Unicredit (via its subsidiary Pioneer) were among other large institutions reported to have had exposure to his funds.

MrMadoff was arrested on Thursday after admitting to his sons that his well-respected investment business was an elaborate fraud, similar to the infamous Ponzi scheme, whereby new investors’ money is used to pay the returns of older investors. Charles Ponzi made millions from investors using this technique at the start of the 20th century.

It is thought that thousands of investors will be affected directly or indirectly by the Madoff scandal, including a handful of UK local authorities, whohad invested in funds managed by Nicola Horlick’s firm Bramdean Asset Management. Bramdean admitted on Friday that one of its funds had almost 10 per cent of its portfolio invested across two of Madoff’s products, and stood to lose as much as $18m.

This weekend, Ms Horlick blamed US regulators for their failure to properly monitor Mr Madoff’s operations.

In an interview given just seven months ago, Ms Horlick was recorded saying that Mr Madoff was “very, very good at calling the US equity market … This guy has managed to return 1 to 1.2 per cent per month year after year.”

Another victim – Reichmuth Matterhorn, a Swiss private bank which stands to lose as much as $330m – wrote to its clients expressing its amazement that such a large-scale fraud could take place under its nose. “The occurrence is inexplicable,” the letter said. “Further, all periodically proved transactions appeared plausible. Yet no one is immune against fraud.”

The US Securities and Exchange Commission had not examined Mr Madoff’s books since his company was registered with it towards the end of 2006