'Superwoman' stung by hedge fund guru's '$50bn trading scam'

Investors threw money at Bernard Madoff in the expectation of spectacular returns. But now he has been charged with fraud

From Florida golf clubs through Long Island's playground of the rich and famous, all the way to the City of London's boardrooms, investors large and small are reaching to check their wallets, scared they may have become victims of Wall Street's biggest fraud.

Many wealthy clients face financial ruin following the arrest of 70-year-old Bernard Madoff, a Wall Street grandee and one of its most respected and well-connected money managers, on charges of operating a $50bn (£33.5bn) investment scam. Many more expect to emerge with substantial losses and beetroot faces.

In London, the most startling confession came from Nicola Horlick, probably the most famous British fund manager, known as Superwoman for balancing her high-flying finance career with bringing up five children. Her fund, Bramdean Alternatives, had almost 10 per cent of its assets – about £10m – invested with Mr Madoff, money Ms Horlick admitted yesterday she was "uncertain" she would ever see again. Bramdean shares lost a third of their value.

In an interview just a few months ago with the Financial Times, Ms Horlick had praised Mr Madoff. "He is someone who is very, very good at calling the US equity market," she said. "This guy has managed to return 1 to 1.2 per cent per month, year after year after year."

If that sounded too good to be true – well, of course it was.

On Wall Street yesterday, veteran players were still catching their breath, as details emerged about the scam. Madoff Investment Securities in New York claimed to manage $17bn directly on behalf of clients, and through derivatives an estimated $50bn was banking on Mr Madoff's performance. But the complex trading he claimed to be carrying out was a sham, the returns he claimed to be making were fake, and the money he was paying out to clients was funded only by getting more cash in the other door from new victims.

The money-management business was "all just one big lie" and "basically, a giant Ponzi scheme" he told his two sons, Andrew and Mark, when they confronted him on Wednesday night. They turned him in, and the FBI came to arrest him at his Manhattan home on Thursday morning. He had "no innocent explanation" for his behaviour, he told an FBI officer.

If Mr Madoff's estimate of $50bn in losses turns out to be correct, the scam will dwarf anything carried out by the eponymous Charles Ponzi in the 1920s. It would be more than four times larger than the fraud which brought down WorldCom, the telecoms giant, in 2002, the biggest bankruptcy in US history. It is not known yet just how many years the trader may have been cooking his books, but it might also end up as one of the longest to have gone undetected.

Mr Madoff founded his trading firm in 1960 with $5,000 he made from working as a lifeguard on Long Island. By the Seventies, he was one of the industry's best-loved and most respected characters, rising to be a founder of the Nasdaq stock market, which he used to chair. He split his time between Manhattan and Long Island and Palm Beach in Florida, where fellow country club members would see it as a badge of status to have money invested with him. He was a popular choice for the East Coast rich, for charitable foundations, and for professional investors alike. In the centre of the hedge fund world, in Greenwich, Connecticut, many "fund of funds" funnelled money to Madoff investment vehicles. As the scurrilous New York Post put it yesterday, "Suicide hotline in Greenwich could be lit up."

Andrew and Mark Madoff had long worked in the share-trading part of their father's business, but he kept his asset-management activities separate and secret, with books kept under lock and key, and investment returns audited by a backwoods firm rather than one of the major accounting names.

With the credit crisis forcing wealthy investors to cash in their holdings, Mr Madoff appeared under increasing stress in recent weeks. Sitting in his Manhattan study on Tuesday night, he told his sons that clients with $7bn wanted their money back – but that there was no money. I'm "finished", he told them. I have "absolutely nothing".

Start your day with The Independent, sign up for daily news emails
Sport
footballHe started just four months ago
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Sink the Pink's 2013 New Year's Eve party
musicFour of Britain's top DJs give their verdict on how to party into 2015
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
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

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect