Fraud office turns to Madoff funds in UK

Investigation focuses on London business as details emerge of $160m transfer

By Stephen Foley in New York

Friday, 9 January 2009

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It has emerged that Mr Madoff transferred $160m to the London business in the autumn of 2007, as the credit crisis was beginning to shake the foundations of Wall St

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Investigators examining Bernard Madoff's $50bn (£33bn) fraud have turned their attention to the Wall Street fund manager's UK business, as they try to pin down how much, if any, of his clients' money is left.

The Serious Fraud Office yesterday began a formal investigation into Madoff Securities International, based in London, where associates say he managed £100m of his family's money.

It has emerged that Mr Madoff transferred $160m to the London business in the autumn of 2007, as the credit crisis was beginning to shake the foundations of Wall Street. Ultimately, it was a flood of requests from clients to have their money back that brought Mr Madoff's scam to an end last month.

His victims ranged from modest charities and extravagant financiers, celebrities, pension funds and wealthy individuals on at least three continents, lured into his clutches by the promise of steady annual returns. But those returns were faked over many years, and Mr Madoff had simply been paying clients with money coming in from new investors – a classic Ponzi scheme.

Now prosecutors, fearful he is attempting to hide his personal assets and so shield them from their investigation, are trying to have Mr Madoff sent immediately to jail. A decision on whether to revoke his $10m bail is expected today or on Monday.

The SFO said yesterday that an investigation by the accounting firm Grant Thornton had prompted it to act against the London business. Grant Thornton was appointed as liquidator of Madoff Securities International in the UK after Mr Madoff confessed to his sons and was arrested on 11 December. "The public say they want us to take early action and this is what we are doing," said Richard Alderman, director of the SFO. "We will work closely with other law enforcement agencies to discover the truth behind the collapse of these huge financial structures."

Mr Madoff transferred cash to London in two tranches in 2007. That October, he bought 49.9 million shares in the British firm for £49.9m, according to Companies House records, the equivalent of about $100m at the time.

In addition, the previous month he received 6.25 million new $10 shares as payment for terminating a $62.5m loan he had made to the British firm in 2000.

In New York, Mr Madoff was summoned to a hearing this week as prosecutors sought the revocation of his $10m bail, under which he is permitted to remain at his Manhattan penthouse under house arrest. The government argues that he has been trying to transfer up to $300m of the remaining investors' assets to selected family and friends.

"In fact, when the defendant's office desk was searched, investigators found approximately 100 signed checks totalling more than $173m, ready to be sent out," a government legal filing said yesterday.

Earlier, it was revealed that Mr Madoff and his wife, Ruth, had posted $1m-worth of antique jewellery, including Cartier and Tiffany watches, to family and friends in the days after his arrest.