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Dec 16, 2008

Growing list of investors and banks hit by $50bn Fraud by US Trader Bernard Madoff

The list of investors and banks hit by an alleged $50bn (£33bn) fraud by US trader Bernard Madoff is growing.

Leading Spanish, British and Japanese banks say they could be facing losses of billions of dollars.

Other victims include film director Stephen Spielberg's Wunderkinder Foundation charity.

US authorities have ordered the liquidation of the trader's brokerage firm, Bernard L Madoff Investment Securities of New York.

Mr Madoff, who was arrested on Thursday, has been charged with fraud in what is being described as one of the biggest-ever such cases.

He ran a fund that paid annual interest of about 10% but prosecutors say it was, in effect, a pyramid scheme, with money from new investors paying off old ones.

Shares fall

Banks and financial institutions across the world had investments with Bernard Madoff, but not all have yet confirmed what their potential losses might be.

Among the potential losers is Spain's largest bank, Santander, which owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley.

The bank had a direct exposure of 17m euros ($23m; £15m), but clients of its Optimal fund management unit have another 2.3bn euros invested in the firm run by Bernard Madoff.

Japanese financial giant Nomura said it could lose up to $303m.

Britain's HSBC said it had investments of about $1bn, which could be affected.

Royal Bank of Scotland said it could potentially lose about £400m ($601m) if all its investments had to be written off.

The French bank, Natixis, a subsidiary of Caisse d'Epargne and Banque Populaire, said it could potentially lose up to 450m euros (£402m; $605m).

One of the world's biggest investment groups, Man, said it had invested about $360m through its RMF institutional fund of funds business, representing 0.5% of its total funds.

Banking shares fell around the world, with Royal Bank of Scotland dropping 3.7%, HSBC losing 1.2% and US banks making up the top four losers on New York's Dow Jones Industrial Average.

Some of the biggest private losers seem to have been members of the Palm Beach country club, where many of Mr Madoff's wealthy clients were recruited.

High returns promised

US prosecutors say Mr Madoff, a former head of the Nasdaq stock market, masterminded a fraud of massive proportions through his hedge fund and investment advisory business.

Mr Madoff is alleged to have used money from new investors to pay off existing investors in the fund.

A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts, while the 70-year-old banker was released on $10m bail.

Mr Madoff founded Bernard L Madoff Investment Securities in 1960, but also ran a separate hedge fund business.

According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn under management - was a fraud and had been insolvent for years.

He said he was "finished", that he had "absolutely nothing" and "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

Source : BBC
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