Tuesday, December 16, 2008

The Greedy Man Who Conned the World

What the Fuck Did He Need All This Money For?

Investors around the world are counting the spiralling cost of the biggest fraud in history, a $50bn scam that has ensnared billionaire businessmen and tiny charities alike and whose tentacles have stretched further and deeper than anyone imagined.

The fallout from the arrest of the Wall Street grandee Bernard Madoff was continuing to grow last night, as institution after institution detailed the extent of their possible losses, and the victims in the UK were headlined by HSBC and the Royal Bank of Scotland, which is majority-owned by the British Government.

A charity set up by the Hollywood director Steven Spielberg was among those revealed to be among the victims, along with a foundation set up by Mort Zuckerman, one of the richest media and property magnates in the United States, dozens of Jewish organisations, sports team owners and a New Jersey senator.

But the biggest confessions were coming from Wall Street, from the City of London and from the headquarters of European banks and from banks around the world. They have poured billions of dollars into Mr Madoff's too-good-to-be-true investment fund, which appeared to post double-digit annual returns come rain or shine.

RBS said that it could take a hit of £400m if American authorities find there is nothing left of the money Mr Madoff had pretended to be investing for many years. HSBC, Britain's largest bank, said a "small number" of its clients had exposure totalling $1bn in Mr Madoff's funds.

The Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley in the UK, could be on the hook for $3.1bn. Japan's Nomura said it has hundreds of millions of dollars at risk. City analysts said that even banks who invested only on behalf of clients could end up on the hook, because clients are almost certain to sue for bad advice.

Mr Madoff confessed last week that his business was "all one great big lie". The investment returns were fake, and he had been paying old clients with money from new ones. In its conception, the scam is a classic. In its size, it is breathtaking, eclipsing anything seen before. He personally estimated the losses at $50bn, according to the FBI, and as investors owned up to their exposure yesterday that did not seem impossible. For 48 years, until Thursday morning, Mr Madoff was one of Wall Street's best-respected investment managers, able to harvest money from a vast network of contacts and to trade on his name as a former chairman of the Nasdaq stock exchange.

His arrest has further shaken confidence in the barely regulated hedge fund industry, which is already suffering some of the worst times in its short history. Mr Madoff – who is now on a $10m bail and under orders not to leave the New York area – was able to operate his fraud under the noses of regulators for many years.

Mort Zuckerman, the owner of the New York Daily News and one of the 200 richest Americans, said that one of the managers of his charitable trust had been so taken by Mr Madoff that he invested $9bn with him, including all the money from Mr Zuckerman's trust. "These are astonishing numbers to be placed with one fund manager," he said. "I think we have another break in whatever level confidence needs to exist in money markets."

Nicola Horlick, the British fund manager known as Superwoman for juggling her high-flying City career with bringing up five children, turned her fire on US regulators. Her Bramdean Alternatives investment fund had put 9 per cent – about £10m – with Mr Madoff. She told BBC Radio: "This is the biggest financial scandal, probably in the history of the markets."

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