December 15 2008
By Kelly Macnamara
Banks lined up today to reveal billions in potential losses as a result of alleged fraud by Wall Street investment manager Bernard Madoff.
The Royal Bank of Scotland – 58 per cent owned by the taxpayer – said £400 million was at risk in the hedge funds invested with 70-year-old Madoff, who was arrested last week after police said he admitted a £33 billion scheme to defraud investors.
Spanish bank Santander, which owns Abbey and the savings business of Bradford & Bingley, said its potential exposure was more than £2 billion, while HSBC could reportedly lose up to £668 million.
Nicola Horlick, who manages Bramdean Alternatives, which had 9 per cent of its funds invested with Madoff’s scheme, said the case raised serious questions about the regulatory system in the US.
She said it had been given a “clean bill of health” by the Securities and Exchange Commission.
“I think now it is very difficult for people to invest in things that are meant to be regulated in America because they have fallen down on the job,” she told the BBC Radio 4 Today programme.
“All through the credit crunch this has been apparent. This is the biggest financial scandal, probably, in the history of the markets.”
She said that, even if Bramdean Alternatives was forced to write off its entire investment in Madoff’s scheme, it would still only be down 4 per cent on the year while the stock market had fallen 35 per cent.
According to court documents, Madoff – a former chairman of New York’s Nasdaq stock exchange – told his employees that his operations were “all just one big lie” and “basically, a giant Ponzi scheme”.
A Ponzi scheme is a fraudulent investment vehicle which pays very high returns to existing investors paid for by money put into the scheme by newcomers.
Madoff’s arrest will raise questions about the effectiveness of regulatory authorities, which failed to notice the scam.
Hedge fund giant Man Group, said: “Based on information available to date, it appears that a systematic and comprehensive fraud may have been committed, evading a range of structural controls.”
The company, which said it had approximately 360 million US dollars (£239 million) of exposure, added that Madoff Securities was registered with the Securities and Exchange Commission (SEC), which monitors investment funds.
Madoff Securities was also a member of five self-regulatory organisations, including US independent securities regulator Finra and the Nasdaq.
The FBI said members of Madoff’s own family turned him in after he confessed his fraud to them.
A criminal complaint filed with a court in Manhattan said he told senior employees of his firm before his arrest that he had blown more than £33 billion with fraudulent financial moves.
The list of victims of the alleged fraud ranges from giant financial institutions to tiny local foundations.
Museums, hospitals, a Jewish youth charity in Boston and pensioners are all thought to be among the alleged victims.
Harvey Pitt, a former chairman of the SEC, said the fact that foundations and charities could lose out is the “real tragedy”.
“There were a lot of very sophisticated people who were duped, and that happens a great deal when you’ve had somebody decide to be unscrupulous,” he said.
Reports from Florida to Minnesota in the US included ordinary investors who gave Madoff their money. Some had been friends with him for decades, others were able to invest because they were a friend of a friend.
They told stories of losing everything from £26,500 to an entire nest egg worth well over £670,000.
Other financial institutions with potential exposure include Nomura, Japan’s largest securities company, which has £204 million invested with Madoff.
Switzerland’s Reichmuth & Co said the private bank had £218 million of exposure. It told investors that they “sincerely regret” being affected.
French bank BNP Paribas estimated its exposure Madoff’s fund could lead to £311 million in losses.
HSBC’s exposure could reach 1 billion US dollars (£668 million), according to the Financial Times.
The banking giant’s exposure is understood to have come from loans it made to clients, who invested around £500 million of their own funds in Madoff’s venture.
Under the typical terms of these deals, it is thought HSBC would be reimbursed before its clients if the US authorities recover any funds.
Madoff is on £6.6 million bail.
The assets of Bernard L Madoff Investment Securities were frozen last Friday in a deal with US government regulators and a receiver was appointed to manage the firm’s financial affairs.
Victims of record $91bn fraud speak out
From a Jewish youth charity in Boston to major banks as far afield as Zurich, the list of investors who say they were duped in one of Wall Street’s biggest Ponzi schemes are streaming forward.
Around the world, investors who sunk cash into veteran Wall Street money manager Bernard Madoff’s investment pool spent the weekend calculating how much exposure they might have. The 70-year-old Madoff, well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested Thursday in what prosecutors say was a $50 billion scheme to defraud investors.
One thing was clear in the fallout from his arrest: The alleged victims span from the super rich, to pensioners and powerful financial institutions, to local charities. Some investors claim they’ve been wiped out, while others are still likely to come forward.
“There were a lot of very sophisticated people who were duped, and that happens a great deal when you’ve had somebody decide to be unscrupulous,” said Harvey Pitt, a former chairman of the Securities and Exchange Commission, a regulator in charge of monitoring investment funds like the one Madoff operated.
“It isn’t just the big investors,” he said. “There’s a lot of charitable and foundation money involved in this, which is the real tragedy.”
Charities across the country are expected to be directly affected by the collapse of Madoff’s investment fund. The assets of Bernard L. Madoff Investment Securities LLC were frozen Friday in a deal with federal regulators and a receiver was appointed to manage the firm’s financial affairs.
One of the largest financial scams to hit Wall Street has investors wondering if they’ll ever get their money back.
In Boston, the Robert I. Lappin Charitable Foundation, a charity that financed trips for Jewish youth to Israel, said on its website Sunday that the money for its operations was invested with Madoff.
“The money needed to fund the programs of the Lappin Foundation is gone,” it said. “The foundation staff has been terminated today.”
New Jersey Sen. Frank Lautenberg, one of the wealthiest members of the Senate, entrusted his family’s charitable foundation to Madoff. Lautenberg’s attorney, Michael Griffinger, said they weren’t yet sure the extent of the foundation’s losses, but that the bulk of its investments had been handled by Madoff.
Lautenberg’s foundation handed out more than $765,000 to at least 100 recipients in 2006, according to the most recent listing on Guidestar, which tracks charitable organization filings.
The foundation helps support a variety of religious, educational, civic and arts organizations in New Jersey and elsewhere, and its contributions range from a gift of than $300,000 to the United Jewish Communities of MetroWest New Jersey to a $2,000 donation to a children’s program at the Hackensack Medical Center.
Reports from Florida to Minnesota included profiles of ordinary investors who gave Madoff their money. Some had been friends with him for decades, others were able to invest because they were a friend of a friend. They told stories of losing everything from $40,000 to an entire nest egg worth well over $1 million.
They join a list of more powerful investors that have come forward, all worried about the extent of their losses. The roster of names include Philadelphia Eagles owner Norman Braman, New York Mets owner Fred Wilpon and J. Ezra Merkin, the chairman of GMAC Financial Services, among others.
Beyond US hedge funds, more corporate names disclosed exposure to Madoff. Late Sunday, some of Europe’s biggest banks acknowledged they, too, were exposed to Madoff’s investment fund.
Switzerland’s Reichmuth & Co. said the private bank has $327 million at risk. It told investors that they “sincerely regret” being affected.
Other banks such as Spain’s Grupo Santander SA, Europe’s second-largest banking consortium, and France’s BNP Paribas are also left with billions of dollars in exposure, according to media reports. Both banks could not immediately be reached for comment.
Cameron calls for probe into financial crisis
By Daniel Bentley
December 15 2008
David Cameron called today for a thorough investigation into the causes of the financial crisis, insisting that City executives should be prosecuted for any criminal wrongdoing.
Pledging a “day of reckoning” for those behind the turmoil, the Tory leader said rooting out the culprits was essential to restore confidence in the financial services sector.
He also accused Gordon Brown of a “failure of moral leadership” for not urging the authorities to probe scandals in the City.
In a speech at Thomson Reuters in Canary Wharf, home of thousands of City workers, Mr Cameron said the rich and well-connected should not be protected from the law.
While claiming the Government was most to blame for the financial crisis, he said Labour’s “economic policy mistakes” were compounded by “irresponsible” behaviour in the City.
He went on: “Doctors who behave irresponsibly get struck off. Bankers who behave irresponsibly should face professional consequences.
“And, for sure, if anyone is found to have behaved criminally they must be prosecuted.
“Of course, this requires clear evidence of wrongdoing. But that doesn’t mean we should sit on our hands and say it’s all a failure of regulation.”
The Conservative leader said there was evidence of mortgage fraud, “possible” insider trading and other misconduct investigated but not prosecuted by the Financial Services Authority.
“To send out the right message about our country’s values to help stop this crisis from happening again and to help restore the City of London’s reputation I believe it is now vital that investigations are vigorously pursued to their appropriate conclusion,” he went on.
“And the fact that the Prime Minister has not been urging our authorities to pursue financial wrongdoing, like in America, is in my view a failure of moral leadership.”
Mr Cameron said there was a lack of will in Britain to see justice done “at the highest level”, either from the Government or the FSA.
“The FSA and the Serious Fraud Office should be following up every lead, investigating every suspect transaction,” he said.
“And the Government should be urging them on, because we need to make it 100% clear – those who break the law should face prosecution.”
In the US, large financial institutions were being investigated by the FBI and the Securities and Exchange Commission, the Tory leader said.
“We all know there was poor decision-making and some reckless activity in the City of London,” he added.
“But we do not know if there was wrongdoing and the nature of any wrongdoing, because we haven’t examined the issue thoroughly in the way the Americans are doing.”
He called for a bigger levy on the City to pay for the “best possible staff” for the FSA, which in turn had to force firms to hold more capital to offset high risks.
Mr Cameron added that the City would not recover from the financial crisis unless it regained confidence, and that meant holding those responsible to account.
“In the good times, some people working in the financial services industry paid themselves vast financial rewards – salaries and bonuses beyond the comprehension of most of us,” he said.
“Now, when it’s all gone wrong, they have been bailed out by the taxpayer.
“Nurses and cleaners and teachers and many millions of others, working in every part of our economy, they will foot this multibillion-pound bill.
“Well, on behalf of the taxpayer, on behalf of the nurse on £20,000 a year, on behalf of the cleaner on the minimum wage, on behalf of working families worrying this Christmas like never before about what next year will bring, I say it is fair and reasonable that those responsible are held to account for their behaviour and that we show clearly that, in this country, there is not one rule for the rich and a different rule for everybody else.”
He said that more than a million people who work in the financial services industry had had their names blackened by the crisis.
“It’s in their interests too that we make sure we root out any wrongdoing that may have happened, whoever is involved, however high or well-connected they may be,” Mr Cameron added.
An investigation what an after thought.
That would have been my first thought.