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European banks suffer new hit
From correspondents in Madrid
Agence France-Presse
December 15, 2008 05:56am
BANKS and financial authorities across Europe are scrambling to uncover the scope of losses suffered at the hands of New York investment broker Bernard Madoff.
Mr Madoff is alleged to have lost $US50 billion ($74.44 billion) in a giant pyramid scheme that collapsed in the global financial crisis and top European banks are reported to be clients.
Italy's stock market watchdog, the Consob, has launched an investigation into the impact of the scandal on the national financial system, Ansa news agency reported.
A spokeswoman for Royal Bank of Scotland said that the bank had "some exposure" to Mr Madoff's company, but declined to give details.
A British investment fund that also acknowledged being a Madoff client criticised what it called the "systemic failure" of US regulators.
Bramdean Alternatives Limited said the accusations against Mr Madoff raised "fundamental questions" about the American financial regulatory system.
"It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith," the firm said.
Bramdean Alternatives invested around £21 million ($46.85 million), or around 9.5 per cent of its portfolio, with Mr Madoff's company.
British newspapers reported that among Bramdean's clients is property magnate Vincent Tchenguiz, one of Britain's richest men, who apparently invested £40 million ($89.25 million) with the firm.
European media have said Banco Santander of Spain, BNPParibas of France, HSBC of Britain and Union Bancaire Privee of Switzerland could all have suffered. None has admitted or denied losing money.
Swiss bankers face losses of up to $US5 billion ($7.44 billion), Geneva's Le Temps newspaper said.
It said Union Bancaire Privee, a major asset management institution specialising in hedge funds, could be exposed to the tune of $US1 billion ($1.49 billion).
UBP refused to comment on the report, which said that 90 per cent of fund management companies operating in Geneva invested in products of Bernard L Madoff Investment Securities LLC.
The Bank of Spain also opened an investigation to determine the level of involvement of Spanish companies, the Spanish El Mundo said.
The only official statement has come from Spain's second largest bank, BBVA, which said it had not commercialised "any Madoff product".
Spanish newspapers reported that Optimal, an investment firm of Banco Santander, was heavily exposed and that investors risked losing some $US3 billion ($4.47 billion). Santander, Europe's second largest bank, has made no comment.
Spanish authorities are taking the scandal very seriously and the central bank began an investigation on the impact on Saturday, El Mundo said.
If the figures are confirmed, the fraud could have a bigger impact in Spain than the collapse of US bank Lehman Brothers this year, in which Spanish investors had exposure of between €1.3 billion ($2.58 billion) and €2.6 billion ($5.16 billion).
Europe's largest bank, HSBC, meanwhile, declined to confirm any relationship with the alleged fraudster. BNP Paribas also refused to comment on reports that it had invested with Mr Madoff.
Mr Madoff was arrested on Friday for allegedly defrauding his customers through a giant pyramid scheme, with prosecutors alleging that the 70-year-old, a Wall Street veteran, confessed to losing at least $US50 billion ($74.44 billion).
http://www.news.com.au/business/story/0,27753,24800663-31037,00.html
From correspondents in Madrid
Agence France-Presse
December 15, 2008 05:56am
BANKS and financial authorities across Europe are scrambling to uncover the scope of losses suffered at the hands of New York investment broker Bernard Madoff.
Mr Madoff is alleged to have lost $US50 billion ($74.44 billion) in a giant pyramid scheme that collapsed in the global financial crisis and top European banks are reported to be clients.
Italy's stock market watchdog, the Consob, has launched an investigation into the impact of the scandal on the national financial system, Ansa news agency reported.
A spokeswoman for Royal Bank of Scotland said that the bank had "some exposure" to Mr Madoff's company, but declined to give details.
A British investment fund that also acknowledged being a Madoff client criticised what it called the "systemic failure" of US regulators.
Bramdean Alternatives Limited said the accusations against Mr Madoff raised "fundamental questions" about the American financial regulatory system.
"It is astonishing that this apparent fraud seems to have been continuing for so long, possibly for decades, while investors have continued to invest more money into the Madoff funds in good faith," the firm said.
Bramdean Alternatives invested around £21 million ($46.85 million), or around 9.5 per cent of its portfolio, with Mr Madoff's company.
British newspapers reported that among Bramdean's clients is property magnate Vincent Tchenguiz, one of Britain's richest men, who apparently invested £40 million ($89.25 million) with the firm.
European media have said Banco Santander of Spain, BNPParibas of France, HSBC of Britain and Union Bancaire Privee of Switzerland could all have suffered. None has admitted or denied losing money.
Swiss bankers face losses of up to $US5 billion ($7.44 billion), Geneva's Le Temps newspaper said.
It said Union Bancaire Privee, a major asset management institution specialising in hedge funds, could be exposed to the tune of $US1 billion ($1.49 billion).
UBP refused to comment on the report, which said that 90 per cent of fund management companies operating in Geneva invested in products of Bernard L Madoff Investment Securities LLC.
The Bank of Spain also opened an investigation to determine the level of involvement of Spanish companies, the Spanish El Mundo said.
The only official statement has come from Spain's second largest bank, BBVA, which said it had not commercialised "any Madoff product".
Spanish newspapers reported that Optimal, an investment firm of Banco Santander, was heavily exposed and that investors risked losing some $US3 billion ($4.47 billion). Santander, Europe's second largest bank, has made no comment.
Spanish authorities are taking the scandal very seriously and the central bank began an investigation on the impact on Saturday, El Mundo said.
If the figures are confirmed, the fraud could have a bigger impact in Spain than the collapse of US bank Lehman Brothers this year, in which Spanish investors had exposure of between €1.3 billion ($2.58 billion) and €2.6 billion ($5.16 billion).
Europe's largest bank, HSBC, meanwhile, declined to confirm any relationship with the alleged fraudster. BNP Paribas also refused to comment on reports that it had invested with Mr Madoff.
Mr Madoff was arrested on Friday for allegedly defrauding his customers through a giant pyramid scheme, with prosecutors alleging that the 70-year-old, a Wall Street veteran, confessed to losing at least $US50 billion ($74.44 billion).
http://www.news.com.au/business/story/0,27753,24800663-31037,00.html
i say get a firing squad or hang the guy on wall st. and leave him there for a few days
http://www.smh.com....5/1229189477619.html
Federal agents arrested Madoff at his apartment on Thursday after prosecutors said he told senior employees that his money management operations were "all just one big lie" and "basically, a giant Ponzi scheme."
A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight.
Prosecutors also accused Madoff of wanting to distribute as much as $US300 million to employees, family members and friends before turning himself in.
Charged with one count of securities fraud, he faces up to 20 years in prison and a $US5 million fine. The U.S. Securities and Exchange Commission filed separate civil charges.
Madoff's lawyer, Dan Horwitz, said on Thursday: "We will fight to get through this unfortunate set of events." His client was released on $US10 million bond.
Madoff is a member of Nasdaq OMX Group Inc's nominating committee. His firm has said it is a market-maker for about 350 Nasdaq stocks.
Fees, Even Returns and Auditor All Raised Flags
Bernard L. Madoff is alleged to have pulled off one of the biggest frauds in Wall Street history. But there were multiple red flags along the way, including a series of accusations leveled against Mr. Madoff's operation. Now some are asking why regulators and investors didn't pick up on the alleged scheme long ago.
"There's no smoking gun, but if you added it all up you wonder why people either did not get it or chose to ignore the red flags," says Jim Vos, who runs Aksia LLC, a firm that advises investors and came away worried after examining Mr. Madoff's operation.
On Thursday, Mr. Madoff was arrested for what federal agents described as a massive Ponzi scheme, which could leave investors with billions in losses. A spokesman for Mr. Madoff said: "Bernie Madoff is a longstanding leader in the financial services industry and we are cooperating fully with the government and regulators investigations into this unfortunate set of events."
The first tip-off for some was the steady returns generated by the firm in every kind of market. Mr. Madoff would buy a basket of stocks resembling an S&P index while simultaneously selling options that pay off for the buyer if these stocks soar, while also buying options that pay off if the index tumbles. The supposed goal was to have smooth, steady returns.
Harry Markopolos, who years ago worked for a rival firm, researched Mr. Madoff's stock-options strategy and was convinced the results likely weren't real.
"Madoff Securities is the world's largest Ponzi Scheme," Mr. Markopolos, wrote in a letter to the U.S. Securities and Exchange Commission in 1999.
Mr. Markopolos pursued his accusations over the past nine years, dealing with both the New York and Boston bureaus of the SEC, according to documents he sent to the SEC reviewed by The Wall Street Journal.
In a statement late Friday, the SEC said "staff from the Division of Enforcement in New York completed an investigation in 2007, and did not refer the matter to the Commission for enforcement action." The SEC said it reopened the investigation Thursday. It's not clear what the focus of the 2007 investigation was, or why it was closed. A person familiar with the matter said it related to issues raised by Mr. Markopolos.
Also striking some as odd: Mr. Madoff operated as a broker dealer with an asset management division. Why not simply act as a hedge fund and pocket big gains, rather than profit from trading commissions as the firm seemed to be doing, they asked.
Joe Aaron, for long a hedge fund professional, found that structure suspicious and in 2003 warned a colleague to steer clear of the fund. "Why would a good businessman work his magic for pennies on the dollar?"
Conflicts of interest also proved a concern. "There was no independent custodian involved who could prove the existence of assets," says Chris Addy, founder of Montreal-based Castle Hall Alternatives, which vets hedge funds for clients seeking to invest money. "There's a clear and blatant conflict of interest with a manager using a related-party broker-dealer. Madoff is enormously unusual in that this is not a structure I've seen."
Some trading pros said Mr. Madoff's purported strategy couldn't be pulled off profitably while managing tens of billions of dollars.
"It seemed implausible that the S&P 100 options market that Madoff purported to trade could handle the size of the combined feeder funds' assets which we estimated to be $13 billion," Mr. Vos says.
Recent securities filings showed that the firm held less than $1 billion of shares, raising questions about where the rest of the money was. Some of Mr. Madoff's investors say they were told the firm put the bulk of its money in cash-equivalents at the end of each quarter, explaining why the public filings showed so few shares, but raising questions about where the proof was for all the cash.
Until at least November, 2006, the firm, which claimed to manage billions of dollars and be among the largest market makers in the stock market, used as its auditor Friehling & Horowitz, a small New City, New York firm.
Mr. Vos says his firm hired a private investigator and determined that the accounting firm had only three employees, one of whom was 78 and lived in Florida, and another was a secretary, and that it operated in a 13 foot by 18 foot office. His firm felt that was too small an operation to keep an eye on such a large firm operating a complicated trading strategy. A message left for the accounting firm was not returned.
Meanwhile, a series of media stories also raised questions about Madoff's operations, including a piece entitled "Madoff Tops Charts; Skeptics Ask How" in industry publication MAR/Hedge in May, 2001, and a subsequent story in Barron's. Mr. Madoff generally brushed off reporters' questions, citing the audited results and arguing that his business was too complicated for outsiders to understand.
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The funds this guy placed with Madoff were not under an advisory contract, and therefore not reported to the SEC. Not sure, but I would guess he wasn't the only one who did so.
It seems this guy thought Madoff was doing something like market impact trades with index options or mutual funds or something that involved using insider info about trades he was making to produce all these profits. Whatever he thought Madoff was doing, he knew Madoff was doing something shady.
Sounds like this guy wanted to coattail on Madoffs unethical or illegal trades - but in the end he got scammed himself.
It's too bad for the little investors that got taken in by this guy, but in this case the guy was willingly involved in something he knew was unethical or even illegal.
And the high profile names that are coming forward admitting they were clients - They had the resources to check out what this guy was doing and how he produced the 100% positive returns year after year.
The only good reason why big investors would throw their personal wealth into this guys fund without doing due diligence is because they knew the returns were unsustainable and were generated using bookeeping tools or insider trading.
How many would turn down the chance to get a piece of the action if the action had no downside after several years ?
Greed is a bitch .....
The mission of these hedge funds is to accumulate FEE's, just like a broker. He's in it for HIM, not you.
Funny how last week this Madoff turkey tried to syphon off 300mill for himself and mates before the cops knocked on his door.
In bull markets everything is hunkydory and no one notices or cares, when the bears roar all the shit comes to the surface and heads roll.
Questions have been raised in two earlier cases about the SEC's handling of investigations involving influential figures on Wall Street or powerful investment firms.
The agency's inspector general, in a report issued this fall, said there were "serious questions" about the impartiality and fairness of the SEC's insider-trading investigation in 2004 and 2005 of hedge fund Pequot Capital Management. A former SEC attorney who worked on the probe and was fired by the agency told Congress he was blocked by agency superiors when he tried to question John Mack , now chairman of the Morgan Stanley investment house.
There's still more shit behind the SEC.
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