Monday, December 15, 2008

Africa News Today - Wall Street 'fraud' victims continue to rise; From Times Online December 15, 2008

How he did it - allegedly | Biggest fraud in history? | Who is exposed? | SEC complaint against Madoff | What is a Ponzi scheme? | The rise and fall of Charles Ponzi | The 10 biggest swindles - ever

The list of institutions and individuals set to lose billions of pounds after investing in a fund run by Bernard Madoff, the Wall Street broker and former Nasdaq chairman, is growing by the hour.

Royal Bank of Scotland (RBS), the bank majority-owned by the Government, today admitted that it had an exposure of £400 million to the $50 billion alleged fraud.

It joins Man Group, the world's largest listed hedge fund manager, HSBC and Santander, the Spanish group that owns Britain's Abbey, Alliance & Leicester and Bradford & Bingley, which are exposed to Mr Madoff's business.

So far, Santander has emerged as one of the hardest hit after admitting it is sitting on an exposure worth more than €2.33 billion (£2.08 billion) through Optimal, one of its funds.

EIM, the hedge fund group which is run by Arpad Busson, the multimillionaire who is engaged to Uma Thurman, the actress, said that it is exposed to products sold by Mr Madoff for about $220 million.

Bill Glass, partner and head of business development at EIM, founded in 1992 by Mr Busson, confirmed the exposure to Mr Madoff's funds. EIM sells funds of hedge funds and manages around $11 billion.

Mr Busson set up Absolute Return for Kids, a charitable foundation for underprivileged children, which last year raised £27 million, mainly from the hedge fund industry.

RBS's potential £400 million loss is a new blow to the beleaguered bank, which is 58 per cent owned by the Government after it accepted £20 billion from the taxpayer as part of the recent £37 billion bailout of British banks.

Mr Madoff was arrested last week after apparently admitting to setting up a $50 billion "Ponzi" scheme to defraud investors.

Mr Madoff is believed to have told employees that he was "finished", that he had "absolutely nothing", and that "it's all just one big lie". There is a 24-hour guard outside Mr Madoff's office in midtown Manhattan.

A Ponzi scheme, otherwise known as a pyramid structure, is where older-established investors are given an abnormally high return using money paid in by new clients instead of using net revenues for payments.

Man Group, the world's biggest listed hedge fund manager, also confirmed this morning that its RMF division has about $360 million (£240 million) invested in two funds that are "directly or indirectly sub-advised by Madoff Securities and for which Madoff Securities acts as broker-dealer executing the investment strategy."

RMF is an adviser to Bramdean Asset Management, the fund run by Nicola Horlick, who admitted last week to an exposure of about $25 million through her firm's listed Bramdean Alternatives portfolio.

Since Mr Madoff's arrest, the list of casualties has continued to grow, with a number of charities exposed to the alleged scam.

Film director Steven Spielberg 's charity, the Wunderkinder Foundation, had 70 per cent of its interest and dividend income in the Madoff firm in 2006.

A spokesman for Mr Spielberg confirmed that the foundation has suffered losses on its investments with Madoff, but could not say how large these losses were.

The Elie Wiesel Foundation for Humanity, founded by the famed Holocaust survivor and writer, is also understood to have invested with the company.

The Robert I. Lappin Charitable Foundation, an American charity that supports Jewish programmes, invested its entire $8 million endowment with Mr Madoff. The head of the charity has said she does not expect it to survive.

Other casualties include Nomura, the Japanese bank which bought some of Lehman Brothers' European operations earlier this year, which said its exposure to investments with Mr Madoff totalled 27.5 billion yen (£202 million). A spokesman described the firm's potential losses as "limited".

BNP Paribas said last night that it had an exposure of €350 million. Reichmuth, a private Swiss bank, said that it was facing a $325 million loss and it was reported that Benbassat & Cie, another Swiss private bank, had exposure of $935 million.

Although regulatory filings show that Mr Madoff had only about 25 clients, the number who could lose money through funds that invested in Bernard L. Madoff Investment Securities could run into thousands.

Fairfield Greenwich Group, the hedge fund, said that it had $7.5 billion in investments linked to Madoff. Banque Benedict Hentsch Fairfield Partners, a private Swiss bank, has $47.5 million of clients' money at risk.

Vincent Tchenguiz, the property magnate, who is one of Britain's richest men, is understood to have invested £40 million with Bramdean.

Other wealthy individuals affected include Norman Braman, former owner of the Philadelphia Eagles American football team, Fred Wilpon, owner of the New York Mets baseball team, and J. Ezra Merkin, the chairman of GMAC Financial Services.

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