Madoff fraud losses may be below $50 billion
13 Dec 2008
In the latest development in the Bernard Madoff fraud investigation, some analysts have opined that the actual quantum of losses would turn out to be much less than the $50 billion being projected initially. They say that a more realistic figure is $20 billion. ( See: Former NASDAQ chairman charged with $50-billion securities fraud)
Madoff had about $17 billion under management, according to regulatory filings. But he estimated that investor losses were at least $50 billion, according to the Securities and Exchange Commission's (SEC) civil lawsuit.
That discrepancy has mystified people across Wall Street. Some of Madoff's fund clients borrowed money to boost their investments with him. But any borrowed money would have just shown up in Madoff's assets under management, according to people that finance hedge fund investments.
In the SEC's complaint, the $50 billion figure comes from comments that Madoff made to senior employees, who in turn spoke to the government. It is possible that somewhere along that chain, the information was distorted. Otherwise, it's hard to imagine Madoff's alleged misdeeds generating losses far beyond the assets he managed.
As an emergency measure, a federal judge froze Madoff's assets yesterday. A government request was granted to give "emergency relief" to investors by freezing Madoff's assets and appointing a receiver, said the SEC. The court appointed receiver would secure the assets, funds and location of Madoff's business to determine the scope of misconduct.
The investors, experts said, were attracted to Madoff's money spinning scheme by high rate of return. Madoff would have continued to get away with his cash flow scheme, but had apparently not reckoned with the global economic meltdown. The economic downturn made clients make a beeline for return of their investments, and the pressure for cash-back piled up forcing the collapse.
If convicted, Madoff, a former chairman of NASDAQ, could get up to 20 years in prison. He is currently out on a $10-million bail. A lawyer for Madoff said he is cooperating with authorities to minimise the losses.