Former NASDAQ chairman charged with $50-billion securities fraud

12 December 2008

At a time Wall Street is facing a crisis of confidence unseen in the last five decades, it faced a further blow to its credibility with the arrest of legendary trader and former NASDAQ stock market chairman Bernard L Madoff yesterday on charges of securities fraud. Madoff, a one-time lifeguard who prospered in the trading trade for four decades, has been accused by federal agents of running a multibillion-dollar fraud scheme - perhaps the largest in Wall Street's history.

Regulators have not yet verified the scale of the fraud. But the criminal complaint filed against Madoff on Thursday in federal court in Manhattan reports that he estimated the losses at $50 billion. ''We are alleging a massive fraud - both in terms of scope and duration,'' said Linda Chatman Thomsen, director of the enforcement division at the Securities and Exchange Commission (SEC). ''We are moving quickly and decisively to stop the fraud and protect remaining assets for investors.''

Andrew M Calamari, an associate director for enforcement in the SEC's regional office in New York, said the case involved ''a stunning fraud that appears to be of epic proportions.'' The aforementioned complaint accused him of having "deceived investors by operating a securities business in which he traded and lost investor money, and then paid certain investors purported returns on investment with the principal received from other, different investors, which resulted in losses of approximately billions of dollars."

Shortly after leaving law school, Madoff founded his firm in 1960. It was one of five broker-dealers most closely involved in developing the NASDAQ Stock Market, where he served as a member of the board of governors in the 1980s and as chairman of the board of directors.

Madoff's firm is known as securities broker dealer, but he also runs a separate investment advisory business which had more than $17 billion in assets under management, federal authorities said, citing two unidentified employees and a SEC filing. Madoff counted several large hedge fund investment firms as clients, along with some European banks, so if his firm has lost more than $50 billion, the impact could be widespread.

The Madoff funds attracted investors with the promise of high returns and low fees. One of Madoff's more prominent funds, the Fairfield Sentry fund, reported having $7.3 billion in assets in October and claimed to have paid more than 11 per cent interest each year through its 15-year track record.