Business | Investment
Madoff ran parallel money-management office
Scam has snared more than 25 companies around the world including some of the biggest in financial services.
- Bloomberg
- Published: 00:09 December 16, 2008
New York: Federal investigators working through the weekend to unravel Bernard Madoff's alleged $50 billion (Dh183 billion) Ponzi scheme found evidence he ran an unregistered money-management business alongside his firm's brokerage and investment-advisory subsidiaries, two people with knowledge of the inquiry said.
Clients of the undisclosed unit may have included hedge funds, according to the people, who declined to be identified or to name the funds because the probe isn't public.
Investigators from the US Securities and Exchange Commission are looking for signs that others participated in the alleged fraud and are examining why Madoff's wife's name appeared on documents linked to transactions under scrutiny, the people said. His wife, Ruth Madoff, has not been accused of any wrongdoing.
Ira 'Ike' Sorkin, a lawyer at Dickstein Shapiro LLP in New York representing Madoff, didn't reply to a phone call and e-mail seeking comment. Sorkin said on December 13 that the situation was 'a tragedy.'
Client money
More than a dozen inspectors have been working around the clock examining records at Bernard L. Madoff Investment Securities LLC in New York after his sons told authorities on December 10 he'd confessed to orchestrating a Ponzi scheme with more than $50 billion in losses, the biggest in history. People with knowledge of the probe who initially said they suspected the loss estimate was too high now say it may be roughly accurate.
The $50 billion figure may reflect the amounts of money clients were told they had in their accounts at the firm, not the amounts they originally invested, two of the people said. Customers who believed they had amassed investment gains over time may have been misled, the people said.
Clients facing losses range from New York Mets owner Fred Wilpon's Sterling Equities Inc to hedge funds such as Fairfield Sentry Ltd. The alleged scam has ensnared more than 25 companies around the world, including some of the biggest financial-services firms such as BNP Paribas SA in Paris and Nomura Holdings Inc in Tokyo, which have said they may lose money because of trading or lending tied to Madoff's firm.
In all, companies, individuals and foundations have lost about $24 billion of investments with Madoff, according to data compiled Bloomberg and media reports.
Investigators are still trying to figure out where customers' money went. Madoff, 70, told his sons last week he had as much as $300 million left, according to a lawsuit filed in federal court in Manhattan.
The agency is looking for additional money that may be recovered for victims, two people said. In a regulatory filing in January, Madoff's firm listed $17 billion in assets under management.
Details of the side-business that the agency is scrutinising - including how much client money it held, who besides Madoff may have been involved in it, and how it was kept separate from the firm's registered investment-advisory unit - couldn't be determined.
Madoff kept his firm's financial statements under lock and key and was 'cryptic' about its investment-advisory activities when discussing them with other employees, the agency said in its complaint.
The entire advisory business was a mystery to most staff members, said two firm employees who declined to be identified, citing concern about being drawn into the probe. Madoff's offices on Third Avenue in midtown Manhattan extended over several floors, with market-making and proprietary trading units on the 19th floor, and back-office functions on the 18th floor, the employees said. Madoff's advisory business was housed on the 17th floor.
Advisory unit
While traffic flowed between the 18th and 19th floors, the 17th floor wasn't linked to the other floors and there was virtually no interaction between the groups, according to the employees.
Madoff's sons, who ran the market-making and proprietary units, told employees that their father kept them in the dark about the advisory unit, the employees said.
While Madoff seldom appeared on the 18th and 19th floors during the workday, he was known to inspect during the evening for sloppy desks or window shades that weren't fully drawn, one of the employees said.
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