Madoff scam sends shockwaves in finance sector
New York, December 16, 2008
Shock waves from Bernard Madoff's alleged fraud spread globally, as charities, wealthy individuals and banks disclosed losses from the prominent Wall Street trader's investment management business.
Britain's HSBC Holdings was the latest bank to join the growing list, saying it had exposure of around $1 billion, making it one of the biggest victims of the alleged $50 billion fraud.
Royal Bank of Scotland Group and Man Group in the United Kingdom, Japan's Nomura Holdings and France's Natixis SA also said they were hit by the worldwide scandal.
In the United States, no major banks have said they were exposed. But Sterling Equities, which owns the New York Mets professional baseball team, acknowledged it had accounts managed by Madoff - one of hundreds of private investors, pension funds and charities believed to have been bilked by companies tied to his investment advisory business, part of Bernard L. Madoff Investment Securities.
The Securities Investor Protection Corp (SIPC), a nonprofit organization funded by the brokerage industry that provides limited insurance on investors' accounts, named a trustee to oversee the firm's liquidation.
The trustee, Irving Picard, said in a statement he would 'work with SIPC to do what the law allows to ameliorate the losses to customers.' SIPC steps in to help investors at brokerage firms, but does not cover individuals who are sold worthless securities or help them recoup losses on investments.
In a sign that suspicions are growing that others may have been culpable in the alleged fraud, the auditing firm that Madoff used, Friehling & Horowitz, is now the focus of a criminal probe by the district attorney in Rockland County, New York.
'We are in the very early stages of our investigation,' District Attorney Thomas Zugibe said. 'Our focus is on whether the independent auditor reports that were prepared by Friehling were fraudulent.'
A message left on the auditor's voice mail was not immediately returned.
Among big losers from Madoff's alleged Ponzi scheme were the state of Massachusetts, which said it lost $12 million. Multiple charities also reported big losses, including about $30 million in a charitable trust funded by real estate mogul Mortimer Zuckerman, who also owns the NY Daily News tabloid.
'I'm going to be a lot more risk-adverse,' after the Madoff losses, Zuckerman, told CNBC Television, adding that he was mulling his legal options.
Madoff's lawyer, Ira Sorkin, declined comment on the case on Monday. The 70-year old trader's two sons, who worked at the firm, said Monday through their lawyer they had no knowledge of the alleged fraud.
US prosecutors and regulators have accused Madoff, a former chairman of the Nasdaq Stock Market, of running the fraud through his investment advisory business.
The Wall Street Journal reported on Monday that a charity established by Oscar-winning film director Steven Spielberg, the Wunderkind Foundation, appears to have invested a significant portion of its assets with Madoff.
A Spielberg spokesman, Marvin Levy, confirmed that the foundation 'did have an investment with (Madoff)' and that it suffered some losses, but declined to elaborate.
Other charities were also hurt. The Chais Family Foundation, which gives away about $12.5 million a year to Jewish causes, said it will close down. Its entire fund was invested with Madoff.
The Jewish Federation of Greater Los Angeles said its United Jewish Fund Endowment Fund may have lost $6.4 million, or about 11 percent of its assets as of December.
Financial companies, reeling after a year of enormous writedowns on bad credit assets, have so far tallied up more than $10 billion in direct and indirect exposure to the alleged fraud by Madoff, who was arrested on Thu