Banks hit worldwide by US 'fraud'

[Trumplestiltskin 5,791]

Some of the world's biggest banks have revealed they are victims of an alleged fraud which has lost $50bn (£33bn).

Bernard Madoff has been charged with fraud in what is being described as one of the biggest-ever such cases.

Among the banks which have been hit are Britain's HSBC and RBS, Spain's Santander and France's BNP Paribas.

One of the City's best-known fund managers has criticised US financial regulators for failing to detect the alleged fraud.

Nicola Horlick, boss of Bramdean investments, told the BBC: "I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they have fallen down on the job."

"This is the biggest financial scandal, probably in the history of the markets - $50bn is a huge amount of money," she said.

Counting the cost

Banks and financial institutions across the world had investments with Bernard Madoff, but not all have yet confirmed what their potential losses might be.

Among the largest potential losers so far is Spain's largest bank, Santander, which also owns the UK High Street banks Abbey, Alliance & Leicester and Bradford & Bingley.

One of its funds had $3.1bn invested in the firm run by Bernard Madoff

Britain's HSBC said it had investments of about $1bn which could be affected.

Royal Bank of Scotland said it could potentially lose about £400m ($601m) if all its investments had to be written off.

The French bank, Natixis, a subsidiary of Caisse d'Epargne and Banque Populaire, said it could potentially lose up to 450m euros (£402m; $605m).

One of the world's biggest investment groups, Man, said it had invested about $360m through its RMF institutional fund of funds business, representing 0.5% of its total funds

'Systemic failure'

Meanwhile, some of the biggest private losers seem to have been members of the Palm Beach country club, where many of Mr Madoff's wealthy clients were recruited.

According to some reports, the list of prominent victims include a New Jersey Senator, the owners of the New York Mets and the charities run by film director Stephen Spielberg and Nobel Prize winning writer Elie Wiesel.

Mrs Horlick said 9% of Bramdean's own funds were invested with Mr Madoff, but that even if the money was written off, the fund involved would be down just 4%.

"I just want to make it clear to investors that even after this, they would have done extremely well, relative to anything else they could have invested in," she said.

In a statement, Bramdean said: "The allegations made appear to point to a systemic failure of the regulatory and securities markets regime in the US."

However, some argued that the fund managers should themselves have done more.

"City figures cannot call for light touch regulation yet at the same time complain that regulators missed risks that the industry failed to spot," said Simon Morris, a partner with City law firm CMS Cameron McKenna.

"It's the unequivocal job of the fund manager to check out the bona fides of whoever they chose to pass their customers' money onto," he said.

Antonio Borges, chairman of the Hedge Fund Standards Board, said the scandal highlighted the need for "robust governance practices and oversight via independent boards, which will challenge management procedures and behaviour".

Meanwhile one of the City's watchdogs, the Serious Fraud Office (SFO) called on whistleblowers to come forward with evidence of corporate wrongdoing in the wake of the credit crunch.

The Serious Fraud Office said it wanted workers, former staff and shareholders to step up with information over suspected fraud in the current financial turmoil.

Director Richard Alderman said: "Our objective is to ensure that we can bring offenders to justice as quickly as possible."

High returns promised

US prosecutors say Mr Madoff, a former head of the Nasdaq stock market, masterminded a fraud of massive proportions through his hedge fund and investment advisory business.

Mr Madoff is alleged to have used money from new investors to pay off existing investors in the fund.

A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts, while the 70-year-old banker has been released on $10m bail.

Mr Madoff founded Bernard L Madoff Investment Securities in 1960, but also ran a separate hedge fund business.

According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn under management - was a fraud and had been insolvent for years.

He said he was "finished", that he had "absolutely nothing" and "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

http://news.bbc.co.uk/2/hi/business/7783236.stm

[LorriQ 0]

"If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m."

Might as well slap him on the wrist. 70 years old and a continuing burden on the taxpayers........

[AlHayatZween 2]

Okay, well, here is the question in my small little mind:

IF the guy gets convicted of this alleged $50 billion scandal: How come he only gets fined $5 million?

$5 million is like a drop in the bucket to some of these people.

[Dr. Obvious 49]

So are we going to see more regulation?

[Hilarious Clinton 452]

This is similar to the biggest Ponzi scheme still in effect today ....... social security.

[zqt3344 21]

AHHAAHHAHHAHAHHAHAHHAHA Good one Lucky, tell it like it is! AHHAHAHA I thought the Brits were supposed to be so highly intelligent and smart worldly bankers of Europe, makes me wonder, now they are 0-fer this year in 2008 still. Look at all the stupid Brits that charged online to deposit their money in Icelandic banks, pure and simple greed overtook them all and now they want to whine around about losing all their savings in those banks, well hello, that is what you get when you play with fire. If you cannot stand the fire then get out of the kitchen. Pure greed, I do not feel sorry for those people, anyone with common sense or half a brain would realize it sounded all too good to be true and would have thought, ummmm I wonder what the downside risk is or what is the worst that could happen. Morons, complete morons. AHAAHHAAHAHHA

This is similar to the biggest Ponzi scheme still in effect today ....... social security.

Edited December 15, 2008 by zqt3344

[Dan J 277]

This is similar to the biggest Ponzi scheme still in effect today ....... social security.

Not really. Social security is not really an investment. You don't make a rate of return. You contribute money to current retirees with the expectation that you will be able to receive some of the contributions when you retire.

If everything works right, the system should be zero-sum.