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Probe Into Madoff's Scam Widens

POSTED: 12:56 PM ET, 12/17/2008 by Derek Kravitz

As more details surface about the alleged $50 billion Ponzi scheme run by noted New York financier Bernard L. Madoff, the man behind the scam is talking with federal prosecutors about how he swindled thousands of investors for so long.

The New York Times reports that Madoff is the one who put a dollar figure on the fraud -- to the tune of $50 billion -- as he talked yesterday with federal prosecutors in New York.

The Times also noted that one of Madoff's primary go-betweens, Walter M. Noel and his family-run Fairfield Greenwich investment group, might be the biggest loser in the Madoff scandal, with an estimated $7.5 billion gone.

The list of Madoff's investors continues to grow. Among those publicly named: director Steven Spielberg; Jeffrey Katzenberg, chief executive of DreamWorks Animation SKG; screenwriter Eric Roth (who called himself "the biggest sucker who ever walked the face of the Earth"); Sen. Frank Lautenberg (D-N.J.); New York Mets owner Fred Wilpon; clothier Carl Shapiro; real-estate developer Mortimer Zuckerman; the Jewish Federation of Greater Los Angeles; Massachusetts Mutual Life Insurance of Springfield; the European bank HSBC; and Yeshiva University (several politicians, including Sen. Chuck Schumer (D-N.Y.), are also giving back campaign contributions from Madoff).

But as interesting as who's on the list is who is noticeably absent. James Hedges IV of LJH Global Investments, told Forbes that it's no surprise big institutions, such as Duke, Harvard, the state of Texas or the Virginia Retirement system, didn't invest with Madoff.

Letting Madoff manage your money "wouldn't pass an institutional-quality due diligence process," he said. "Because when you get to page two of your 30-page due diligence questionnaire, you've already tripped eight alarms and said 'I'm out of here.'"

Meanwhile, the Securities and Exchange Commission is under fire for ignoring tips about Madoff's dealings that might have led regulators to the alleged Ponzi scheme earlier.

Federal regulators improperly discounted allegations, failed to relay concerns to supervisors and relied on documents provided by Madoff instead of using subpoenas or other methods to obtain information.

SEC Chairman Christopher Cox called the oversights "deeply troubling" and ordered an internal investigation, also probing Madoff's ties to the SEC; his niece last year married a former SEC attorney.

A judge is allowing Madoff (who apparently enjoyed a luxurious lifestyle in Palm Beach, Fla., according to Bloomberg) to stay out of jail on $10 million bail with electronic monitoring and home detention.

By Derek Kravitz |  December 17, 2008; 12:56 PM ET
Previous: The First Ponzi Scheme | Next: Madoff Misled SEC, Blago Won't Go Quietly, Iraqi Security Officials Detained


Please email us to report offensive comments.

Maddox needs to be made an example of. Just how many widows and orphans did this guy steal from?

Posted by: yard80197 | December 17, 2008 2:23 PM

Posted by: joeversusvolcano | December 17, 2008 2:53 PM

Can people who lost money with Madoff sue Noel for damages?

Posted by: madoffwithit | December 17, 2008 3:14 PM

What amazes me that all fraudsters from Ian Boskey and Michael Milliken of 80s to Madoff who have skimmed billions from Americans in last few decades have been Jews.

I am a Jew and play the market, the basic rule of the market is that money simply does not vanish in thin air, whenever someone loses some other person gains. In case of these frauds funds were transferred to their own fake companies.

There are no babies out in the market, who do not know what is happening. I believe that the Regulators in Treasury, SEC and Federal Reserve are all partners in crime.

The beauty of all these heist is that these fraudsters deposit the loot mostly in European and Israeli Banks. The bankruptcies are declared and the babies in Regulatory Depts express their innocence.

Can we investigate this through a Grand Jury ?.

Posted by: kanoongoo | December 18, 2008 7:17 AM

I find it humerous that Cox is "deeply troubled" by the SEC's oversight. Really Christopher? Perhaps if you spent some time observing the day-to-day environment in some of your departments you would have a better understanding of why these things happen.

I also find it humerous that Mary Shapiro is trumpeted as somebody whose going to change things at the SEC. The same issues that caused the SEC oversight failure (complacency, indifference to work, lack of supervision, failure to deal with personnel issue) are just as rampant at FINRA. She certainly didn't change the work environment while at FINRA. I doubt she will change much at the SEC.

Posted by: DCRegulator | December 20, 2008 9:36 AM

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