Fund manager hit with civil charge in Madoff fraud

New York's attorney general filed civil fraud charges Monday against a hedge fund manager who funneled $2.4 billion to Wall Street swindler Bernard Madoff without telling clients where their money was going.

The complaint accuses J. Ezra Merkin, the former chairman of GMAC Financial Services, of concealing his links to Madoff and lying to investors about what he was doing with their money, telling most he was personally investing their cash in things like distressed debt.

Over the years, Merkin collected $470 million in fees and performance bonuses from his clients, the suit said. It said many of those customers, which included several large charities and colleges, had no idea where their money really was until December, when Madoff was arrested.

"Merkin duped individual investors, non-profits, and charities into believing he was responsibly managing their investments, when in actuality he was dumping them into history's largest Ponzi scheme," Attorney General Andrew Cuomo said in a statement.

The complaint also accused Merkin of mingling his personal funds with the accounts of his management company, Gabriel Capital Group, and using some of the company's funds for personal purchases, including $91 million worth of artwork for his apartment.

Merkin's attorney, Andrew Levander, called the lawsuit "hasty," "ill-conceived" and "without merit, and he denied that clients had been kept in the dark.

"Contrary to the attorney general's allegation, investors in the Ascot Funds were well aware that the money was being invested with Madoff," Levander said in a statement. Some of those investors had even met with Madoff personally, he said.

He said Merkin had investigated and analyzed Madoff and his trading strategy before investing.

"Unfortunately," he wrote, "Mr. Merkin's due diligence, just like the detailed investigations performed by countless others, including regulators, was thwarted by the intricate, fraudulent scheme perpetrated by Madoff."

Merkin also lost millions of dollars of his own money in the scheme, although those dollar amounts pale in comparison to the losses of his clients. One of Merkin's funds, Ascot Partners, sunk nearly every penny of its more than $1.7 billion in assets into Madoff's scheme.

Cuomo's suit, filed in state court in Manhattan, demands that Merkin repay all of the fees he collected from his clients over the years, plus damages.

The lawsuit is the second major regulatory action by a state against one of Madoff's so-called "feeder funds," which supplied him with billions of dollars in investor money.

On April 1, Massachusetts Secretary of State William Galvin accused Fairfield Greenwich Group of Connecticut of civil fraud for activities related to investments with Madoff.

Galvin accused the company, which had a $7.2 billion account with Madoff, of failing to disclose concerns about Madoff's operation to investors. Fairfield Greenwich officials have, like Merkin, also professed that they were innocent victims of the scam.

Madoff pleaded guilty in March to swindling thousands of investors out of billions of dollars in what could be the largest Ponzi scheme in history.

Many of those investors came to Madoff indirectly through hedge funds like Fairfield and Ascot.

Some of those investors have also sued. And Merkin was sued Monday in New York by Mortimer Zuckerman, the real estate magnate and publisher of the New York Daily News. Zuckerman said in the suit that he and his charitable trust collectively lost $40 million in the scheme.

Madoff pleads guilty and goes to jail in handcuffs

Saying he was "deeply sorry and ashamed," Bernard Madoff pleaded guilty Thursday to pulling off perhaps the biggest swindle in Wall Street history and was immediately led off to jail in handcuffs to the delight of his seething victims.

U.S. District Judge Denny Chin denied bail for Madoff, 70, and ordered him to jail, noting that he had the means to flee and an incentive to do so because of his age.

Madoff spoke softly but firmly to the judge as he pleaded guilty to 11 charges in his first public comments about his crimes since the scandal broke in early December.

"I am actually grateful for this opportunity to publicly comment about my crimes, for which I am deeply sorry and ashamed," he said.

"As the years went by, I realized my risk and this day would inevitably come. I cannot adequately express how sorry I am for my crimes."

Prosecutors say the disgraced financier, who has spent three months under house arrest in his $7 million Manhattan penthouse, could face a maximum term of 150 years in prison at sentencing June 16.

DeWitt Baker, an investor who attended the hearing and said he lost more than a million dollars with Madoff, called it "fantastic" that Madoff's bail was revoked but belittled the apology.

"I don't think he has a sincere bone in his body," said DeWitt, who added that prison time would be too good for Madoff.

"I'd stone him to death," he said.

Madoff did not look at any of the three investors who spoke at the hearing, even when one turned in his direction and tried to address him.

The fraud, which prosecutors say may have totaled nearly $65 billion, turned a revered money man into an overnight global disgrace whose name became synonymous with the current economic meltdown.

Madoff described his crimes after he entered a guilty plea to all 11 counts he was charged with, including fraud, perjury, theft from an employee benefit plan, and two counts of international money laundering.

He told the judge that he believed the fraud would be short-term and that he could extricate himself. He implicated no one else, though investigators suspect involvement by relatives and top lieutenants who helped run his operation from its midtown Manhattan headquarters.

The plea came three months after the FBI claimed Madoff admitted to his sons that his once-revered investment fund was all a big lie -- a Ponzi scheme that was in the billions of dollars. Since his arrest in December, the scandal has turned the former Nasdaq chairman into a pariah who has worn a bulletproof vest to court.

The scheme evaporated life fortunes, wiped out charities and apparently pushed at least two investors to commit suicide. Victims big and small were swindled by Madoff, from elderly Florida retirees to actors Kevin Bacon and Kyra Sedgwick and Nobel Peace Prize winner Elie Wiesel.

Helicopters circled above the courthouse before the hearing, and federal officers with machine gun-style weapons stood outside as Madoff arrived.

Jilted investors signed in before entering the courtroom on the 24th floor. Richard and Cynthia Friedman turned up to get a glimpse of the man who defrauded them of their life savings of $3 million.

Richard Friedman, an accountant, noticed how well his clients were doing with Madoff and began investing his own money in 1991. He learned it was gone months before he had planned to retire -- a plan now on hold.

"I wanted him to see some of the faces of the people he lied to and destroyed," said Cynthia Friedman, 59, of Jericho, N.Y.

After arguments began on whether Madoff should remain free on bail, his lawyer Ira Sorkin described the bail conditions and how Madoff had, "at his wife's own expense," paid for private security at his penthouse.

Loud laughter then erupted among some of the more than 100 spectators crammed into the large courtroom on the 24th floor of the federal courthouse in lower Manhattan. The judge warned the spectators to remain silent.

George Nierenberg, the first of the three investors to speak, approached the podium glaring at Madoff, then said in the financier's direction: "I don't know if you had a chance to turn around and look at the victims."

At the hint of a confrontation, a marshal sitting behind Madoff stood up, and the judge directed Nierenberg to speak directly to the bench.

The courtroom erupted in applause after the judge announced Madoff would go directly to jail. As he was led out of court, a spectator yelled, "Hey, Bernie," but was shushed by investors in court and backed off.

The plea does not end the Madoff saga: Investigators are still undertaking the daunting task of unraveling how he pulled off the fraud for decades without being caught.

Court papers say Madoff generated or had employees generate "tens of thousands of account statements and other documents through the U.S. Postal Service, operating a massive Ponzi scheme," prosecutors said.

The money was never invested, but was used by Madoff, his business and others, prosecutors said.

Authorities said he confessed to his family that he had carried out a $50 billion fraud. In court documents filed Tuesday, prosecutors raised the size of the fraud to $64.8 billion.

Experts say the actual loss was more likely much less and that higher numbers reflect false profits he promised investors. So far, authorities have located about $1 billion for jilted investors.

In addition to prison time, he said Madoff faces mandatory restitution to victims, forfeiture of ill-gotten gains and criminal fines.

SEC, Madoff agree to settle civil fraud case

The Securities and Exchange Commission on Monday announced an agreement with disgraced money manager Bernard Madoff that could eventually force him to pay a civil fine and return money raised from investors.

The partial judgment, which renders permanent a preliminary injunction that froze Madoff's assets after his arrest in December, must be approved by the judge overseeing the case in federal court in Manhattan.

The civil proceeding is separate from the criminal case against the prominent Wall Street figure, who is accused of bilking $50 billion from investors in what may be the largest Ponzi scheme in history. Madoff was arrested on Dec. 11 after allegedly confessing to his sons that he had stolen from investors for years.

Federal prosecutors have asked a judge to revoke the bail of Madoff, who has been confined to his Manhattan penthouse under house arrest. Madoff, who has not been indicted, is widely expected to eventually enter into a criminal deal with prosecutors in which he would plead guilty in exchange for some form of leniency.

The SEC said Madoff agreed to the partial judgment without admitting or denying the allegations in its civil complaint filed on Dec. 11. However, the agreement says Madoff cannot contest the "facts" of the complaint for the purposes of determining his obligation to pay civil fines and restitution — which will be specified later.

The SEC says the basic facts of the complaint are that Madoff committed a $50 billion fraud and told his sons his investment business was a sham. Madoff told them he had "absolutely nothing," that "it's all just one big lie," and was "basically, a giant Ponzi scheme," according to the complaint.

Madoff's defense attorney, Ira Sorkin, didn't immediately return a telephone call seeking comment Monday.

The fallout from the Madoff affair has been massive and has rocked a Wall Street already churning from the financial crisis. Thousands of victims who lost money investing with Madoff have been identified — including ordinary people and Hollywood celebrities — as well as big hedge funds, international banks and charities in the U.S., Europe and Asia.

The scandal also has brought disgrace to the SEC, which repeatedly ignored credible allegations about Madoff's operations brought to it over the course of decade. Congress and the agency's inspector general are investigating what caused the regulatory failure over Madoff and why SEC inspections of his business failed to detect the improprieties.

Madoff client list peppered with big names

Hall of Fame baseball pitcher Sandy Koufax, actor John Malkovich and World Trade Center developer Larry Silverstein are among the well-known people who were customers of accused swindler Bernard Madoff, according to new court papers.

Among the thousands of others on the roster are U.S. Sen. Frank Lautenberg of New Jersey; Fred Wilpon, owner of the New York Mets baseball team; imprisoned class-action lawyer Melvyn Weiss; Madoff's sons, Mark and Andrew and their children as well as Madoff's brother, Peter.

Filmmaker Steven Spielberg's Wunderkinder Foundation, Columbia University and the charity Jewish Funds for Justice are among other customers listed.

The 162-page document was filed late Wednesday with the U.S. Bankruptcy Court in New York as a court-appointed trustee liquidates Bernard L. Madoff Investment Securities LLC to recover assets for defrauded customers.

In all, five lists were filed with the court, labeled Customers, Vendors, Employees, Brokers/Dealers and Other Parties.

The customer list contains names and addresses of individuals and institutions. No details were included on the amounts of money invested. The lists were put together by AlixPartners LLP, a firm specializing in bankruptcy claims support that is assisting the trustee.

One of Madoff's lawyers, Ira Lee Sorkin, is also named on the customer list.

Sorkin declined to comment to Reuters on Thursday on whether he had invested with Madoff.

"I've been told it's a client list, and I've also been told it's a mailing list, so I think you need to check with the receiver or the trustee to determine whether these individuals are clients, customers, investors or just simply received mail," Sorkin said.

"My position from day one has been I will not discuss present clients or former clients," he said.

The Securities Investor Protection Corporation (SIPC), which is examining Madoff customer claims, was not immediately available for comment. A representative of the trustee, Irving Picard, could not be reached immediately.

The list provides new details about the clients that the once-respected Madoff cultivated over the years -- a roster sprinkled with names of people who live in affluent neighborhoods of Manhattan and parts of South Florida including Palm Beach and Boca Raton. Madoff long attracted clients through his reputation for posting amazingly consistent investment returns.

The Manhattan office of Madoff's firm was declared a crime scene after the 70-year-old investment manager was arrested on Dec. 11. Madoff is accused in what authorities have described as the biggest Ponzi scheme in history. In a Ponzi scheme, early investors are paid with money from new investors.

Also listed are the Madoff firm's outside auditors, David Friehling and Jerome Horowitz from the small Friehling & Horowitz accounting firm in New City, New York, as well as Madoff's wife, Ruth, and Madoff employees, including JoAnne "Jodi" Crupi and Frank DiPascali.

Among the financial institutions on the customer list are UBS AG, Bank of America Corp, BNP Paribas and Citigroup Inc.

Financiere Agache, a subsidiary of the holding company of French billionaire Bernard Arnault, was also on the list. Arnault is the head of luxury goods group LVMH and his Groupe Arnault holding firm controls Financiere Agache.

A spokesman for Financiere Agache told Reuters its account with Madoff had been inactive since 2004, although it had not been legally closed. The spokesman added that Financiere Agache had not booked any losses from the account.

At a bankruptcy court hearing on Wednesday, Picard said $946 million has been recovered so far from Madoff's firm. He said, however, that gaining access to the firm's computers and examining 7,000 unmarked boxes of documents stored in a warehouse was taking time.

Madoff to remain under house arrest

A judge ruled Monday that Bernard Madoff would not be sent to jail pending trial, declining a request by prosecutors to revoke the bail of the financier accused in a $50 billion fraud case.

Madoff has been under house arrest, with electronic monitoring, since posting $10 million bail against his $7 million Manhattan apartment, where he lives with his wife, and against his wife's homes in Montauk, N.Y., and Palm Beach, Fla.

U.S. Magistrate Judge Ronald Ellis of the U.S. District Court of the Southern District of New York added conditions to the bail, including "restrictions of transfer of all property whatsoever, wherever located" belonging to Madoff.

The judge also ruled that Madoff compile an inventory of all "valuable portable items" in his Manhattan home. The judge required that a security company check the inventory every two weeks and inspect outgoing mail.

"The decision speaks for itself and we intend to comply with the judge's order," said Madoff's defense attorney, Ira Lee Sorkin.

Janice Oh, spokeswoman for the prosecution, declined to comment.

Prosecutors have been trying to put Madoff behind bars since last week. That's when the U.S. Department of Justice filed documents to Ellis accusing Madoff of shipping five packages containing more than $1 million worth of diamond-studded jewelry to family and friends, in violation of bail.

Prosecutors said last Wednesday that Madoff was trying to protect these assets - which included 15 watches, four brooches, necklaces and rings - from seizure, preventing alleged victims from recovering their losses.

Last week, defense lawyer Sorkin said Madoff didn't know he violated bail when he mailed these "sentimental" items, and that some of the packages were actually sent by his wife.

Prosecutors on Thursday urged the judge once again to revoke bail, accusing Madoff of planning to transfer up to $300 million worth of assets - including 100 signed and ready-to-send checks found in his office, totaling $173 million.

But on Monday, the judge released a statement saying "the new information provided by the government does not demonstrate either a serious risk of flight or serious risk of obstruction of justice."

Madoff was arrested in December and charged with one count of securities fraud for allegedly stealing up to $50 billion from investors. If convicted, the 70-year-old could face up to 20 years in prison and a $5 million fine.

Madoff's alleged scheme disrupted an already fragile financial system, affecting hedge funds and well-heeled investors from Wall Street, Palm Beach and Europe. Alleged victims included Banco Santander (STD) in Spain and HSBC (HBC) in Britain, as well as director Steven Spielberg and actor Kevin Bacon.

In a Ponzi scheme, money from new investors is used to pay off early investors to create the appearance of legitimate returns.

German tycoon Adolf Merckle commits suicide

German billionaire Adolf Merckle has committed suicide, in despair over the huge losses suffered by his business empire during the financial crisis, his family said on Tuesday.

The media-shy billionaire, whose family controls some of Germany's best-known companies, was hit by a train on Monday evening, local officials said.

"The desperate situation of his companies caused by the financial crisis, the uncertainties of the last few weeks and his powerlessness to act, have broken the passionate family entrepreneur and he took his own life," a family statement said.

State prosecutors from the southern city of Ulm said Merckle, 74, left work on Monday and died after being hit by a train near the town of Blaubeuren. He left behind a suicide note to his family, they added.

There was no sign of anyone else being involved, they said.

In 2008 Merckle was ranked as the world's 94th-richest person and Germany's fifth-wealthiest by Forbes magazine.

On Tuesday pale blood stains still dotted the snow along the railway track where he died. The area looked deserted apart from a police car nearby.

Merckle, a father of four, inherited the basis of his fortune from his Bohemian grandfather, but went on to build up the chemical wholesale company into Germany's largest drugs wholesaler.

The passionate skiier and mountain climber assembled a business conglomerate with about 100,000 employees and 30 billion euros ($40.45 billion) in annual sales.

His family controls a number of German companies including cement maker HeidelbergCement and generic drug company Ratiopharm.

But the empire was rocked last year by wrong-way bets made on shares in Volkswagen after a surprise stakeholding announcement from Porsche sent the VW share price rocketing as short sellers scrambled to cover their positions.

Banking sources had told Reuters the family lost hundreds of millions of euros on investments, with about 400 million euros lost on Volkswagen shares alone.

Since then the family has been in talks for weeks with banks to renegotiate loans. Banking sources said on Tuesday his death was not expected to affect loan agreements with the family.

Shares in HeidelbergCement fell as much as 12.5 percent following the news of Merckle's death and ended the day down 6.2 percent at 31.25 euros.

"Some investors are afraid that there will be no one to lead negotiations during this sensitive situation for the company," one trader in Frankfurt said.

Psychologists and other mental health experts have said suicide rates could creep up as a result of the financial crisis.

Last month Frenchman Thierry Magon de la Villehuchet, 65, a co-founder of money manager Access International, was found dead in a New York office building, reportedly distraught over losing up to $1.4 billion in client money to Bernard Madoff's alleged fraud. He slit his wrists with box cutters.

Regulators probed Madoff eight times over 16 years

Bernard L. Madoff Investment Securities LLC was examined at least eight times in 16 years by the U.S. Securities and Exchange Commission (SEC) and other regulators, who often came armed with suspicions, the Wall Street Journal said.

SEC officials followed up on emails from a New York hedge fund that described Bernard Madoff's business practices as "highly unusual," the paper said.

The Financial Industry Regulatory Authority, the industry-run watchdog for brokerage firms, reported in 2007 that parts of the firm appeared to have no customers, according to the paper.

Madoff was interviewed at least twice by the SEC, the paper said, adding that regulators never came close to uncovering the alleged $50 billion Ponzi scheme that investigators now believe began in the 1970s.

The SEC could not be immediately reached for comment by Reuters.

The serial regulatory failures will be on display on Monday when Congress holds a hearing to probe why the alleged fraud went undetected, according to the Journal.

Among the key witnesses is SEC Inspector General David Kotz, who was asked last month by the agency's chairman, Christopher Cox, to investigate the mess, the paper said.

SEC chief defends response to economic turmoil

U.S. Securities and Exchange Commission chairman Christopher Cox, responding to heavy criticism, said in an interview published on Wednesday he takes pride in his response to the U.S. financial crisis.

"What we have done in this current turmoil is stay calm, which has been our greatest contribution -- not being impulsive, not changing the rules willy-nilly, but going through a very professional and orderly process that takes into account unintended consequences and gives ample notice to market participants," Cox told The Washington Post.

This caution "has really been a signal achievement for the SEC," said Cox.

"When these gale-force winds hit our markets, there were panicked cries to change any and every rule of the marketplace: 'Let's try this. Let's try that.' What was needed was a steady hand," he said.

The SEC, created after the 1929 stock market crash to police markets and restore investor confidence, has come under heavy criticism after the Wall Street meltdown and financial scandals exposed lapses in its oversight.

Cox last week acknowledged that the SEC had failed to detect the alleged $50 billion fraud by disgraced Wall Street investment manager Bernard Madoff, despite many warnings.

Cox told The Washington Post the biggest mistake of his tenure was agreeing in September to an extraordinary three-week ban on short selling of financial company stocks.

Cox told the newspaper he had been under intense pressure from Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke to take this action and did so reluctantly.

They "were of the view that if we did not act and act at that instant, these financial institutions could fail as a result and there would be nothing left to save," Cox said.

Cox, a former California Republican congressman, argued that the SEC has carefully defined responsibilities and that it was unfair to blame it for every problem on Wall Street.

Cox became SEC chairman in mid-2005. He plans to step down early next year before his five-year term expires.

President-elect Barack Obama has chosen Mary Schapiro, chief executive of the Financial Industry Regulatory Authority and a former SEC commissioner, to replace him.

Madoff investor found dead of possible suicide

The founder of an investment fund that lost millions with Bernard Madoff was found dead Tuesday at his Madison Avenue office of a possible suicide, authorities said.

Authorities found Rene-Thierry Magon de la Villehuchet at 7:50 a.m. with no pulse at his office of Access International Advisors, located on Madison Avenue a couple of blocks from Rockefeller Center.

A French newspaper is reporting that the 65-year-old de la Villehuchet committed suicide. The New York medical examiner spokeswoman says it has not determined the cause of death yet.

Madoff is accused of running a $50 billion Ponzi scheme that wiped out investors around the world, with big funds like de la Villehuchet's being especially hard hit.

His $1.4 billion fund specializes in managing hedged and structured investment portfolios. Access International Advisors was jointly founded by Patrick Littaye and de la Villehuchet. The hedge fund reportedly used intermediaries with links to the cream of Europe's high society and jet set to garner clients.

The former chairman and CEO of Credit Lyonnais Securities USA, de la Villehuchet was known as a keen sailor who regularly participated in regattas.

Mass. investor saw inside Madoff scam

His repeated warnings that Wall Street money manager Bernard Madoff was running a giant Ponzi scheme have cast Harry Markopolos as an unheeded prophet.

But people who know or worked with Markopolos say it wasn't prescience that helped him foresee the collapse of Madoff's alleged $50 billion fraud. Instead, they say diligence and a strong moral sense drove his quixotic, nine-year quest to alert regulators about Madoff.

"He followed through on everything he ever did. He never let up," said his mother, Georgia Markopolos, in an interview Thursday. "Some kids just let it go if it's too hard, but he wouldn't do that."

"He feels very sorry for these people that got taken," she added. "It wouldn't have happened if they would have listened to him long ago."

Markopolos waged a remarkable battle to uncover fraud at Madoff's operation, sounding the alarm back in 1999 and continuing with his warnings all through this decade. The government never acted, Madoff continued his ways, and people lost billions.

Markopolos reached his conclusion with the help of mathematicians like Dan diBartolomeo, whose analysis of the Madoff's methods in 1999 helped fuel Markopolos' suspicions.

"People should have seen the writing on the wall," diBartolomeo said.

Markopolos did not respond to multiple e-mail or phone requests for an interview.

The 52-year-old resident of Whitman, about 20 miles south of Boston, grew up in Erie, Pa., the oldest of three siblings.

His mother said her son was a little nerdy as a child, as well as occasionally mischievous and unfailingly honest. She recalled an incident where he pelted his elementary school with eggs in the middle of winter, but no one saw him. Time passed with no confession from anyone, until Markopolos stepped forward, admitted he did it, and cleaned the school himself.

Markopolos became an adept hunter and fisherman as he grew up, like many from the rural area, but also showed early aptitude at academics, as well as a willingness to question authority.

"He used to challenge the teachers," his mother said with a laugh. "He'd tell them he had the right answers, but they had the wrong questions."

Markopolos graduated from Cathedral Prep in Erie in 1974, then in 1981 from Loyola College in Maryland, which his mother said he paid for on his own. After time in the Army and in the financial services field, he earned a graduate management degree from Boston College in 1997.

By 1999, he was working for Rampart Investment Management Co. and charged with doing competitive research on Bernard L. Madoff Investment Securities, which was using a similar investment strategy as his company, but far outperforming it. Part of Markopolos's research included a visit to diBartolomeo, whom he knew from his professional circle.

"I think he was curious about how his competitor was doing so much better than they were," diBartolomeo recalled.

Researching Madoff's numbers, using data the firm distributed to prospective investors, diBartolomeo concluded within hours that it was impossible for Madoff to get the returns he reported while using the strategy he said he used.

"As the market goes up and down, this strategy should have done a little better or a little worse, just like everybody else," he said. "Instead, it appeared to be indifferent as to whether the market went up or down. They made money all the time."

Markopolos complained to the SEC's Boston office in May 1999, saying it was impossible for the kind of profit Madoff was reporting to have been gained legally.

But Madoff continued to thrive, even as Markopolos continued to pursue the case.

In 2005, he submitted a report to the SEC saying it was "highly likely" that "Madoff Securities is the world's largest Ponzi scheme." In the report, he says he knew his research could ruin people's careers and asked the SEC be discreet about circulating the report and his name.

"I am worried about the personal safety of myself and my family," he wrote.

The report highlights 29 "red flags" about Madoff's business, among them the returns of a third-party hedge fund managed by Madoff's firm which had negative returns in just seven on the 174 months Markopolos analyzed.

"No major league baseball hitter bats .960, no NFL team has ever gone 96 wins and only 4 losses over a 100 game span, and you can bet everything you own that no money manager is up 96% of the months either," he said.

His warnings were heard too late, and he's become a symbol of a botched oversight of Madoff by the SEC. His mother says the father of three boys under 5 has been bombarded by media requests. Now, a man who tried to be heard for years is going to lay low for a bit, she said.

Madoff appears at courthouse, has curfew set

Disgraced investor Bernard Madoff made a surprise appearance at the Manhattan federal courthouse as a judge set new conditions for his bail, including a curfew and monitoring bracelet.

Madoff remains free on bail. He said nothing to reporters as he walked out of the building; it's unclear why he was at the courthouse because his hearing had already been postponed.

Part of Madoff's bail conditions required that he find people to co-sign for him, and his wife and brother had already done so.

Madoff had been required to find two additional co-signers to vouch for him, but with the scandal swirling around him, he was unable to do so. So the judge modified the bail package, and gave lawyers until next Monday to come up with additional paperwork.

Madoff has already surrendered his passport, and now will be required to be at his Manhattan apartment from 7 p.m to 9 a.m. His wife was also required to surrender her passport.

Madoff was arrested on charges that he carried out what prosecutors said he called a $50 billion Ponzi scheme.

Alleged Madoff fraud has worldwide exposure

The 70-year-old Madoff, well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested Thursday in what prosecutors say was a $50 billion scheme to defraud investors. Some investors claim they've been wiped out, while others are still likely to come forward.

The alleged victims who sunk cash into veteran Wall Street money manager Bernard Madoff's investment pool include real estate magnate Mortimer Zuckerman, the foundation of Nobel laureate Elie Wiesel, and a charity of movie director Steven Spielberg, according to The Wall Street Journal.

On Friday, representatives from major U.S. banks -- Bank of America Corp., Citigroup Inc., PNC Financial Services Group Inc. and Merrill Lynch & Co. -- declined to comment on whether they had exposure to Madoff's company. Both BlackRock Inc. and Goldman Sachs Group Inc. said they had no exposure.

Among those overseas confirming exposure on Monday, Banco Santander, the largest bank in the euro zone by market capitalization, said its clients have 2.33 billion euros ($3.07 billion) in exposure with Madoff, mostly through a fund called Optimal Strategic US Equity.

The Wall Street Journal, citing a person familiar with the matter, said Mortimer Zuckerman, the chairman of real estate firm Boston Properties and owner of the New York Daily News and U.S. News & World Report, had significant exposure through a fund that invested substantially all of its assets with Madoff.

Reports from Florida to Minnesota included profiles of ordinary investors who gave Madoff their money. Some had been friends with him for decades, others were able to invest because they were a friend of a friend. They told stories of losing everything from $40,000 to an entire nest egg worth well over $1 million.

Morgan Stanley, Wells Fargo & Co., Comerica Inc. and U.S. Bancorp did not return calls seeking comment.

Alleged Madoff $50 billion fraud hits other investors

Investors scrambled to assess potential losses from an alleged $50 billion fraud by Bernard Madoff, a day after the arrest of the prominent Wall Street trader.

Prosecutors and regulators accused the 70-year-old former chairman of the Nasdaq Stock Market of masterminding a Ponzi scheme of epic proportions through a hedge fund he ran. Hundreds of people, investing with him through the fund's clients, entrusted Madoff with billions of dollars, industry experts said.

"Madoff's investors included captains of industry, corporations (some of which are publicly traded) that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds," said Douglas Kass, who heads hedge fund Seabreeze Partners Management.

"It appears that at least $15 billion of wealth, much of which was concentrated in Southern Florida and New York City, has gone to 'money heaven,'" he added.

Federal agents arrested Madoff at his apartment on Thursday after prosecutors said he told senior employees that his money management operations were "all just one big lie" and "basically, a giant Ponzi scheme."

Madoff is the founder of Bernard L. Madoff Investment Securities LLC, a market-making firm he launched in 1960. His separate investment advisory business had $17.1 billion of assets under management.

"BUSINESS AS USUAL?"

About a dozen angry investors gathered on Friday in the lobby of the Lipstick Building in midtown Manhattan, where the market-making firm and advisory fund are both headquartered, demanding to know the fate of their money.

One woman who declined to give her name said that when she called the firm's offices on Thursday she was told it was "business as usual."

Another investor groused, "Business as usual? Of course it's business as usual. We're getting screwed left and right."

Police later evicted the small group from the building.

The two most prominent hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd, run by Walter Noel's Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd, run by Kingate Management Ltd.

Fairfield Sentry and Kingate Global were among a small group of hedge funds to report positive returns for 2008; the average hedge fund was down 18 percent, according to data from Hedge Fund Research.

"People who came to us for portfolio construction were often already invested with Bernie Madoff, he had hundreds of clients," said Charles Gradante, who invests in hedge funds as a principal at Hennessee Group LLC. "Now his whole legacy is destroyed. He was God to people."

In a Ponzi scheme, a swindler uses money from new investors, who are lured with the promise of high or consistent returns, to pay off earlier investors.

Prior to Madoff's arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regards to Madoff's fund.

"Many of us questioned how that strategy could generate those kinds of returns so consistently," said Jon Najarian, an options trader who knows Madoff and is a co-founder of optionmonster.com.

In May 2001, Barron's reported that option strategists for major investment banks said they couldn't understand how Madoff managed to generate the returns that he did.

"We weren't comfortable with Madoff," said Brad Alford, president at investment adviser Alpha Capital in Atlanta. "We didn't understand how his strategy could generate the kind of returns it did. We will walk away from things like that."

MORE TO COME?

U.S. stocks tumbled in early trading Friday, with some investors citing the Madoff case as well as the failure of talks in Congress on a rescue for the U.S. auto industry. The market later staged a limited rebound.

Investors overseas were also reeling from the alleged fraud.

Benedict Hentsch, a Swiss private bank, said it had 56 million Swiss francs ($47 million) of exposure to Madoff's investment advisory business. UniCredit SpA's fund management unit, Pioneer Investments, has exposure through its Primeo Select hedge fund, two people familiar with the matter said.

Bramdean Alternatives Ltd said almost 10 percent of its holdings were exposed to Madoff, sending shares in the UK asset manager crashing.

CNBC Television reported that Sterling Equities, which owns the New York Mets baseball team, had accounts managed by Madoff.

"UNFORTUNATE SET OF EVENTS"

Madoff said "there is no innocent explanation" for his activities, and that he "paid investors with money that wasn't there," according to the federal complaint.

Prosecutors also alleged that Madoff wanted to distribute as much as $300 million to employees, family members and friends before turning himself in.

Charged with one count of securities fraud, he faces up to 20 years in prison and a $5 million fine. The Securities and Exchange Commission filed separate civil charges.

A federal judge is expected later Friday to hold a hearing on whether to put assets under Madoff's control into a receivership.

Madoff's lawyer, Dan Horwitz, said on Thursday, "We will fight to get through this unfortunate set of events." His client was released on $10 million bond.

Madoff is a member of Nasdaq OMX Group Inc's nominating committee. His firm has said it is a market-maker for about 350 Nasdaq stocks.

He is also chairman of London-based Madoff Securities International Ltd, whose chief executive, Stephen Raven, said the firm was "not in any way part of" the New York-based market-maker.

"Our business activities are not involved in any way with the U.S. asset management company with which the reported allegations appear to be concerned," Raven said.