The Biggest Con Of All-Time

Shock and panic spread through the country clubs of Palm Beach and Long Island after Bernard Madoff, a trading powerbroker for more than four decades, allegedly confessed to a fraud that will cost his wealthy investors at least $50 billion – perhaps the largest swindle in Wall Street history, reports the Times.

A senior enforcement official at the US Securities and Exchange Commission, described the scheme as “a stunning fraud that appears to be of epic proportions”.

Mr Madoff's scam was ludicrously simple. His operation advertised abnormally high returns to investors. But in reality there were no investments, returns were paid out of money put into the scheme by subsequent investors, rather than from real profits generated by share trading.

Many of his investors came from the enormously wealthy enclaves of Palm Beach, Florida and Long Island, New York, where people had invested billions in Mr Madoff’s firm for decades.

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

Competing hedge fund managers have wondered privately for years how Madoff generated such high returns, in bull markets and bear, given the generally low-yielding investment strategies he described to his clients.

Mr Madoff has been charged with a single count of securities fraud. He declined to enter a plea in Manhattan’s US District Court and was released on $10 million bail. He faces up to 20 years in jail and a $5 million fine if convicted.

Two European banks are potential victims of the scam. Spain's largest bank, Santander, which also owns three UK banks, said one of its funds had $3.1bn invested in the firm run by Bernard Madoff. France's BNP Paribas estimated its exposure to be more than $460m.