Bernard Madoff held for $US50bn pyramid fraud

The former chairman of the US Nasdaq was arrested for fraud, after allegedly admitting to running a $US50 billion pyramid scheme.

Bernard L Madoff, founder of Bernard L Madoff Investment Securities, was released on a $US10 million ($14.99 million) personal recognisance bond overnight in the US, after having made an initial court appearance on charges that he had participated in a “giant” $US50 billion pyramid, or ponzi, scheme.
Mr Madoff, who was charged under a criminal complaint, didn't enter a plea at the hearing. The bond will be secured by his apartment in Manhattan. In a ponzi scheme, new investor funds are typically used to pay distributions and redemptions to existing investors.

Mr Madoff, 70, was arrested by the FBI early yesterday in the US and charged with a single count of securities fraud. He faces up to 20 years in prison and a maximum fine of $US5 million on the charge. Prosecutors and the FBI have alleged that Mr Madoff told senior employees at a meeting at his apartment the night before his arrest that his investment advisory business was "basically, a giant ponzi scheme", according to court documents.

He told them the business was insolvent, and had been for years. The investment advisory business is separate from the firm's market-making and proprietary trading operations. In a January filing with the US Securities & Exchange Commission, Mr Madoff reported that the investment advisory business served between 11 and 25 clients and had about $US17.1 billion in assets under management. Mr Madoff also allegedly said that the losses from the fraud were at least $US50 billion, according to the criminal complaint. He told the employees he was "finished", and that he had "absolutely nothing" and "it's all just one big lie". He told the senior employees that he planned to surrender to authorities in about one week, but wanted to use the $US200-300 million he had left in his possession to make payments to certain selected employees, family and friends, according to court documents.

The meeting at his apartment occurred after Madoff, who appeared to be under great stress in recent weeks, told senior employees earlier this week that he had recently made profits through business operations and that now was a good time to distribute it, which was earlier than employee bonuses are traditionally paid, according to the criminal complaint.
Mr Madoff had told employees the week before that there had been requests for clients to redeem about $US7 billion and that he was struggling to obtain the liquidity necessary to meet those obligations, but thought he would be able to do so, according to court documents. In a meeting with a FBI agent on Thursday, the agent asked Madoff if there was an "innocent explanation" for what happened.
Mr Madoff reportedly said: "There is no innocent explanation." He also said he had personally traded and lost money for institutional clients and that it was all his fault, according to the complaint. He further stated that he "paid investors with money that wasn't there", according to the charging document.

Mr Madoff’s lawyer, Dan Horowitz, said: "Bernard Madoff is a long standing leader in the financial services industry with an unblemished record.

"He is a person of integrity. He intends to fight to get through this unfortunate event." Neither Mr Madoff nor his lawyer would comment after the hearing. A preliminary hearing is set for January 12, 2009.