Federal investigators working through the weekend to unravel Bernard Madoff’s alleged $50 billion Ponzi scheme found evidence he ran an unregistered money-management business alongside his firm’s brokerage and investment-advisory subsidiaries, two people with knowledge of the inquiry said.
Clients of the undisclosed unit may have included hedge funds, according to the people, who declined to be identified or to name the funds because the probe isn’t public. Investigators from the US Securities and Exchange Commission are looking for signs that others participated in the alleged fraud and are examining why Madoff’s wife’s name appeared on documents linked to transactions under scrutiny, the people said. His wife, Ruth Madoff, has not been accused of any wrongdoing.
Ira “Ike” Sorkin, a lawyer at Dickstein Shapiro LLP in New York representing Madoff, didn’t reply to a phone call and e-mail seeking comment. Calls to residences listed in the Madoffs’ names in Manhattan, Montauk, New York, and Palm Beach, Florida, weren’t answered. John Heine, an SEC spokesman, declined to comment.
More than a dozen SEC inspectors have been working around the clock examining records at Bernard L Madoff Investment Securities LLC in New York after his sons told authorities December 10 he’d confessed to orchestrating a Ponzi scheme with more than $50 billion in losses, the biggest in history. People with knowledge of the probe who initially said they suspected the loss estimate was too high now say it may be roughly accurate.
The $50 billion figure may reflect the amounts of money clients were told they had in their accounts at the firm, not the amounts they originally invested, two of the people said. Customers who believed they had amassed investment gains over time may have been misled, the people said.
Clients facing losses range from New York Mets owner Fred Wilpon’s Sterling Equities Inc to hedge funds such as Fairfield Sentry Ltd. The alleged scam has ensnared more than 25 companies around the world, including some of the biggest financial-services firms such as BNP Paribas SA in Paris and Nomura Holdings Inc in Tokyo, which have said they may lose money because of trading or lending tied to Madoff’s firm. In all, companies, individuals and foundations have disclised about $24 billion of investments with Madoff, according to data compiled Bloomberg and media reports.
Investigators are still trying to figure out where customers’ money went. Madoff, told his sons last week he had as much as $300 million left according to an SEC lawsuit filed in federal court in Manhattan. The agency is looking for additional money that may be recovered for victims, two people said.
In a regulatory filing in January, Madoff’s firm listed $17 billion in assets under management.
Details of the side-business that the SEC is scrutinizing -- including how much client money it held, who besides Madoff may have been involved in it, and how it was kept separate from the firm’s registered investment-advisory unit -- couldn’t be determined.
Madoff kept his firm’s financial statements under lock and key and was “cryptic” about its investment-advisory activities when discussing them with other employees, the SEC said in its complaint.
The entire advisory business was a mystery to most staff members, said two firm employees who declined to be identified, citing concern about being drawn into the probe. Madoff’s offices on Third Avenue in midtown Manhattan extended over several floors, with market-making and proprietary trading units on the 19th floor, and back-office functions on the 18th floor, the employees said. Madoff’s advisory business was housed on the 17th floor.
