free market fraud

[2cool4skool]

http://news.bbc.co.uk/1/hi/business/7781086.stm

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Investors reel at '$50bn fraud'
Investors worried about their money gather at the offices of Bernard Madoff in New York
Worried investors gathered at the offices of Bernard Madoff in New York

Worried investors are rushing to assess the extent of potential losses after the alleged $50bn (£33.5bn) fraud by the ex-head of the Nasdaq stock market.

Wall Street broker Bernard Madoff's fund ran up the massive fraud, which he called "one big lie", prosecutors said.

A federal judge has appointed a receiver to oversee Mr Madoff firm's assets and customer accounts.

Hundreds of people are thought to have invested with him. The 70-year-old has been released on $10m bail.

'Major disaster'

Lawyers for worried investors fearful that they had lost their savings, attended court on Friday for a hearing on the disposition of Mr Madoff's remaining assets.

The hearing was cancelled after an agreement was reached to appoint a receiver.


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Brad Friedman, a lawyer for some of the investors, said: "There are people who were very, very well off a few days ago who are now virtually destitute.

"They have nothing left but their apartments or homes - which they are going to have to sell to get money to live on," he told the New York Times.

One investor, Lawrence Velvel, 69, told the Associated Press that he and a friend may have lost millions of dollars between them.

"This is a major disaster for a lot of people. You work all your life, you finally manage to save up something ... lots of people are getting fully or partially wiped out."

'Pyramid scheme'

Mr Madoff founded Bernard L. Madoff Investment Securities in 1960, but also ran a separate hedge fund business.

Stock market ticker
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According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn under management - was a fraud and had been insolvent for years, losing at least $50bn.

He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

He told them that he planned to surrender to the authorities but not before he used his last $200m-$300m to pay "selected employees, family and friends".

Under a Ponzi scheme, also known as a pyramid scheme, investors are promised very high returns on their investment, while in reality early investors are paid with money collected from later investors.

If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

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