Madoff probe uncovers fresh scams

Bernard Madoff
Bernard Madoff

Investigators are unearthing more irregularities in the financial affairs of Bernard Madoff, the man who stunned America’s wealthy elite when he allegedly admitted running the biggest investment scam in history.

Initially, it was thought he was running a simple pyramid scheme. But Steve Harbeck, head of the Securities Investor Protection Corporation and the receiver of Madoff’s broker-dealer business, said the investigation had uncovered a trove of records stretching back at least 20 years. “We do not seem to be dealing with a traditional Ponzi scheme alone,” said Harbeck. “Ponzi” frauds occur when the money from new investors is used to pay existing ones. “This seems to be something of a hybrid,” Harbeck said, adding that the potential losses could be far greater than anyone first thought.

He was unable to elaborate on the types of fraud that were emerging. But sources close to the Madoff investigations suggested the trader may also have falsified tax documents and other records to show fake profits to his investors. Harbeck would only say: “It is just too early to say exactly what else was going on here.”

The new allegations are understood to revolve around two sets of books that Madoff kept for his investment advisory business. Investigators have discovered records on thousands of trades in shares and bonds and other securities in seven binders stored on the private 17th floor of the Lipstick Building on Manhattan’s Third Avenue. The investigators believe the positions detailed in the binders may be fake, used only to compile fraudulent statements of account to clients.

Harbeck said the case was unusual because of its scope. “The length of time we are dealing with – which by Madoff’s own admission is at least a decade but probably more like two – is just incredible. A Ponzi scheme might usually last a year or so, but it is usually impossible to keep it going for long periods of time.”

So far dozens of high net worth individual investors and a long list of banks and investment firms have declared losses to Madoff of more than $27bn.

Harbeck said that under a traditional Ponzi scheme it was common to find that just as much cash had been paid out in fake profits to earlier investors as had been declared lost to newer investors. “But with this case being, as I said, a hybrid fraud, it is impossible to say how much has been paid out at this stage.”

In the US, all those who have made profits from a fraudulent scheme must pay back their gains to the receiver seeking to compensate the victims who have lost money.

Source: The Guardian

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