Wall Street Powerbroker Arrested For Fraud

Feds Say Ex-Nasdaq Chairman Bernard Madoff Swindled Investors Out Of $50B

(CBS/ AP)  A Wall Street powerbroker for nearly 50 years who built an influential firm has confessed to a massive fraud scheme that will cost investors at least $50 billion, federal authorities say.

Bernard L. Madoff, 70, facing a single count of securities fraud, declined to speak with reporters after a federal magistrate judge in U.S. District Court in Manhattan ordered him released Thursday night on $10 million bail.

Andrew M. Calamari, associate director of enforcement in the Securities and Exchange Commission's New York office, said the SEC had filed a civil securities fraud charge as well and was alleging "a stunning fraud that appears to be of epic proportions."

The SEC said it was seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm. A hearing was scheduled for Friday.

If the allegations contained in a criminal complaint are true, it may be the largest fraud ever blamed on a single individual. Nearly all of the allegations stem from an FBI agent's recounting of what Madoff told two FBI agents and three senior employees of his firm, Bernard L. Madoff Investment Securities LLC.

Senior employees, believed to include Madoff's own sons, turned him in to authorities, reports CBS News chief investigative correspondent Armen Keteyian.

From exclusive Palm Beach country clubs to the tony Upper East Side of Manhattan, victims of the fraud -- many who had invested millions - are reeling, Keteyian reports.

"These are people who are wealthy individuals who are now looking at utter devastation," said Brad Friedman, attorney for the fraud victims.

It would be a steep fall for Madoff, a former Nasdaq stock market chairman who founded his business in 1960 with $5,000 he earned in part working as a lifeguard on Long Island beaches.

His firm was a market maker, handling trades in some of the largest securities on various stock exchanges, matching buyers and sellers. Investigators say Madoff's crime originated in a separate and secretive investment-advising business that served between 11 and 25 clients and had a total of about $17.1 billion in assets under management.

Stephen A. Weiss, a lawyer for several dozen investors, said there are many more investors. He said he "personally spoke with over 30 investors" who are believed to have invested more than $1 billion with Madoff.

The criminal complaint signed by FBI Agent Theodore Cacioppi said Madoff told at least three senior employees at his Manhattan apartment Wednesday that the investment adviser business was a fraud and had been insolvent for years, losing at least $50 billion.

Madoff told the employees he was "finished," that he had "absolutely nothing," that "it's all just one big lie" and it was "basically, a giant Ponzi scheme," according to the complaint filed in court.

The employees understood Madoff's admission to mean that "he had for years been paying returns to certain investors out of the principal received from other, different, investors," said the complaint, which did not identify the investors impacted by the scheme.

Cacioppi said one of the employees told him that Madoff was "cryptic" about the firm's investment advisory business and kept its financial statements locked up. The FBI agent said another employee told him that Madoff last week said clients had asked for about $7 billion in redemptions and he was struggling to meet those obligations but thought he could do so.

Cacioppi said two senior Madoff employees told him that Madoff said during the Wednesday meeting that he planned to surrender to authorities in a week but first wanted to distribute $200 million to $300 million he had left to certain selected employees, family and friends.

Cacioppi said he and another FBI agent arrived Thursday at Madoff's apartment, where Madoff invited them in and acknowledged knowing why they were there.

"Madoff stated, in substance, that he had personally traded and lost money for institutional clients, and that it was all his fault," Cacioppi said.

The agent wrote that Madoff said he had "paid investors with money that wasn't there" and that he was broke and insolvent and had decided that "it could not go on" and that he expected to go to jail.

Defense lawyer Dan Horwitz called Madoff "a person of integrity" and said he intends to fight the charge.

If convicted, Madoff could face up to 20 years in prison and a maximum fine of $5 million.

Bernard L. Madoff Investment Securities LLC ranks among the top 1 percent of U.S. securities firms, according to the company's Web site.

In 2001, Barron's reported that Madoff's firm was one of the three top market makers in Nasdaq stocks and the third-largest firm matching buyers and sellers of securities on the New York Stock Exchange.

Shortly after leaving law school, Madoff founded his firm in 1960. It was one of five broker-dealers most closely involved in developing the Nasdaq Stock Market, where he served as a member of the board of governors in the 1980s and as chairman of the board of directors.

In the 1990s, Madoff was viewed as a maverick. He angered leaders of the New York and American stock exchanges by taking away some of their business by paying brokerage firms a penny a share to route orders through his system.

[cbsblogger]

Very few media sites have comments enabled on this story. The victims are mostly ultra rich Jews and they are all embarrassed to have been ripped off by a fellow Jew. The Talmud restricts scamming of Jews by Jews but it''s OK to scam non-Jews.

Greed was at the heart of it all because they were doing it on faith expecting high returns. They all thought he was operating on inside information.

Hedge funds and their investors such as Madoff''s fought against government regulation because they wanted free wheeling opportunities. Now that they''ve lost big time due to their own greed, under no circumstances should taxpayers be required to bail them out. If so we taxpayers need to initiate a rebel.

[dbstevens]

This guy has hurt more people than any single human being has done recently except for Bush. And the threat of a 20 year jail sentence and a fine of $5million is ridiculous. I think they should sell his internal organs. It''s one thing for big companies to be hurt by this...that''s atrocious. But there are a LOT more individuals than people realize. Some very dear friends of mine who are not really rich (and not even Jewish ... the hateful bigoted comments in this board are disgusting) have lost everything. They and their kids are penniless, all because of this creep. Their story is bound to be echoed by lots of others.

[wardoglrs]

Look very closely and you will find that most of the swindlers are Jew as are more & more Jew''s are placed in power positions in the White House. The US government is a fraud plain and simple

[mediai11ness]

wow..im sooooo surprised...

[snoop99991]

I love it. A bunch of rich greedy wealthy Jews going for more and getting ripped off by another Jew. The clients are as bad as Madoof, they knew the returns they were getting were not on the up and up and yet in their greed they turned a blind eye. They got what they truly deserved - nothing!

[whitemale08]

Right now ''helicopter'' Ben has conducting his own illegal PONZI scheme by having the Federal Reserve System illegaly issue it''s own ''debt-bond'' so idiots who have their money in this Treasury-bubble can escape and flee to these ''Fed-bonds''.

That''s ILLEGAL!

Only Congress can authorize the mortgage of America not a cartel of privately held banks that make up the private Federal Reserve System.

This is dangerous because the Federal Reserve will try and bail out the multi-quadrillion ''dollar'' derivatives market with its own ''debt-bond''.

THAT''S IMPOSSIBLE AND IT''S A PONZI SCHEME WORSE A MILLION TIMES WORSE THEN THIS MADOFF CLOWN!!!

[gorgeousm]

This parasite took away lives from his victims.

Take his away from him as justice.

[cbsblogger]

For a list of the victims check this out.....many are billionaires. Google madoff wiki .

The question now is has the Fed already bailed them out as part of the $2 Trillion dollars that they refuse to disclose the recipients.

[cbsblogger]

There are a bunch of other shyster connivers just like Madoff on Wall St who are the primary culprits that have cost Americans their nest eggs and pensions. They are getting bailed out by Bernanke and Paulson, but average Americans aren''t.

[mrjustice1]

If the government fails us, we have the right to either sue IN PLACE OF the governing agents, prosecutors, agencies or depaertments, or take defensive measures which may lead into misinterpreted unconventional methods.