Extent Of Losses From Madoff Unclear

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Investigators are still trying to determine just how much money investors lost in Bernard Madoff's alleged Ponzi scheme. Estimates run as high as $50 billion. A big question facing regulators is how they could have missed a scheme that may date back as far as 20 years.

MICHELE NORRIS, host:

From NPR News, this is All Things Considered. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block. The Bernard Madoff scandal continues to widen. The list of investors who say they were swindled by the famed money manager includes big financial institutions, among them the Royal Bank of Scotland. It also includes charities linked to the very wealthy, including publisher Mort Zuckerman and Steven Spielberg, also Nobel laureate Elie Wiesel. Federal officials arrested Bernard Madoff last week and charged him with running a giant Ponzi scheme. What's more, U.S. officials are increasingly defensive about how this scandal happened. NPR's Jim Zarroli reports.

JIM ZARROLI: While federal investigators spent the day pouring through documents in Madoff's midtown Manhattan office, his victims were beginning to take stock of their losses.

Mr. KEN FLATTO (First Selectman, Fairfield, Connecticut): This is a crime. This is a huge hit. And we're very troubled.

ZARROLI: Ken Flatto is the first selectman, the equivalent of mayor in the town of Fairfield, Connecticut. The town entrusted about 15 percent of its employee pension fund, or more than $40 million, to an investment firm. And that firm invested the entire amount with Madoff. Now the town is trying to figure out how much, if any, is left.

Mr. FLATTO: This is going to be a complicated situation. We have plenty of money for our current retirees. The problem is our future retirees. We were banking on this extra money to pay pensions 20, 30 years from now.

ZARROLI: Town governments, real estate moguls, hedge funds, charities - they were all taken in by the 70-year-old Madoff whose investment prowess was legendary. And they all eagerly forked over money to him. Federal officials say he had about $17 billion under management, but he borrowed against the value of his assets to buy even more, so the total loses may run to $50 billion. Ultimately, it all came crashing down around him. The anger and recriminations have been bitter. Nicola Horlick manages an investment fund in London that lost money with Madoff. She told the BBC that the fault for the debacle lay squarely with U.S. regulators.

Ms. NICOLA HORLICK (CEO, Bramdean Asset Management, London): It's very difficult for people to invest in things that are meant to be regulated in America because they have fallen down on the job. And you know, this is all through the credit crunch that this has been apparent. And this is the biggest scandal, financial scandal, probably in the history of the markets.

ZARROLI: In fact, a lot of people today were wrestling with the question of just how Madoff could get away with so big a fraud without regulators catching on. Madoff had registered as an investment adviser, and as such the Securities and Exchange Commission had the authority to oversee his books. But former SEC Chairman Arthur Levitt says the SEC can't keep up with its workload these days.

Mr. ARTHUR LEVITT (Former Chairman, SEC): The SEC, as I understand it, is so shorthanded on staff that they get to inspect an advisory account on average once every five years. I don't think that's nearly enough.

ZARROLI: Then again, Levitt says, even if the SEC had inspected Madoff's accounts, it's not clear they would have found anything, not if Madoff really wanted to cover his tracks. For her part, SEC Enforcement Director Linda Chatman Thomsen insisted today that the SEC continues to pursue the case aggressively.

Ms. LINDA CHATMAN THOMSEN (Enforcement Director, SEC): I can say that right now we are acutely focused with our colleagues at the Southern District of New York and the FBI to figure out exactly what's going on to pursue the case that we've got and to bring everyone who is responsible for the conduct at the Madoff firm to justice.

ZARROLI: But the Madoff case has underscored, once again, some of the holes in the U.S. regulatory system, and it's given advocates of tougher oversight some new ammunition to press their case with the next administration. Jim Zarroli, NPR News, New York.

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Financial Scam Hits Wall Street, Global Investors

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Bernard Madoff was known as a Wall Street investment manager with a golden touch. He brought in enormous sums from people and institutions and consistently delivered double-digit returns, even in the toughest times.

Now Madoff has been arrested and charged with massive fraud. Federal prosecutors say Madoff ran a giant Ponzi scheme and that he lost tens of billions of dollars of his investors' money.

NPR's Jim Zarroli tells Renee Montagne that Madoff was a respected, venerable figure on Wall Street. A former chairman of the Nasdaq stock market, Madoff headed a trading firm that bore his name. He also took money from people and invested it.

He met a lot of customers through country clubs and charities in Palm Beach and New York, and he did very well, Zarroli says. That kind of success breeds success. People heard about the gains he was making, and they flocked to him. It was prestigious to invest with him.

Madoff's investors included some well-known names, including New York Mets owner Fred Wilpon and former Philadelphia Eagles owner Norman Braman. New Jersey Sen. Frank Lautenberg said his charitable foundation invested with Madoff.

Not all of Madoff's investors were well-off. Barbara Flood, a Manhattan stylist and designer who was introduced to Madoff by an acquaintance> Madoff agreed to take her on even though she didn't have a lot of money.

In an interview with NPR, she explained what it was like to deal with Madoff.

"You could never talk directly to Bernie Madoff," she said. "He was not available, even to friends — I mean even to me, he was not available. And you'd get a statement, and you couldn't read the statement. And nobody could understand what the statement said.

"But after trying to figure out apples and oranges, you know, my accountant would say, 'Well, the thing is, he's always making money.' And always making money sounded very good to all of us," Flood said.

Zarroli says there was an "emperor-has-no-clothes aspect to this case. And everyone was wondering, how can Bernie Madoff make so much money. But no one really thought to look too far beneath the surface because, after all, he was Bernie Madoff. He had to have his methods."

The alleged Madoff scheme also hit several charities and other groups. The Robert I. Lappin Charitable Foundation, which helps young Jews visit Israel, said it was forced to shut down and terminate its staff after losing the money it invested with Madoff. A pension fund for the town of Fairfield, Conn., the French Bank BNP Paribas and hedge funds also reportedly suffered big losses.

A securities industry executive warned the Securities and Exchange Commission in 1999 that Madoff's returns were too good to be true. But it isn't clear how much the SEC did about that report, or how much jurisdiction the agency had to regulate Madoff's fund, Zarroli says.

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