Madoff’s alleged $50 billion fraud hits other investors.
“Madoff’s investors included captains of industry, corporations — some of which are publicly traded — that used Madoff almost as a high-yielding cash management account, endowments, universities, foundations and, importantly, many high-profile funds of funds,” said Douglas Kass, who heads hedge fund Seabreeze Partners Management.
“It appears that at least $15 billion of wealth, much of which was concentrated in Southern Florida and New York City, has gone to ‘money heaven,’” he said.
A Ponzi scheme is an illegal investment vehicle that pays off old investors with money from new ones, and is dependent on a constant stream of new investment. Because the invested capital is not earning a sufficient return on its own, such schemes eventually collapse under their own weight.
The two most prominent hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd, run by Walter Noel’s Fairfield Greenwich Group, and the $2.8 billion Kingate Global Fund Ltd, run by Kingate Management Ltd.
Prior to Madoff’s arrest, investors had wondered how he was able to generate annual returns in the low double digits in a variety of market environments. Many questioned how U.S. regulators were able to ignore numerous red flags with regards to Madoff’s operations.
Investors overseas were reeling from the alleged fraud.
Benedict Hentsch, a Swiss private bank, said it had 56 million Swiss francs ($47 million) of exposure to Madoff’s investment advisory business. UniCredit SpA’s fund management unit, Pioneer Investments, has exposure through its Primeo Select hedge fund, two people familiar with the matter said.
Bramdean Alternatives Ltd said almost 10 percent of its holdings were exposed to Madoff, sending shares in the UK asset manager crashing.
CNBC Television reported that Sterling Equities, which owns the New York Mets baseball team, had accounts managed by Madoff.
Everyone loves a winner even though he later turns out to be a crook. The system as it is set in place in the USA as well as in other developed countries when so many winners of Madoff’s ilk fold up and wipe out the entire savings of so many cannot do much. They come out with statements that a crisis was waiting to happen. Is that all Capitalism can do? As early as May 2001, Barron’s reported that option strategists for major investment banks said they could not understand how Madoff managed to generate the returns that he did. Yet the climate of self delusion had hit the Regulators, investors and financial pundits that they once again have got it wrong.( quoted from Reuters news-Jon Stempel and Christian Plumb)