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December 15, 2008

Wall Street duped in $50 billion fraud scam

UNITED STATES - As if the US economy doesn't have enough problems with the $700 billion investment bank bailout and the $34 billion automotive industry bailout... now Wall Street's biggest investors have been conned out of approx. $50 billion in whats known as a Ponzi scheme.

A Ponzi scheme is a fraudulent investment operation that involves paying abnormally high returns to investors out of the money paid in by subsequent investors, rather than from the profit from any real business. It is named after scam artist Charles Ponzi who between 1918 and 1920 scammed over 17,000 people out of tens of millions.

Today the growing list of investors (including some celebrities and banks) who say they were duped into investing in Bernard Madoff, a veteran Wall Street money manager, include:
Real estate magnate Mortimer Zuckerman.
The foundation of Nobel laureate Elie Wiesel.
Movie director Steven Spielberg.
HSBC Holdings PLC.
Royal Bank of Scotland Group PLC and Man Group PLC.
Spain's Grupo Santander SA.
France's BNP Paribas.
Japan's Nomura Holdings.
Bramdean Alternatives.
Robert I. Lappin Charitable Foundation.
New Jersey Senator Frank Lautenberg.
Philadelphia Eagles owner Norman Braman.
New York Mets owner Fred Wilpon.
J. Ezra Merkin, the chairman of GMAC Financial Services.
Banco Santander, the largest European bank.
The 70-year-old Bernard Madoff, previously well respected in the investment community after serving as chairman of the Nasdaq Stock Market, was arrested last Thursday in what prosecutors say was a $50 billion scheme to defraud investors. Some investors claim they've been completely wiped out, while others are still likely to come forward.

The extent of the potential damage prompted fund managers and investors around the world to lash out at U.S. regulators for failing to detect the fraud earlier, especially during a recession and a time of increasing doubt in the USA's financial reliability due to corporate crime.

"I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they haven fallen down in the job," Nicola Horlick, the manager of Britain's Bramdean Alternatives, which had 9% of its funds invested in Madoff's scheme.

Other investors around the world are starting to agree. The lack of financial regulation in the USA makes it an unworthy place to invest.

Banco Santander, the largest European bank has lost 2.33 billion euros ($3.07 billion) in exposure with Madoff's Ponzi scheme. HSBC, Britain's largest bank, says its institutions have lost approx. $1 billion US and the Royal Bank of Scotland, Britain's second-largest bank, which is now 58% owned by the British government, says it could lose around $600 million.

The Robert I. Lappin Charitable Foundation, a charity that finances trips for Jewish youth to Israel has fired all of its staff after revealing that all the money for its operations was invested with Madoff. The charity is now apparently bankrupt.

New Jersey Senator Frank Lautenberg, one of the wealthiest members of the US Senate, entrusted the bulk of his family's charitable foundation to Madoff. So far it looks like they've lost almost everything.

Ordinary investors from all over the United States and overseas gave Madoff their money. Some had been friends with him for decades, others were able to invest because they were a friend of a friend. Some have lost their life's savings of $40,000 to giant nest eggs worth over $1 million.

Numerous other financial institutions are refusing to comment right now whether they had investments with Madoff: Bank of America Corp., Citigroup Inc., PNC Financial Services Group Inc. and Merrill Lynch & Co., Morgan Stanley, Wells Fargo & Co., Comerica Inc. and U.S. Bancorp.

Some estimates suggest the $50 billion in announced losses could balloon to $100 billion or more by the time the full extent of Bernard Madoff's Ponzi scheme. Questions about where the money went will also have to be answered and how much of it remains.

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