Banks hit worldwide by US 'fraud'
Some of the world's biggest banks have revealed they are victims of an
alleged fraud which has lost $50bn (£33bn).
Bernard Madoff has been charged with fraud in what is being described as
one of the biggest-ever such cases.
Among the banks which have been hit are Britain's HSBC and RBS, Spain's
Santander and France's BNP Paribas.
One of the City's best-known fund managers has criticised US financial
regulators for failing to detect the alleged fraud.
Nicola Horlick, boss of Bramdean investments, told the BBC: "I think now
it is very difficult for people to invest in things that are meant to be
regulated in America, because they have fallen down on the job."
"This is the biggest financial scandal, probably in the history of the
markets - $50bn is a huge amount of money," she said.
Counting the cost
Banks and financial institutions across the world had investments with
Bernard Madoff, but not all have yet confirmed what their potential
losses might be.
Among the largest potential losers so far is Spain's largest bank,
Santander, which also owns the UK High Street banks Abbey, Alliance &
Leicester and Bradford & Bingley.
One of its funds had $3.1bn invested in the firm run by Bernard Madoff
Britain's HSBC said it had investments of about $1bn which could be
affected.
Royal Bank of Scotland said it could potentially lose about £400m
($601m) if all its investments had to be written off.
The French bank, Natixis, a subsidiary of Caisse d'Epargne and Banque
Populaire, said it could potentially lose up to 450m euros (£402m;
$605m).
One of the world's biggest investment groups, Man, said it had invested
about $360m through its RMF institutional fund of funds business,
representing 0.5% of its total funds
'Systemic failure'
Meanwhile, some of the biggest private losers seem to have been members
of the Palm Beach country club, where many of Mr Madoff's wealthy
clients were recruited.
According to some reports, the list of prominent victims include a New
Jersey Senator, the owners of the New York Mets and the charities run by
film director Stephen Spielberg and Nobel Prize winning writer Elie
Wiesel.
Mrs Horlick said 9% of Bramdean's own funds were invested with Mr
Madoff, but that even if the money was written off, the fund involved
would be down just 4%.
"I just want to make it clear to investors that even after this, they
would have done extremely well, relative to anything else they could
have invested in," she said.
In a statement, Bramdean said: "The allegations made appear to point to
a systemic failure of the regulatory and securities markets regime in
the US."
However, some argued that the fund managers should themselves have done
more.
"City figures cannot call for light touch regulation yet at the same
time complain that regulators missed risks that the industry failed to
spot," said Simon Morris, a partner with City law firm CMS Cameron
McKenna.
"It's the unequivocal job of the fund manager to check out the bona
fides of whoever they chose to pass their customers' money onto," he
said.
Antonio Borges, chairman of the Hedge Fund Standards Board, said the
scandal highlighted the need for "robust governance practices and
oversight via independent boards, which will challenge management
procedures and behaviour".
Meanwhile one of the City's watchdogs, the Serious Fraud Office (SFO)
called on whistleblowers to come forward with evidence of corporate
wrongdoing in the wake of the credit crunch.
The Serious Fraud Office said it wanted workers, former staff and
shareholders to step up with information over suspected fraud in the
current financial turmoil.
Director Richard Alderman said: "Our objective is to ensure that we can
bring offenders to justice as quickly as possible."
High returns promised
US prosecutors say Mr Madoff, a former head of the Nasdaq stock market,
masterminded a fraud of massive proportions through his hedge fund and
investment advisory business.
Mr Madoff is alleged to have used money from new investors to pay off
existing investors in the fund.
A federal judge has appointed a receiver to oversee Mr Madoff firm's
assets and customer accounts, while the 70-year-old banker has been
released on $10m bail.
Mr Madoff founded Bernard L Madoff Investment Securities in 1960, but
also ran a separate hedge fund business.
According to the US Attorney's criminal complaint filed in court, Mr
Madoff told at least three employees on Wednesday that the hedge fund
business - which served up to 25 clients and had $17.1bn under
management - was a fraud and had been insolvent for years.
He said he was "finished", that he had "absolutely nothing" and "it's
all just one big lie", and that it was "basically, a giant Ponzi
scheme", the complaint said.
If found guilty, US prosecutors say he could face up to 20 years in
prison and a fine of up to $5m.
Story from BBC NEWS:
http://news.
Published: 2008/12/15 15:58:03 GMT
Monday, 15 December 2008
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