A Wall Street legend was busted yesterday on charges of running an investment business for the super rich that turned out to be “a big lie” – losing a whopping $50 billion.
Bernard L. Madoff, 70, a former Nasdaq chairman, was arrested a day after he told two senior employees the business was a giant scam and had been insolvent for years, prosecutors said.
It could be one of the biggest frauds in history. When Enron collapsed in 2001, it had lost $31.2 billion.
The silver-haired Madoff, hailed as one of Wall Street’s pioneers, told the senior employees he had “absolutely nothing,” that “it’s all just a big lie” and that it was “basically a giant Ponzi scheme,” a federal criminal complaint said.
The employees took this to mean “he had for years been paying returns to certain investors out of the principal received from other, different investors,” the complaint said.
The business is separate and is run on a different floor from Bernard L. Madoff Investment Securities, the firm he founded in 1960 with $5,000. It was the 23rd largest dealer on the Nasdaq stock exchange in October.
Madoff allegedly told the employees he planned to surrender to authorities in a week but first wanted to distribute the $200 million to $300 million he had left to selected employees, relatives and friends.
But FBI Agent Thomas Cacioppi got there first.
Cacioppi said when he arrived at Madoff’s East 64th Street apartment and asked if there was an innocent explanation for what happened, Madoff replied, “There is no innocent explanation.”
The financier said he had “paid investors with money that wasn’t there,” that he was broke and insolvent and that he decided “it could not go on” and he expected to go to jail.
Madoff, charged with one count of civil securities fraud, faces up to 20 years behind bars and a fine of up to $5 million.
He was arraigned in Manhattan federal court and released on a $10 million bond.
The Securities and Exchange Commission, alleging “a stunning fraud that appears to be of epic proportions,” said it wants a receiver appointed for the firm.
Defense lawyer Dan Horwitz said Madoff was “a person of integrity” and would fight the charges.
The arrest was a massive reversal of fortune for Madoff, whose principal firm is one of the five broker-dealers most closely involved in developing the Nasdaq.
He served as chairman of its board of directors and a member of the board of governors.
“He’s one of the pioneers of modern Wall Street,” said James Angel, an associate business professor at Georgetown University in Washington.
Madoff’s company was the first to automate market-making, in which a dealer continually buys and sells stock.
An SEC filing said the investment business had 11 to 25 wealthy clients and assets of $17.1 billion. At least half were hedge funds and others were banks and rich people, it said.
Additional reporting by Mark DeCambre