Two banks exposed to USD 50bn con

Two major European banks said they have exposure worth billions of dollars to a U.S. broker accused of a $50bn Wall Street fraud scheme.

Izvor: BBC

Monday, 15.12.2008.

09:15

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Two major European banks said they have exposure worth billions of dollars to a U.S. broker accused of a $50bn Wall Street fraud scheme. Spain's largest bank, Santander, which also owns three UK banks, said one of its funds had $3.1bn invested in the firm run by Bernard Madoff. Two banks exposed to USD 50bn con France's BNP Paribas estimated its exposure to be more than $460m. Madoff has been charged with fraud, in what is being described as one of the biggest-ever such cases. Correspondents say the case is likely to fuel uncertainty about the entire hedge fund industry. Madoff is alleged to have used money from new investors to pay off existing investors in the fund. Investors are assessing their exposure to the alleged fraud Madoff is said by prosecutors to have confessed to. U.S. Prosecutors say Madoff, a former head of the Nasdaq stock market, masterminded a fraud of massive proportions through his hedge fund and investment advisory business. The collapse of Madoff is likely to accelerate the disappearance of hedge funds Robert Peston Madoff founded Bernard L Madoff Investment Securities in 1960, but also ran a separate hedge fund business. Investors have withdrawn from hedge funds amid market volatility. According to the US Attorney's criminal complaint filed in court, 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, losing at least $50bn. He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said. He told them that he planned to surrender to the authorities but not before he used his last $200m-$300m to pay "selected employees, family and friends". Under a Ponzi scheme, which is similar to pyramid schemes, investors are promised very high returns on their investment, while in reality early investors are paid with money collected from later investors. If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

Two banks exposed to USD 50bn con

France's BNP Paribas estimated its exposure to be more than $460m.

Madoff has been charged with fraud, in what is being described as one of the biggest-ever such cases.

Correspondents say the case is likely to fuel uncertainty about the entire hedge fund industry.

Madoff is alleged to have used money from new investors to pay off existing investors in the fund.

Investors are assessing their exposure to the alleged fraud Madoff is said by prosecutors to have confessed to.

U.S. Prosecutors say Madoff, a former head of the Nasdaq stock market, masterminded a fraud of massive proportions through his hedge fund and investment advisory business.

The collapse of Madoff is likely to accelerate the disappearance of hedge funds

Robert Peston

Madoff founded Bernard L Madoff Investment Securities in 1960, but also ran a separate hedge fund business.

Investors have withdrawn from hedge funds amid market volatility.

According to the US Attorney's criminal complaint filed in court, 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, losing at least $50bn.

He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

He told them that he planned to surrender to the authorities but not before he used his last $200m-$300m to pay "selected employees, family and friends".

Under a Ponzi scheme, which is similar to pyramid schemes, investors are promised very high returns on their investment, while in reality early investors are paid with money collected from later investors.

If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

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