Tuesday, December 16, 2008

Bernard Madoff Has Italian Victims in $50 Billion Scam -The Biggest Ever

The ANNOTICO Report

Bernard Madoff, a highly respected Stock Broker/Tader, and  former chairman of the NASDAQ Stock Market,  was arrested and charged with securities fraud, which may rank among the biggest frauds ever - totaling $50 Billion, the biggest Ponzi scheme in history.

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 Charles Ponzi.

While many proceeded Ponzi in 1920, such as Sarah Howe, who in 1880 opened up a "Ladies Deposit" in Boston, and William "520 Percent" Miller in Brooklyn in 1899, and numberable people netted far more money than 7 million,  Ponzi's name became associated with the "technique". (Anti -Italian sentiment ??)

Madoff collected Investments through "agents" such as  Fairfield Greenwich Group, Tremont Group  Holdings Inc, ,  Alpha Capital Management LLC, London-based FIM Ltd., Kingate Europe and Kingate Global Funds, and others, who also had sub agents.  

Walter Noels Fairfield Greenwich Group, one of the bigger losers at 7 Billion,  son-in-law, Yanko Della Schiava, based in Lugano, Switzerland, is responsible for selling their funds in Italy and Southern Europe,

Kingate Europe has #3,5 Billion "exposure". The firm is run by Carlo Grosso and marketed the funds to many wealthy Italian Families.

Fairfield Sent Madoff $7.3 Billion as Funds Took Fees

Bloomberg News

By Katherine Burton

December 15, 2008

Walter Noels Fairfield Greenwich Group would have collected about $135 million in fees this year for peddling Bernard Madoffs investing acumen to clients from South America, the Middle East and Asia.

The $7.3 billion Fairfield Sentry Fund invested solely with Madoff, taking a cut of 1 percent of assets and 20 percent of gains, which averaged about 11 percent annually in the past 15 years, according to data compiled by Bloomberg. Tremont Group Holdings Inc. had $3.3 billion in Madoff accounts, according to a person familiar with the matter. They were among at least 15 hedge-fund firms and private banks that earned fees for sending customers cash to the 70-year-old money manager.

Its mind-boggling that people like Tremont and Fairfield Greenwich had been doing this for so long, said Brad Alford, who runs Alpha Capital Management LLC in Atlanta, which helps clients choose hedge funds. Its the job of these funds of funds to be doing due diligence. Thats why they get paid.

Madoff was arrested Dec. 11 after he allegedly confessed to running a giant Ponzi scheme that may have bilked investors of $50 billion. That fraud escaped the notice of Fairfield Greenwich, Tremont and other funds of funds that had at least $20.3 billion invested with Madoff. Hedge-fund investment adviser Aksia LLC said the managers should have seen red flags, such as Madoffs use of a little-known, three-person auditing firm.

Fund Fees

Hedge funds that have disclosed holdings with Madoff were due at least $352 million in fees this year, based on reported assets, fees and Bloomberg data. The calculations dont include fees of as much as 5 percent that clients paid for some funds when they first invested. Madoff didnt assess fees for his money-management services, getting paid instead through commissions from his brokerage business for trading the stocks in the accounts.

Investors ensnared by Madoff include Fred Wilpon, the owner of the New York Mets baseball team, clients of private bankers in Geneva, wealthy Jewish families in New York and Palm Beach, Florida, and institutions including BNP Paribas SA in Paris that loaned investors money to increase their bets. Losses have been reported by a pension fund in Fairfield, Connecticut, New York hospitals and a charity in Salem, Massachusetts.

Investor Defections

While Madoff didnt run a hedge fund, his alleged crime may accelerate investor defections from the $1.5 trillion industry, already hit by its worst losses since at least 1990 and redemptions that may reach $400 billion this year, according to estimates by Morgan Stanley. In a Ponzi scheme, returns to early investors are paid with money from later ones, until there isnt enough cash to go around. Madoffs alleged scam unraveled when he received $7 billion in redemption requests that he couldnt meet.

Funds of hedge funds such as Fairfield Greenwich act as middlemen, raising money from investors and farming it out to other managers that they vet. The go-betweens manage 44 percent of hedge-fund assets, according to data compiled by Hedge Fund Research Inc. Their investments lost 19 percent on average through November, a little more than a percentage point more than single-manager funds, the Chicago-based firm says.

Institutions including New York States $154 billion retirement system and the endowment of Baylor University have been cutting back their investments in funds of funds to save the extra layer of fees -- generally 1 percent of assets and 10 percent of profits -- that they charge on top of the underlying managers take. Last year, for the first time, more than half of the hedge-fund assets of the 200 largest U.S. pension plans were invested directly with individual managers, according to data compiled by Pensions & Investments magazine.

Due Diligence

Funds of funds say they earn their fees by discovering the best managers and assembling a diversified group of investments. They also are supposed to conduct ongoing due diligence to avoid frauds or other dangers, such as managers straying from their core investment strategy.

Fairfield Greenwich is the biggest loser to emerge so far from the Madoff scandal. It had more than half its $14.1 billion in assets with him, according to a company statement.

We are shocked and appalled by the news, said founding partner Jeffrey Tucker in a Dec. 12 statement. Tucker was an attorney in the enforcement division of the U.S. Securities and Exchange Commission before starting Fairfield Greenwich with Noel in 1983. Thomas Mulligan, a spokesman for Fairfield Greenwich, declined to comment.

Family Business

Noel built a marketing machine that covered the globe. His son-in-law, Yanko Della Schiava, is based in Lugano, Switzerland, and is responsible for selling Fairfield Greenwich funds in Southern Europe, according to the firms Web site. Another son- in-law, Andres Piedrahita, is head of Fairfield Greenwichs European and Latin American businesses and is based in London and Madrid. A third son-in-law, Philip Toub, markets the groups funds in Brazil and the Middle East.

Three months ago, the firm acquired Banque Benedict Hentsch, a deal that the Swiss private bank said today it has reversed.

Tremont, founded by Sandra Manzke in 1985, also was an early Madoff investor. The Rye, New York-based firm, a unit of Massachusetts Mutual Life Insurance Co.s OppenheimerFunds Inc., sold Madoff-managed investments since 1997 under the Rye Select Broad Market name, charging 2 percent of assets, according to a marketing document.

Tremonts Rye Investment Management unit had $3.1 billion, or virtually all its assets, invested with Madoff, said the person, who declined to be identified because the information is private. Tremont had another $200 million invested through its fund of funds group.

A spokesman for Tremont declined to comment.

Wealthy Clients

Manzke now runs Darien, Connecticut-based MAXAM Capital Management LLC, which marketed a $280 million fund that was invested solely with Madoff. Manzke told the Wall Street Journal she was wiped out. Manzke didnt return calls or e-mails.

Another Madoff investor is London-based FIM Ltd., whose Kingate Europe and Kingate Global funds had about $3.5 billion in assets as of the end of November, according to reports sent to clients. The firm, run by Carlo Grosso, marketed the funds to many wealthy Italian families. Kingate collected a 5 percent fee to get into the funds and a management fee of 1.5 percent of assets.

Access International Advisors LLC, a New York-based investment firm, charged a 5 percent fee up front, a 0.8 percent management fee and a 16 percent performance fee on its LUXALPHA SICAV-American Selection fund, according to Bloomberg data.

Bank Fees

Spains largest bank, Banco Santander, said its clients invested with Madoff through its Optimal Strategic U.S. Equity fund. Those investors paid 2.15 percent of assets in fees.

Swiss private banks also sent money to Madoff. Union Bancaire Privee, the largest investor in hedge funds, had a managed account called M-Invest that was a direct conduit into Madoff, people familiar with the situation said. Benbassat & Cie, another Swiss bank, had $935 million invested in Madoff on behalf of clients, according to Le Temps.

Scott Berman, a lawyer at Friedman Kaplan Seiler & Adelman LLP in New York, who specializes in hedge-fund litigation, said hes gotten numerous calls from investors who had money with feeder funds such as Fairfield Greenwich and Tremont, and plans to investigate whether these funds failed to do due diligence or if they invested in ways that were contrary to what they told investors.

Calling Lawyers

Ross Intelisano, a lawyer at New York-based Rich & Intelisano LLP, which also specializes in hedge-fund litigation, said there may be attempts by investors to get money back from fellow clients who withdrew money from Madoff accounts before the fraud was uncovered.

You will have members of country clubs and members of families on opposite sides of this case. It will rip up communities and families, he said.

When Aksia researched Madoff last year, it learned the firms books were audited by accountants Friehling & Horowitz, operating out of a 13-by-18 foot location in an office park in New York Citys northern suburbs. One partner, in his late 70s, lives in Florida. The other employees are a secretary, and one active accountant, Aksia said.

Other details that made Aksia nervous included the high degree of secrecy surrounding the trading of the feeder fund accounts, which provided capital to Madoff Securities, and its use of a trading strategy that appeared remarkably simple, yet could not be nearly replicated by our quant analyst, Aksia wrote in a Dec. 11 letter to its clients.

To contact the reporter on this story: Katherine Burton in New York at kburton@bloomberg.net

http://www.bloomberg.com/apps/news?pid=20601103&sid=a0TEG4yetMg4&refer=us

The ANNOTICO Reports Can be Viewed (With Archives) on

Italia USA: www.ItaliaUSA.com [Formerly Italy at St Louis]