Saturday, 10 December 2016
Last updated 18 hours ago
Dec 15 2008 | 12:56am ET
From coast to coast and, indeed, to other coasts, Bernard Madoff’s clients are taking stock of their potential losses in what could be the largest Ponzi scheme in history.
Investors in New York and Boston, Palm Beach, Fla., and Hollywood, Calif., Paris, London and Madrid, are scrambling to determine what may be lost and what may be recouped, trying to calm investor fears or, in the worst-case scenarios, closing up shop altogether.
Madoff was arrested last week and charged with defrauding investors of some $50 billion. About half of his clients were hedge funds—Madoff himself ran a hedge fund, Ascot Partners—but the carnage spreads far beyond the world of alternatives.
For a list of Madoff's clients and their estimated losses, click here.
Three of Europe’s largest banks, Spain’s Grupo Santander, France’s BNP Paribas and London’s HSBC have some of the largest exposures to Madoff’s funds. Santander said its clients have more than €2.33 billion (US$3.1 billion) in exposure to Madoff, including €2.01 billion from its Optimal Investment Services hedge fund. The bank promised “legal actions to defend the interests of the shareholders” of Optimal.
HSBC has some $1 billion in potential exposure, the Financial Times reports. The bank’s direct exposure is thought to be from loans provided to clients who in turn invested in Madoff’s funds. The bank insisted yesterday that its final exposure will not be “material.”
Pensions, philanthropists and at least one college have also been allegedly victimized by Madoff. Two Jewish charities, including Boston’s Robert I. Lappin Charitable Foundation, have closed their doors after apparently losing everything in Madoff’s alleged fraud. The family charitable foundation of Sen. Frank Lautenberg (D-N.J.) said that most of its assets had been invested with Madoff. Yeshiva University—whose board of trustees Madoff resigned from last week—had invested part of its endowment with Madoff Securities, as did a Connecticut town’s pension. Fairfield, Conn., is afraid it has lost $42 million in the Ponzi scheme.
Individual investors may also have taken a bath. Some retirees say they’ve lost everything, while some more prominent investors fear big chunks of their net worth may have gone up in smoke with Madoff’s Thursday arrest.
GMAC Financial Services Chairman Ezra Merkin—the founder of the Ascot Partners hedge fund run by Madoff—and former Philadelphia Eagles owner Norman Braman are thought to be big losers. Another sports owner—the New York Mets’ Fred Wilpon, who is a real estate investor and also a hedge fund founder—may have lost $500 million, according to published reports.
Wilpon may be a Madoff victim twice over: In addition to possibly losing his own assets, his investment firm, Sterling Equities, was a big investor with Madoff.
“Among our various investments, we have accounts managed by Madoff Securities,” Sterling said in a statement. “We are shocked by recent events and, like all investors, will continue to monitor the situation.”
The Mets insist that their owner’s financial troubles will not damage the team.
“This news does not affect the day-to-day operations and long-term plans of the Mets organization and the Citi Field project,” the team said, referring to its new stadium, which is set to open in April. But The New York Times speculates that if Wilpon has to make his Sterling Equities investors whole, he might have to sell other assets.
Forbes magazine estimates that the Mets are worth $824 million.
Of course, if there is anything left—the day before his arrest, Madoff allegedly told his sons there was $200 million to $300 million—investors will be going to court to get it back. The first lawsuit, which seeks class-action status, was filed Friday in federal court in Central Islip, N.Y., on behalf of five investors who claim as much as $100 million in losses.