Madoff Bail Hearing Postponed, Investigators Call Records ‘Utterly Unreliable’

Dec 17 2008 | 1:49am ET

Accused fraudster Bernard Madoff is battling to stay out of jail a week after he was arrested and charged with running a $50 billion Ponzi scheme.

Madoff won an extra day to find three co-signers to guarantee his $10 million bond. As of yesterday afternoon, only Madoff’s brother and business partner, Peter, had signed. Madoff was released on the bond, which is also secured by his Upper East Side apartment, after his arrest on Thursday.

A hearing to settle Madoff’s bail is scheduled for this afternoon.

Madoff has been charged with one count of securities fraud and faces up to 20 years in prison if convicted. The 70-year-old hedge fund manager and Wall Street legend allegedly confessed to running “a giant Ponzi scheme” before his arrest last week, as well as allegedly telling a Federal Bureau of Investigation agent that there was “no innocent explanation” for the money missing from Bernard L. Madoff Investment Securities’ secretive investment advisory business. The fraud, believed to be the largest Ponzi scheme in history, has ensnared hundreds of investors, including hedge funds.

While Madoff battled to stay out of jail, investigators continued to pore over his firm’s records as they try to determine how Madoff was able to get away with the alleged crime undetected for so long.

Yesterday, Securities and Exchange Commission Chairman Christopher Cox said that Madoff used “complicated steps,” apparently keeping “several sets of books and false documents, and provided false information involving his advisory activities to investors and to regulators.” Stephen Harbeck, the head of the Securities Investor Protection Corp., told Bloomberg Televion that the Madoff’s records are “utterly unreliable” and will take six months to sift through. SIPC is handling the liquidation of Madoff’s brokerage business.

“There are some assets, but I have no idea what the relationships of the assets available are to the claims against them,” Harbeck said. “The records are utterly unreliable on this case, so we are not going to be able to transfer the accounts to another brokerage firm as we did, for example, with Lehman Brothers.”

While investigators have found no evidence to implicate Madoff’s sons and brother in the alleged scam, one angry hedge fund manager insists that Madoff could not have acted alone.

“For the amount of money and number of accounts, it’s practically impossible that he was doing this alone,” EIM’s Arpad Busson told Bloomberg News. “What’s mind-boggling is the amount of assets and the amount of time he was doing it.”

Busson’s hedge fund had about $230 million invested in Madoff’s funds. The firm will probably write off those investments, Busson said, adding that just about one-third of EIM accounts were exposed to Madoff, and that no one account had more than 5% exposure.

Busson, who is married to actress Uma Thurman, said he was comfortable with Madoff due to his sterling reputation and the fact that U.S. regulators were supposed to be monitoring his firm. Yesterday, the Securities and Exchange Commission admitted it failed to respond to a number of red flags at Madoff’s firm over the past decade.

“I knew the SEC was all over this shop. As a broker-dealer, you file quarterly statements,” Busson said. “The main reason we got comfort is that it was SEC-regulated, and it was doing 10 percent of the volume on the New York Stock Exchange and Nasdaq.”

“There’s only so much due diligence you can do, and in hindsight you always wish you could have done it differently,” Busson added. “Catching a fraud like this is practically impossible. He seemed like a very experienced, knowledgeable and trustworthy man, like the best con artists always are.”


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