Former Nasdaq chairman nabbed for allegedly running a US$50-billion Ponzi scam

The former chairman of the Nasdaq Stock Market Bernard Madoff, the owner of Bernard L. Madoff Investment Securities LLC, was arrested, but released after posting a US$10-million bond secured by his Manhattan apartment, for operating a hedge fund that U.S. prosecutors said racked up US$50-billion of fraudulent losses.

The $50-billion allegedly lost to investors would make it as one of the biggest frauds in history, after Enron which filed for bankruptcy in 2001 where it had about US$63.4-billion in assets that were wiped out.

According a the report of Forbes.com, Madoff told senior employees of his firm about a couple of days ago that "it's all just one big lie" and that it was "basically, a giant Ponzi scheme."

U.S. prosecutors charged Madoff, 70, with a single count of securities fraud. They said he faces up to 20 years in prison and a fine of up to US$5-million. The Securities and Exchange Commission (SEC) filed separate civil charges against him.

According to prosecutors, Madoff had long kept the financial statements for his hedge fund business under "lock and key" and was "cryptic" about the firm as the hedge fund business was located on a separate floor from the market making business. Bernard L. Madoff Investment Securities has more than US$700-million in capital, and it is a market maker for about 350 Nasdaq stocks, including Apple, EBay and Dell.

An investor in the hedge fund said it generated consistent returns, which was part of the attraction. The fund strategy was a "split strike conversion" scheme, which entailed owning stock and buying and selling options to limit downside risk. Since 2004, annual returns averaged around 8%, but last decade returns were typically in the low-double digits, the investor said.

The company's web site may be found at http://www.madoff.com/

*Source: www.forbes.com