Madoff Charged in $50 Billion Fraud at Investment Advisory Firm

Reno, NV Attorney serving Nevada & California

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12/11/2008
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David Glovin and Bradley Keoun

Bernard Madoff, president of market – maker Bernard Madoff Investment Securities and a former chairman of the Nasdaq Stock Market, was charged by U.S. prosecutors in a $50 billion securities fraud at his investment advisory business.

Madoff, 70, was arrested today at 8:30 a.m. by the FBI and appeared this afternoon before U.S. Magistrate Judge Douglas Eaton in Manhattan federal court. Charged with a single count of securities fraud, he is to be released tonight on $10 million bond guaranteed by his wife and two others, Eaton said. Madoff's wife was present in the courtroom.

"He’s one of the pioneers of modern Wall Street," said James Angel, an associate business professor at Georgetown University in Washington. Madoff's firm was among the first to automate market-making, in which a dealer continually buys and sells stock. The company was among the largest to offer "payment for order flow," or paying to handle customer orders. "The exchanges didn’t like the practice and questioned whether customers got the best price," Angel said.

Madoff's New York-based firm serves hedge funds, banks and wealthy individuals. It was the 23rd largest market maker on Nasdaq in October, handling a daily average of about 50 million shares a day, exchange data show. The firm specialized in handling orders from online brokers in some of the largest U.S. companies, including General Electric Co. and Citigroup Inc.

Started His Firm

Madoff started his firm in 1960 with $5,000 of savings and took advantage of securities-law changes in the 1970s designed to spur competition in U.S. stock markets, according to a profile posted on the Web site Finance Tech.

He was chief of the Securities Industry Association’s trading committee in the 1990s and early this decade, where he represented brokerage firms in discussions with regulators about new stock-market rules as electronic-trading systems and networks gained prominence.

"Bernard Madoff is a longstanding leader in the financial services industry," said defense lawyer Dan Horwitz. "We will fight to get through this unfortunate set of events. He’s a person of integrity."

Madoff, who owned more than 75 percent of his firm, and his brother Peter are the only two individuals listed on regulatory records as "direct owners and executive officers."

Peter Madoff was a board member of the St. Louis brokerage firm A.G. Edwards Inc. from 2001 through last year, when it was sold to Wachovia Corp. for $17.1 Billion.

The Madoff firm had about $17.1 billion in assets under management as of Nov. 17, according to NASD records. At least 50 percent of its clients were hedge funds, and others included banks and wealthy individuals, according to the records.

Madoff's Web site advertises the "high ethical standards" of the firm.

"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner’s name is on the door," according to the Web site. "Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm’s hallmark."

The case is U.S. v. Madoff, U.S. District Court for the Southern District of New York (Manhattan)

If you were among the many people who suffered as a result of the deceitful practice of a stockbroker or financial advisor, contact the experienced financial fraud litigation attorney Thomas C. Bradley today for a free consultation.