January 27, 2009 -- Arthur Nadel, who has been on the lam since Jan. 16 when he threatened to kill himself and vanished, surrendered to Florida authorities today in an alleged $300 million investor fraud case. Nadel, 76, now faces criminal charges in New York City, where a complaint against the fund manager was unsealed today.
According to the complaint, Nadel turned more than $120 million in net liquidating value of investor funds into a little over $125,000 in four years. His is the latest in a series of alleged investor fraud and Ponzi" target="_blank">Ponzi schemes that have come to light since the arrest of Bernard Madoff on Dec. 11, 2008 for allegedly running a $50 billion scheme " target="_blank">$50 billion investor fraud scheme.
As with Madoff, Nadel allegedly duped sophisticated investors, including at least one hedge fund that invested at least $13,600,000 with Nadel, according to the federal complaint.
In a Securities and Exchange Commission regulatory case brought against Nadel last week, he is alleged to have defrauded investors and overstated the value of his funds by more than $300 million in sales documents, when, in reality, the funds had less than about $1 million in assets.
At least several hundred investors in several funds controlled by Nadel were allegedly defrauded, according to the SEC charges and the criminal complaint, which charges Nadel with securities fraud and wire fraud.
According to FBI Agent Kevin Riordan's statements in the criminal complaint, two partners in Nadel's firm repeatedly pressed him to hire an independent accountant to audit the funds. He refused.
But after Madoff's arrest, Nadel's scheme unraveled, the complaint alleges, when his partner pressed him again and this time he complied. He then wrote a note to his wife, which employees later found in a shredder.
The letter, in part, read: "If you want to survive this mess, what follows is for your eyes only. I strongly suggest that you destroy it after reading."
Senate Committee Told Ponzi Schemes are "Increasing"
Ponzi schemes, like those allegedly run by Nadel and Madoff, are widespread, the U.S. Senate Committee on Banking, Housing and Urban Affairs heard this morning in a hearing that focused on Madoff's alleged fraud, oversight concerns and reform ideas.
John Coffee, Jr., a law professor at Columbia University, submitted testimony reviewing a dozen different Ponzi schemes, which he said are increasingly affecting investors. He said that while annual losses from Ponzi schemes are frequently over $1 billion, such fraud has typically only been revealed when the funds collapse.
The SEC has brought approximately 70 actions against Ponzi schemes, said Linda Thomsen, the director of the Division of Enforcement.
Dr. Henry A. Backe, Jr., an orthopedic surgeon from Fairfield, CT, testified about how 15 doctors and 125 staff members at his practice were blindsided by Madoff's alleged fraud. Their pension plans had been invested with his fund, and, after depositing over $11 million, they believed they had a statement balance of approximately $33 million.
Now, Backe said, they are "devastated," "scared," "worried," and "angry." "All our savings have been stolen," he added.
To prevent further fraud, Coffee said, an external and independent custodian for all investment funds should be implemented, since "The SEC has adequate authority to do this for registered investment advisers, but lacks authority over hedge funds."
The banking committee is currently examining the Madoff case to "determine how so many people could have been deceived and how such a massive fraud could have gone undetected for so long," Chairman Senator Chris Dodd (D-CT) previously said.
Megan Chuchmach contributed to this report.