Financial world still amazed over Madoff's downfall

ByABC News
December 15, 2008, 11:48 AM

NEW YORK -- The financial world begins this week still in a daze over the spectacular collapse of an alleged Ponzi scheme by onetime Wall Street legend Bernard Madoff possibly the biggest swindle ever committed by a single person.

It's "a stunning fraud that appears to be of epic proportions," Andrew Calamari of the Securities and Exchange Commission's New York Regional Office said in a statement after the FBI arrested Madoff last week.

It's unclear how many institutions and individuals will suffer from losses that federal authorities say Madoff privately pegged at $50 billion.

The repercussions could affect the entire investment industry if lawmakers decide they must try to prevent additional losses on such a massive scale. "It's a good thing, because cases like Madoff will lead to tighter and more oversight," says Roland Eberhard, who oversees $500 million in investments for Basel Asset Management.

Officials allege that Madoff falsified reports from a secretive money management service that he owned run separately from his main stock transaction firm to make it appear to be more successful than it was. Madoff allegedly kept it going by taking cash from unwitting new investors to pay customers who wanted to redeem their holdings.

In a January SEC filing, Madoff said he managed $17.1 billion in assets for 23 clients. But potential victims could number in the hundreds and possibly thousands and include major banks, hedge funds, charities and pension funds.

Responding to an SEC lawsuit, on Friday, U.S. District Judge Louis Stanton in New York froze the assets and accounts of Madoff's investment business and appointed Lee Richards, an attorney at Richards Kibbe & Orbe, as receiver.

Madoff's lawyers have denied the charges but did not return calls for comment. Madoff was released after posting $10 million in bail. He faces up to $5 million in fines and up to 20 years in jail if convicted. The SEC and U.S. Attorney's office say their investigation is continuing and declined to comment.

For now, many are amazed at the abrupt collapse of a financier considered so innovative and successful that wealthy individuals and blue-chip firms sought his investment services and advice.