Last modified: 2008-12-16 09:06:35 by themortgagedude

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...one should note that a number of people interviewed said they figured Madoff was "cheating" since he was a market maker and had returns they couldn't explain - they just didn't think he was cheating them!

Last modified: 2008-12-16 13:44:40 by grody

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Madoff Scheme Was ‘Impossible’ to Do Alone, Says EIM’s Busson
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By Tom Cahill and Stephanie Baker

Dec. 16 (Bloomberg) -- Bernard Madoff’s alleged Ponzi scheme, which might have cost investors $50 billion, couldn’t have been carried out alone, said Arpad ‘Arki’ Busson, chairman and founder of Swiss investment firm EIM SA.

“For the amount of money and number of accounts, it’s practically impossible that he was doing this alone,” said Busson, whose $11.5 billion fund of hedge funds had about $230 million invested with Madoff. “What’s mind-boggling is the amount of assets and the amount of time he was doing it.”

EIM, which manages accounts for mostly institutional clients, invested with funds that had managed accounts overseen by Madoff. EIM will likely write down its stake to zero, Busson said. Madoff was arrested Dec. 11 after he told his sons that Bernard L. Madoff Investment Securities LLC was a fraud, according to the U.S. Securities and Exchange Commission.

“There’s only so much due diligence you can do, and in hindsight you always wish you could have done it differently,” Busson said in a telephone interview. “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.”

About two-thirds of EIM accounts had no holdings with Madoff, while no single account had more than 5 percent, Busson said. EIM, based in Nyon, Switzerland, gained comfort with Madoff because one of the feeder funds produced a statement of accounts that showed “every trade” and that was audited by PricewaterhouseCoopers, Busson said.

Not From ‘Boondocks’

Madoff’s history showed he was “not someone from the boondocks,” Busson said. Madoff had been head of the trading committee at the Securities Industry Association, Wall Street’s biggest trade group, and served as chairman of the Nasdaq Stock Market, advising on new stock-market rules in response to the growth of electronic trading.

Unlike most hedge funds, Madoff’s business was regulated by the SEC, giving investors an added layer of protection, Busson said.

“I knew the SEC was all over this shop. As a broker-dealer, you file quarterly statements,” he 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.”

Madoff ran his investment advisory business from a separate floor of his firm’s New York offices, keeping financial statements “under lock and key,” prosecutors said. Early in December, he told one employee that clients wanted to redeem about $7 billion and that he was struggling to free up the funds, the government said.

Reduced Stake

EIM was in the process of “trimming back” its holdings with Madoff when the fraud came to light, Busson said. He thought an employee was joking when he called and said Madoff had been arrested, Busson said.

The complexity and duration of the fraud made it unlikely that he could have operated it alone, particularly because Madoff took vacations, he said.

Busson said he last saw Madoff in July at an airport in Nice, on France’s Mediterranean coast.

To contact the reporter on this story: Tom Cahill in London at tcahill@bloomberg.net; Stephanie Baker in London at stebaker@bloomberg.net.