Page last updated at 11:37 GMT, Thursday, 19 February 2009

Madoff victims count their losses

Bernard Madoff's Florida home

By Michelle Fleury
BBC business correspondent, Florida


Palm Beach is pure escapism - the wealthy elite's retreat from colder climes and from the rest of us.

It's an unreal world where cultures and egos clash and cachet comes from spending big - whether it's on Ferraris or philanthropy.

For Bernard Madoff, the man who may have committed one of the world's biggest frauds, it was rich pickings.

These days his Palm Beach home lies empty.

After admitting to authorities that his business was one big lie, Mr Madoff is under house arrest, confined to his Manhattan apartment.

By his own account, the fraud amounted to an astonishing $50bn (34.7bn).

Consistent returns

He's not been indicted yet, or entered a plea - but in the parallel civil case Mr Madoff has agreed not to contest fraud charges brought by US regulators.

The list of victims is immense, international and growing - at least 13,500 different accounts according to bankruptcy court documents. One of those caught up in his web of deceit is part-time Palm Beach resident, Seymour Scharer.

About to turn 90, he's typical of many of Madoff's wealthier victims.

Investor Seymour Scharer
Investor Seymour Scharer was one of Madoff's victims

Attracted by Mr Madoff's promise of consistent returns, he says he needed an introduction from a friend to gain access.

"I didn't meet him personally but I did have him accept my money," he said. "That was the whole game. He had to accept your money and not everybody got in."

When the news first came out on 11 December, Mr Scharer and his wife were at a charity event. She asked friends not to mention it to him. She was afraid of what the shock might do.

He'd invested $10m with Mr Madoff - a sum that grew to almost $20m, money that was intended to go to charity.

"I just feel betrayed," he says, "and I feel sorry for the people I was going to help."

Many of Mr Madoff's victims were members of the Palm Beach Country Club, where philanthropy is a membership requirement.

Numerous charities and foundations helping causes around the world have been devastated. Others trapped include foreign banks, the rich and famous, as well as ordinary investors.

Trading statements

What many of them want to know is: how was he able to con so many for so long?

Forensic psychiatrist Dr Michael Welner
A forensic psychiatrist sees Madoff as a "master mind"

"He knew what he was doing was wrong," says forensic psychiatrist Dr Michael Welner, "but all along the way... he was making people happy, so he never had to deal emotionally with the idea he was hurting anyone."

Dr Welner believes Mr Madoff was able to continue for so long because he was detached from both the transaction and the consequences.

He describes Mr Madoff's behaviour as "organised crime" which requires a "master mind".

Palm Beach accountant Richard Rampell says Mr Madoff was certainly clever enough to produce detailed trading statements that he says looked like any "you would get from an investment or brokerage firm".

Over the years, many of his clients received detailed trading records showing how their money was invested.

Looking down the list of stocks, these included many recognisable names: Wal-Mart, Coca Cola and Johnson & Johnson, to name a few.

Feeling rich

These statements now appear to be pure fantasy. According to the regulatory body which oversees US securities firms Mr Madoff's investment fund may not have made even a single trade.

Someone had to generate all that paperwork which is why Richard Rampell isn't convinced by Mr Madoff's assertion that he acted alone: "To me, that doesn't pass the smell test."

As investors try to recoup their losses, they're targeting some of these so-called feeder funds which channelled money to Mr Madoff.

These include Walter Noel's hedge fund Fairfield Greenwich, which lost $7.5bn and celebrated money manager Ezra Merkin who saw his three funds lose at least two billion dollars.

Meanwhile Mr Madoff's neighbour in Palm Beach, Robert Jaffe, who was seen as his emissary, was ordered to testify before regulators in Massachusetts.

A series of lawsuits will try to determine whether some of these middlemen were complicit, incompetent or simply victims as well. Many lost personal fortunes along with their clients.

In Palm Beach, despite his losses, Seymour Scharer can afford to be stoic.

"I don't feel the anger", he says. "He created a feeling of wealth that was false. But you felt rich. Because he was earning 10% or so a year. So it made you feel good."

The Madoff scam - if proven - is the perfect fraud for our times - during the boom years America was seduced by the illusion of easy money, and a blind faith that house prices could only up.

Now, after the collapse and with the global economy reeling, it seems obvious: it was always too good to be true.

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