LONDON (AFP) – US financial regulators came under attack Tuesday for failing to stop an alleged 50-billion-dollar fraud scheme that heavyweight Bernard Madoff is accused of running.
As more banks andreported losses, some observers also had harsh words for professional investors taken in by the scheme.
Spain’s stock market regulator said investment funds there had direct exposure of 106.9 million euros (147 million dollars), a day after Spain’s biggest bank Santander announced potential losses of more than three billion dollars (2.19 billion euros) from Madoff Investment Securities.
Spanish newspapers tore into the US regulators.
“The supposed meticulous supervision by (US financial watchdog) the SEC has failed in the task of preventing massive fraud,” Spanish newspaper El Pais said.
La Vanguardia newspaper said: “It must be asked how it is possible that no one had detected anything abnormal about his activities.”
Madoff, 70, was arrested Thursday and allegedly confessed to defrauding 50 billion dollars in a scam that collapsed after clients asked for their money back due to the.
US authorities allege that Madoff secretly used money from new investors to pay interest to other investors, in a fraud known as a Ponzi or pyramid scheme.
Howard Wheeldon, senior strategist with BGC Partners in London, recalled former British prime minister Ted Heath’s description of a previous financial scandal as the unacceptable face of capitalism.
“I choose to call this the unacceptable face of human greed,” Wheeldon wrote.
But British investment consultants PIRC pointed out that many of those hit were professional investors.
“We therefore might also ask what financial institutions actually do for their management fee if being able to spot, and avoid, a pyramid scheme isn’t part of the service?”
Jean-Pierre Jouyet, France‘s former European affairs minister who this week took over at France’s financial markets watchdog, the AMF, said: “For the fourth time, American regulation is in question.”
He cited three previous crises: the 1998 collapse of US hedge fund managers LTCM; the 2001 false-accounting scandal involving energy giant Enron; and the collapse in September of the Lehman Brothers bank.
On Monday, Dominique Strauss-Kahn, director general of the International Monetary Fund, expressed shock at the failure of US regulators to spot warning signs at Madoff’s firm.
And US Republican Senator Chuck Grassley was scathing about the US Securities and Exchange Commission (SEC) regulators.
“They failed. This person was registered as a broker dealer, they should have known what he was doing all the time, and particularly if you have whistleblowers.”
Japanese financial firms joined the growing list of those caught up in the scandal. The Aozora Bank said its exposure might amount to 12.4 billion yen (137 million dollars).
Nipponkoa Insurance Co. and Mitsui Sumitomo Insurance Co. and put their losses at several hundred million yen — relatively small sums compared to those already announced elsewhere.
Private Austrian bank Medici said it had exposure of 2.1 billion dollars (1.5 billion euros) via two of its investment funds, but that the exposure did not threaten its survival.
“The Medici bank is not in any danger because of its solid capitalisation,” said a statement from Medici, which serves wealthy clients and .
Other big losers in the scheme included Dutch bank Fortis, which announced exposure of at least 1.2 billion dollars, and Britain’s HSBC at 1.0 billion dollars. A string of other European banks have announced exposure of up to hundreds of millions of dollars.
The, which provides a Congress-authorized special reserve fund to help investors at failed brokerage firms, said Monday it was liquidating the Madoff company.
In Germany, Deutsche Bank, Postbank and the German federation of public banks VOeB all told AFP they had no exposure to the scheme.
Germany’s second biggest bank, Commerzbank, declined to comment.
Swiss insurance group Zurich Financial Services said it had no exposure, Swiss Re said it had indirectly invested less than three million dollars. Swiss Life did not give a response.
Even the charitable Wunderkinder Foundation of Oscar-winning film-maker Steven Spielberg fell victim to the mammoth fraud and suffered losses, according to the Wall Street Journal.
Citing people familiar with the case, the newspaper said about 70 percent of the dividend income and interest for the foundation had been handled by Madoff’s securities firm, but it was not known if Spielberg had also invested any of his personal fortune.