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Extent Of Losses From Madoff Unclear

MICHELE NORRIS, host:

From NPR News, this is All Things Considered. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block. The Bernard Madoff scandal continues to widen. The list of investors who say they were swindled by the famed money manager includes big financial institutions, among them the Royal Bank of Scotland. It also includes charities linked to the very wealthy, including publisher Mort Zuckerman and Steven Spielberg, also Nobel laureate Elie Wiesel. Federal officials arrested Bernard Madoff last week and charged him with running a giant Ponzi scheme. What's more, U.S. officials are increasingly defensive about how this scandal happened. NPR's Jim Zarroli reports.

JIM ZARROLI: While federal investigators spent the day pouring through documents in Madoff's midtown Manhattan office, his victims were beginning to take stock of their losses.

Mr. KEN FLATTO (First Selectman, Fairfield, Connecticut): This is a crime. This is a huge hit. And we're very troubled.

ZARROLI: Ken Flatto is the first selectman, the equivalent of mayor in the town of Fairfield, Connecticut. The town entrusted about 15 percent of its employee pension fund, or more than $40 million, to an investment firm. And that firm invested the entire amount with Madoff. Now the town is trying to figure out how much, if any, is left.

Mr. FLATTO: This is going to be a complicated situation. We have plenty of money for our current retirees. The problem is our future retirees. We were banking on this extra money to pay pensions 20, 30 years from now.

ZARROLI: Town governments, real estate moguls, hedge funds, charities - they were all taken in by the 70-year-old Madoff whose investment prowess was legendary. And they all eagerly forked over money to him. Federal officials say he had about $17 billion under management, but he borrowed against the value of his assets to buy even more, so the total loses may run to $50 billion. Ultimately, it all came crashing down around him. The anger and recriminations have been bitter. Nicola Horlick manages an investment fund in London that lost money with Madoff. She told the BBC that the fault for the debacle lay squarely with U.S. regulators.

Ms. NICOLA HORLICK (CEO, Bramdean Asset Management, London): It's very difficult for people to invest in things that are meant to be regulated in America because they have fallen down on the job. And you know, this is all through the credit crunch that this has been apparent. And this is the biggest scandal, financial scandal, probably in the history of the markets.

ZARROLI: In fact, a lot of people today were wrestling with the question of just how Madoff could get away with so big a fraud without regulators catching on. Madoff had registered as an investment adviser, and as such the Securities and Exchange Commission had the authority to oversee his books. But former SEC Chairman Arthur Levitt says the SEC can't keep up with its workload these days.

Mr. ARTHUR LEVITT (Former Chairman, SEC): The SEC, as I understand it, is so shorthanded on staff that they get to inspect an advisory account on average once every five years. I don't think that's nearly enough.

ZARROLI: Then again, Levitt says, even if the SEC had inspected Madoff's accounts, it's not clear they would have found anything, not if Madoff really wanted to cover his tracks. For her part, SEC Enforcement Director Linda Chatman Thomsen insisted today that the SEC continues to pursue the case aggressively.

Ms. LINDA CHATMAN THOMSEN (Enforcement Director, SEC): I can say that right now we are acutely focused with our colleagues at the Southern District of New York and the FBI to figure out exactly what's going on to pursue the case that we've got and to bring everyone who is responsible for the conduct at the Madoff firm to justice.

ZARROLI: But the Madoff case has underscored, once again, some of the holes in the U.S. regulatory system, and it's given advocates of tougher oversight some new ammunition to press their case with the next administration. Jim Zarroli, NPR News, New York. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jim Zarroli is an NPR correspondent based in New York. He covers economics and business news.
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