Madoff arrest: ‘No innocent explanation’

The sight of the Wall Street legend Bernard L Madoff, shaken and staring at the ground as TV reporters fired questions at him, came as a real shock to New Yorkers. He was one of the biggest names in the financial services industry and had helped start the Nasdaq stock market.

But on Thursday morning he was arrested by FBI agents at his Manhattan apartment and charged with swindling investors in what the SEC (the Securities and Exchange Commission) is calling "a stunning fraud" of "epic proportions". Some are saying it could prove to be the biggest fraud ever perpetrated on Wall Street.

The SEC claims that Madoff's firm, Bernard L Madoff Investment Securities, had $17 billion in assets under management at the start of 2008 - and virtually all of it is missing. (As Forbes reports, "On the bright side, investors would have lost about half of that on the stock market this year anyway".)

Madoff, 70, was released on $10m bail, secured against his Manhattan apartment. According to a report in the New York Times, things began to unravel earlier this week when Madoff, visibly stressed, admitted to colleagues that he was having trouble raising cash to meet requested withdrawals.

On Wednesday evening, two senior employees visited him at his apartment where he allegedly confessed that his money-management business was "all just one big lie" and "basically, a giant Ponzi scheme". This is named after Charles Ponzi, one of America's legendary swindlers, and is basically a scheme that offers unusually high returns, with early investors paid off with money from later investors.

Madoff is said to have told the two men that he intended to surrender to the authorities in about a week but first wanted to distribute approximately $200m to $300m to "certain selected employees, family and friends". But FBI agents were at his door early the next day to arrest him and, according to the SEC, he confessed to one of them that there was "no innocent explanation" for his behaviour and he expected to go to jail.

Madoff famously built his career on the money he earned as a lifeguard on the beaches of Long Island after the war. He is a former chairman of Nasdaq and was also on the board of governors of the National Association of Securities Dealers.

One of his lawyers, Daniel Horwitz, said yesterday: "Bernie Madoff is a longstanding leader in the financial services industry. He will fight to get through this unfortunate set of events."

Which is not quite how they see it at the SEC. "We are alleging a massive fraud - both in terms of scope and duration," said Linda Chatman Thomsen, director of the commission's enforcement division. A team of examiners was at Madoff's offices "day and night, poring over the records".