Fund boss held 'for $50bn fraud'

The former chairman of the Nasdaq stock market has been arrested and charged with securities fraud, in what may be one of the biggest fraud cases yet.

Bernard Madoff ran a hedge fund which ran up $50bn (£33.5bn) of fraudulent losses and which he called "one big lie", prosecutors allege.

Mr Madoff is alleged to have used money from new investors to pay off existing investors in the fund.

His lawyer said he would fight to get through these "unfortunate events".

The 70-year-old has been released on $10m bail.

High-profile victims

Bramdean Alternatives has emerged as a victim of the fraud, with 9.5% of its investments exposed to the New York broker, it said in a statement on its website.

Nicola Horlick, the high profile fund manager labelled superwoman by the UK press, is the company's nominated fund manager.

In an interview earlier this year with the Financial Times, Ms Horlick praised Mr Madoff.

"He is someone who is very, very good at calling the US equity market," she said.

She added: "This guy has managed to return 1% -1.2% per month, year after year after year."

'Pyramid scheme'

Mr Madoff founded Bernard L.Madoff Investment Securities in 1960, but also ran a separate hedge fund business.

According to the US Attorney's criminal complaint filed in court, Mr Madoff told at least three employees on Wednesday that the hedge fund business - which served up to 25 clients and had $17.1bn of money under management - was a fraud and had been insolvent for years, losing at least $50bn.

He said he was "finished", that he had "absolutely nothing" and that "it's all just one big lie", and that it was "basically, a giant Ponzi scheme", the complaint said.

He told them that he planned to surrender to the authorities but not before he used his last $200m-$300m to pay "selected employees, family and friends".

Under a Ponzi scheme, also known as a pyramid scheme, investors are promised very high returns on their investment, while in reality early investors are paid with money collected from later investors.

On Thursday, two agents from the FBI went to his apartment.

According to the complaint, Mr Madoff told them he knew why they were there, and said there was "no innocent explanation".

He told them he "paid investors with money that wasn't there", that he was "broke" and "insolvent", that it "could not go on" and he expected to go to jail.

Stunning fraud

If found guilty, US prosecutors say he could face up to 20 years in prison and a fine of up to $5m.

"Our complaint alleges a stunning fraud - both in terms of scope and duration," said Scott Friestad at the SEC. "We are moving quickly and decisively to stop the scheme and protect the remaining assets for investors."

Dan Horwitz, Mr Madoff's lawyer, said: "Bernard Madoff is a longstanding leader in the financial services industry. We will fight to get through this unfortunate set of events."

Many investors have been pulling money out of hedge funds in an effort to reduce their exposure to risk.

"This is a major blow to confidence that is already shattered - anyone on the fence will probably try to take their money out," said Doug Kass, president of Seabreeze Partners Management, a hedge fund.

White House considers auto rescue

The White House says it is considering using money earmarked to rescue the US banking industry to bail out the country's struggling carmakers.

The White House said a disorderly bankruptcy in the motor industry would be a huge blow which the US economy could not withstand.

A $14bn (£9.4bn) bail-out deal for the US car industry failed to get Senate support, raising fears of job cuts.

Meanwhile General Motors said it was temporarily stopping some production.

And Honda is also to cut back output in North America.

GM, which has been pleading for an emergency government loan to avert collapse, said it would halt 30% of its North American production "in response to rapidly deteriorating market conditions".

It saw vehicle sales fall 41% in November, when overall US car sales fell 26% industry wide.

The temporary shutdowns will affect 14 US factories as well as three in Canada and three in Mexico, reducing output by 250,000 vehicles in the first three months of 2009.

"The speed and severity of the US auto market's decline has been unprecedented in recent weeks as consumers reel from the collapse of the financial markets and the resulting lack of credit for vehicle financing," it added.

'Irresponsible'

Earlier this year, the US approved a $700bn (£467bn) bail-out for the finance industry, known as the TARP programme.

It had previously been reluctant to use this money for other industries but White House spokeswoman Dana Perino said it would consider other options, including the use of the TARP program, to prevent a collapse of troubled automakers.

She added that it would be "irresponsible" to further damage the economy by allowing the Detroit car companies to fail.

"The current weakened state of the economy is such that it could not withstand a body blow like a disorderly bankruptcy in the auto industry," she added.

President-elect Barack Obama said he was disappointed that the Senate failed to act, adding that "millions of jobs rely directly or indirectly on a viable auto industry".