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Madoff Fraud Will Hit Hedge Funds Hard

$50B Ponzi scheme will stagger funds, send investors to exits

By Clay Dillow, Newser Staff

Posted Dec 12, 2008 10:20 AM CST

(Newser) – Even as hedge funds face their worst yearly returns ever, they may take another collective $10 billion hit on money invested in Bernard Madoff’s namesake firm, which was revealed to be a giant Ponzi scheme yesterday, Bloomberg reports. Madoff was arrested and charged with fraud after admitting that his investment business was “one big lie” that lost up to $50 billion in clients' money.

Fairfield Sentry, a historically solid fund, may be the hardest hit, with $7.3 billion invested with Madoff. Bermuda-based Kingate Management had $2.8 billion invested, as did countless individual investors, who could face a complete loss. Meanwhile, James Cramer says the scam could have a dramatic impact on Wall Street, "bigger than Boesky."

[Images (2)]

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Bernard L. Madoff, founder of his own eponymous financial firm, called it "one big lie" and "a giant Ponzi scheme" before his arrest yesterday. He may have lost as much as $50 billion in client funds. (Yeshiva University)

Uncertain markets have brought many hedge funds to their knees; now, one of their own has lost as much as $50 billion for the ailing industry. (AP Photo/Richard Drew)

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When it hit the headlines, I said, 'There goes a guy that didn't matter that much.' I was wrong. It's not under the radar screen now. It's a gigantic green mass on the screen and its heading right for the psyche of this market. - James J. Cramer

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Madoff Fraud Will Hit Hedge Funds Hard