Nicola Horlick's Bramdean Alternative has admitted indirect exposure to a hedge fund company which saw its director arrested by the FBI yesterday over an alleged $50 billion (£33.34 billion) fraud.
The trust has 9.5% of assets in the Defender and Rye Select Broad Market XL Portfolio funds, both of which had trading accounts with Bernard Madoff Investment Securities.
Madoff, a former chair of Nasdaq, is said to have confessed to employees ahead of his arrest this week that the company was a giant ‘Ponzi Scheme’.
Similar to a pyramid scheme, a Ponzi fraud relies on continuing inflows of client money to payout unsustainably large amounts to earlier investors.
‘There is no innocent explanation,’ Madoff is said to have told FBI agents as they arrived at his Manhattan home. ‘[I] paid investors with money that was not there.’
The US Securities and Exchange Commission is also conducting an investigation into the company. The ultimate losses from the company remain unknown.
The figure of $50 billion was supplied by Madoff himself to investigators, admitting that his company was effectively insolvent, and had been for several years
SEC head of enforcement Linda Thomsen said: ‘We are alleging a massive fraud, both in terms of scope and duration.
‘We are moving quickly and decisively to stop the fraud and protect remaining assets for investors, and we are working closely with the criminal authorities to hold Mr. Madoff accountable’
Established in 1960 Bernard L. Madoff Investment Securities is one of the US’ leading market makers which counts several leading hedge funds and European banks among its clients.
A separate investment advisory business is believed to have had around $17 billion (£11.33 billion) under management. An unidentified employee told investigators that they believed that clients had requested redemptions of around $7 billion in recent months.