A former Nasdaq stock market chairman has been arrested on a securities fraud charge, accused of running a phony investment business that amounted to what prosecutors called a "giant Ponzi scheme”.
Bernard Madoff was released on $US10 million ($A14.9 million) bail. He declined to comment as he walked out of court.
Madoff, 70, the founder of Bernard L. Madoff Investment Securities, maintained a separate and secretive investment-advising business that served between 11 and 25 clients and had a total of about $US17.1 billion ($25.5 billion) in assets under management, prosecutors said.
They said he told employees on Wednesday that it had been insolvent for years, losing at least $US50 billion ($76 billion).
Madoff told employees he was "finished,” that he had "absolutely nothing,” that "it’s all just one big lie” and it was "basically, a giant Ponzi scheme,” according to a criminal complaint in the US District Court in Manhattan.
Defence lawyer Dan Horwitz called Madoff "a person of integrity” and said he intended to fight the charge.
If convicted, Madoff could face up to 20 years in prison and a maximum fine of $US5 million.
Bernard L. Madoff Investment Securities ranks among the top 1% of US securities companies, according to its website.
Prosecutors noted in a release that the website also notes: "Clients know that Bernard Madoff has a personal interest in maintaining an unblemished record of value, fair-dealing and high ethical standards that has always been the firm’s hallmark.”
A Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises (and pays) requires an ever-increasing flow of money from investors in order to keep the scheme going. The system is destined to collapse because there are little or no underlying earnings from the money received by the promoter.
The scheme is named after Charles Ponzi, who became notorious for using the technique after emigrating from Italy to the United States in 1903.