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From Hollywood to Tokyo, London and Jerusalem, furious victims are demanding answers. How could a 70-year-old man on the 17th floor of a Manhattan tower block fiddle the global financial community out of $50bn?
Yesterday the sheer scale of the deceit perpetrated by Bernie Madoff was only gradually becoming clear. The genial, white-haired fixture of Wall Street has emerged as one of the biggest alleged financial fraudsters in history, with victims ranging from some of the world's biggest banks to individual investors who have seen their life savings wiped out.
HSBC yesterday said it had exposure of about $1bn, while Royal Bank of Scotland is staring at a possible loss of £400m.
A children's charity run by the film director Steven Spielberg invested as much as 60% of its money with Madoff. Hundreds of prominent members of Jewish communities in New York and Florida entrusted Madoff with their savings. Even the high-flying City fund manager Nicola Horlick, once dubbed "superwoman", has been caught out in the £33.5bn scam.
"This has made law enforcement and regulatory agencies in the US look absolutely ridiculous," said Bradley Simon, a New York defence lawyer specialising in white-collar crime. "How they failed to spot this is beyond me. It's incomprehensible that they couldn't somehow have got wind of it."
Madoff's inner sanctum was a suite of offices in a New York tower known as the Lipstick Building for its distinctive shape. While a seemingly legitimate stockbroking business operated from the 18th and 19th floor, Madoff reserved the 17th floor for himself and a small group of employees.
He kept his fund management business closely under wraps - even his sons, Mark and Andrew, who were senior figures at the company, appear to have been in the dark. Madoff was holed up at his $9m penthouse on New York's Upper East Side yesterday and has made no public comment.
Madoff is thought to have covered up mounting losses by using deposits from new clients to pay off established customers. "He lost control of the situation and became desperate," says Simon. "He was basically borrowing from Peter to pay Paul."
Madoff reportedly confessed to his sons last week that his investment management business was "all just one big lie". He admitted his firm was nothing but a gigantic pyramid scheme with no capital at its core.
The son of a Jewish family from the New York borough of Queens, he set up his firm with money saved from a job as a beach lifeguard. For years, he delighted investors by delivering a return of 10% to 12% every year. There were a few whiffs of something amiss. Last year, one hedge fund advisory firm, Aksia, told its clients to steer clear of Madoff, pointing out that his books were audited by an obscure accountancy firm called Friehling & Horowitz. The firm, now under investigation by a New York district attorney, comprises three people of whom one is a secretary and another a 70-year-old partner living in Florida.
Responding to complaints, the Securities and Exchange Commission (SEC)looked into Madoff's accounts in 2005 and 2007, finding a handful of minor transgressions the first time.
Nicola Horlick, whose firm Bramdean Asset Management had 9% of its assets invested with Madoff, told the BBC US regulators could no longer be trusted. "I think now it is very difficult for people to invest in things that are meant to be regulated in America, because they have fallen down on the job," she said.
Big names snared by Madoff's scheme include the billionaire US newspaper magnate Mort Zuckerman and the owner of the New York Mets baseball team, Fred Wilpon. But many of Madoff's victims are smaller scale savers, often introduced to the financier at upscale golf clubs in Long Island or Florida's Palm Beach.
Ross Intelisano, of law firm Rich & Intelisano said many people had lost their savings: "This is a rare case in which a lot of investors we've spoken to had all their money with this one firm. They might have thought they were worth $25m one week and now they're worth nothing."
Scores of Jewish organisations have been caught up in the mess. A Massachusetts charity which funded trips to Israel for children, the Robert Lappin Foundation, closed its doors over the weekend because of losses incurred with Madoff.
If Madoff's estimate of a $50bn black hole proves accurate, his fraud far exceeds the deficit run up by rogue traders such as Nick Leeson, who brought down Barings Bank with losses of $1.4bn, or Jerome Kerviel who lost 5bn Euro at France's Socieacute eteacute Geacutenea cuterale in January.
A conviction could condemn the 70-year-old to jail for the rest of his life. It will also prompt a fresh examination of America's financial oversight system.
Laura Unger, a former SEC commissioner, said Madoff had revealed a "big hole" in the system. "Our regulatory structure is just so broke it's ridiculous. The market is so much more complex and fast-moving than the regulatory system allows for," she said.
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