Wirehouses dodge major Madoff fallout

Dec 19, 2008 @ 3:23 pm

By Dan Jamieson

The wirehouses appear to have escaped major exposure to Bernard Madoff's alleged Ponzi scheme.

Only, three or four of the fund of funds used by Citigroup Inc. of New York's private bank and Smith Barney brokerage unit had a 5% or smaller exposure to Madoff, according to a person familiar with the matter.

Morgan Stanley & Co. Inc.'s alternative investment management unit had no funds invested with Mr. Madoff, said spokesman Jim Wiggins.

Merrill Lynch & Co. Inc. of New York also did not have exposure to Madoff, according to a source familiar with the firm's situation.

A spokeswoman for for UBS Financial Services Inc. of New York did not respond to questions.

According to press reports, Zurich, Switzerland-based UBS's exposure to Mr. Madoff was not significant.

The whistle-blower who warned the Securities and Exchange Commission regulators about him, told the SEC in a November 2007 memo that the wirehouses' hedge fund units were suspicious.

“The Wall Street wirehouse [fund of funds] are not invested in Madoff's strategy,” wrote Harry Markopolos, the whistle-blower and former Boston-based hedge fund adviser.

“As far as I know, the wirehouse's internal FOF's all think he's a fraud and have avoided him like the plague,” he said.

French and Swiss private banks were the largest investors in Mr. Madoff's firm, Mr. Markopolos wrote.

He estimated that half or more of Mr. Madoff's assets came from overseas.


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