Bernard Madoff: the Irish angle
The collapse of New York trading and investment advisory firms bearing the name of their founder, Bernard Madoff, is making news around the world. Madoff has apparently told federal investigators that he ran a $50 billion Ponzi scheme i.e. in which the principal of new investors is used to pay returns to previous investors. As with the sub-prime housing crisis, what might have been thought to be a mainly American problem has spread quickly to big name European banks. And there’s an interesting little detail on how Spain’s Banco Santander thinks it lost a lot of client money in Madoff’s firm –
Banco Santander ran a hedge fund called Optimal Investment Services. This was basically an umbrella fund which took in client money and then parcelled it out in various investment strategies. One in particular:
Optimal Strategic U.S. Equity fund.. is fund run by Optimal Multiadvisors Ireland Plc, an Irish arm of Optimal Investment Services, Santander’s hedge fund management arm. Of the 2.33 billion euros invested through Optimal Strategic, 2.01 billion euros belongs to institutional investors and international private banking customers, Santander said.
The problem now is that the sophisticated investment strategy that Santander’s wealthy customers thought they were getting might turn out to have been “Give it to Bernie”. The question now being, where’s Bernie?
No doubt Irish regulators will think this was none of their business. If Santander wanted to run a US equity fund for non-Irish clients through an Irish registered vehicle, it’s up to them to keep an eye on it. But the financial sector is an area where Ireland’s name keeps coming up. The financial crisis began in August 2007 with the collapse of various structured investment vehicles, many of which were also registered in Dublin.
But there are many signs that the rules of international economic relations are changing. Note Alistair Darling’s apparent loss of patience with the UK dependency financial havens dotted around the channel and the Irish sea. One thing for Brian Lenihan‘s crowded in-box might be taking a look at what kind of business our tax and regulatory structure has been attracting, and whether we risk our reputation in allowing things to continue as they are.
UPDATE: Also on the list of Madoff exposures: UniCredit (large Italian bank); Exposure: EUR75M: Dublin-based Pioneer Alternative Investments indirectlyexposed to Madoff via feeders
Feeders are funds whose investment strategy was to place funds with Madoff to invest.