The tally of reported losses climbed through the weekend to nearly $20 billion, with a giant Spanish bank, Banco Santander, reporting Sunday that clients of one Swiss subsidiary lost $3 billion.

Share story

The epicenter of what may be the largest Ponzi scheme in history was the 17th floor of the Lipstick Building in Midtown Manhattan.

A busy stock-trading operation occupied the 19th floor, and the computers and paperwork filled the 18th floor of Bernard L. Madoff Investment Securities.

But the 17th floor was Bernie Madoff’s sanctum, occupied by fewer than two dozen employees and rarely visited by other employees. They called it the “hedge-fund” floor, but federal prosecutors said the work Madoff did there was a fraud scheme whose losses Madoff himself estimates at $50 billion.

The tally of reported losses climbed through the weekend to nearly $20 billion, with a giant Spanish bank, Banco Santander, reporting Sunday that clients of one Swiss subsidiary lost $3 billion.

This week, save 90% on digital access.

The list of prominent victims also grew. According to a person familiar with the business of the real-estate and publishing magnate Mort Zuckerman, he is on a list of victims that already included the owners of the New York Mets, a former owner of the Philadelphia Eagles and the chairman of GMAC.

The 17th floor is now an occupied zone, as investigators and forensic auditors try to piece together what Madoff did with the billions entrusted to him by individuals, banks and hedge funds around the world.

Only Madoff, 70, the firm’s founder, has been arrested. He is free on a $10 million bond.

A question dominates the investigation: How one person could have pulled off such a far-reaching, long-running fraud, carrying out all the simple practical chores the scheme required, such as producing monthly statements, annual tax statements, trade confirmations and bank transfers.

Firms managing money on Madoff’s scale would typically have hundreds of people involved in these tasks. Prosecutors said he claims to have acted alone.

“Our task is to find the records and follow the money,” said Alexander Vasilescu, a lawyer in the New York office of the Securities and Exchange Commission (SEC). As of Sunday night, he said, investigators could not shed much light on the fraud or its scale. “We do not dispute his number; we just have not calculated how he made it,” he said.

Scrutiny is also falling on the many banks and money managers who helped steer clients to Madoff and say they are among his victims.

While many investors were friends, even more had entrusted their money to professional advisory firms that, in turn, handed it to Madoff — for a fee. Investors are questioning whether these paid advisers were diligent enough in investigating Madoff.

Santander may face $3.1 billion in losses through its Optimal Investment Services, a fund of hedge funds owned by the bank. At the end of 2007, Optimal had $8 billion under management, according to the annual report.

A spokesman for Santander declined to comment.

Other Swiss institutions, including Banque Benedict Hentsch and Neue Privat Bank, acknowledged being at risk, with Hentsch confirming about $48 million in exposure.

BNP Paribas said it had not invested directly in the Madoff funds but had about $500 million at risk. The private Swiss bank Reichmuth said it had $327 million in potential losses. HSBC, one of the world’s largest banks, said it had made loans to institutions that invested in Madoff but did not disclose its potential losses.

By Wall Street standards, the Madoff firm did not pay exceptionally well. Madoff’s family filled the senior positions, but his was not the only family; generations of employees had worked for Madoff.

Even before Madoff collapsed, some employees were mystified by the 17th floor. In recent filings, Madoff claimed to manage $17 billion for clients, a number that would normally occupy a staff of at least 200 employees, far more than the 20 or so who worked on the 17th floor.

Nevertheless, Madoff attracted and held the trust of companies and people who prided themselves on their diligent investigation of investment managers.

One was Walter Noel Jr., who struck up a business relationship with Madoff 20 years ago that helped earn his investment firm, the Fairfield Greenwich Group, millions in fees.

Over time, one of Fairfield’s strongest selling points for its largest fund was its access to Madoff. But now, Noel and Fairfield are the biggest known losers in the scandal, facing potential losses of $7.5 billion, more than half its assets.

Working alongside the federal investigators on Madoff’s 17th floor, employees for Lee Richards, the court-appointed receiver for the firm, are trying to determine what parts of the firm can keep operating to preserve assets for investors.

A hotline number had been posted on the company Web site,, but late Sunday, Richards said there was little reason to call: “We don’t have anything to report to investors at this time.”

Custom-curated news highlights, delivered weekday mornings.