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AFP - US authorities said Monday they were liquidating Bernard L. Madoff Investment Securities LLC of New York, following his arrest for alleged fraud to the tune of 50 billion dollars.
The Securities Investor Protection Corporation (SIPC), which provides a Congress-authorized special reserve fund to help investors at failed brokerage firms, said it was liquidating the Madoff company.
"Upon information provided by the United States Securities and Exchange Commission and the Financial Industry Regulatory Authority, it is clear that the customers of the Madoff firm need the protections available under federal law," said SIPC president and CEO Stephen Harbeck in a statement.
Global finance giants admitted huge potential losses on Monday in a suspected pyramid fraud scam run by Madoff, a 70-year-old Wall Street veteran.
Madoff was arrested on Thursday and allegedly confessed to defrauding investors of 50 billion dollars in a scam that collapsed after clients asked for their money back due to the global financial crisis.
US authorities allege that Madoff delivered consistently strong returns to clients by secretly using the principal investment from new investors for payments to other investors in what is known as a "pyramid fraud."
The scheme apparently worked as long as Madoff could attract new investors but seems to have unraveled when some of his clients asked to withdraw their investment -- only to discover that his seemingly brimming coffers were empty.
The US district court for the Southern District of New York appointed Irvin Picard as trustee for liquidating the brokerage firm and designated law firm Baker & Hostetler LLP as Picard's counsel.
"Picard has served as trustee in more brokerage firm liquidations than any other individual. SIPC and the trustee are dedicated to returning assets to customers as promptly as possible," Harbeck added.
SIPC indicated it was liquidating the company under the Securities Investor Protection Act (SIPA), which arranges for the transfer of funds from a failed brokerage firm to a different one.
But Harbeck warned that "it is unlikely that SIPC and the trustee will be able to transfer the customer accounts of the firm to a solvent brokerage firm," due to the state of the Madoff firm's records.