The U.S. Securities and Exchange Commission charged well-known Wall Street trader Bernard Madoff and his investment firm, Bernard L. Madoff Investment Securities LLC, with securities fraud amid allegations that the firm was effectively a multi-billion dollar Ponzi scheme.

The SEC’s complaint, filed in federal court in Manhattan, alleges that Madoff yesterday informed two senior employees that his investment advisory business was a fraud. Madoff told these employees that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that it was “basically, a giant Ponzi scheme.”

The commission says that the senior employees understood him to be saying that he had for years been paying returns to certain investors out of the principal received from other investors. Madoff admitted in this conversation that the firm was insolvent and had been for years, and that he estimated the losses from this fraud were at least $50 billion.

“We are alleging a massive fraud — both in terms of scope and duration,” said Linda Chatman Thomsen, director of the SEC’s Division of Enforcement. “We are moving quickly and decisively to stop the fraud and protect remaining assets for investors, and we are working closely with the criminal authorities to hold Mr. Madoff accountable.”

The SEC is seeking emergency relief for investors, including an asset freeze and the appointment of a receiver for the firm.

According to regulatory filings, the Madoff firm had more than US$17 billion in assets under management as of the beginning of 2008. It appears that virtually all assets of the advisory business are missing, the SEC says.

Madoff founded his firm in 1960 and has served as vice chairman of the NASD, a member of its board of governors, and chairman of its New York region. He was also a member of Nasdaq Stock Market’s board of governors and its executive committee and served as chairman of its trading committee.

The SEC’s investigation is continuing.

IE