Confronted in his Manhattan apartment,

Bernard Madoff

said he had "paid investors with money that wasn't there."

The ex-Nasdaq Stock Market chairman then conceded that the $50 billion catastrophe was all his fault, according to

FBI agent Theodore Cacioppi


The New York and Palm Beach investors, Connecticut hedge funds, European banks, Jewish institutions and other clients who the feds say lost fortunes with Madoff better hope he's wrong about acting alone.

Because if past pyramid schemes are any guide - and if Madoff is as broke as he contends - their best hope for getting something back could be in nailing other people and institutions who made Madoff's work possible.

When operators like Madoff are accused of using new investor cash to pay old investor profit, "usually the operator tries to take all the blame, which is

what Madoff is doing," says Philadelphia lawyer

David Marion.

"Madoff is 70. He's nearing the end of his working life," Marion said. "He doesn't want his sons, who were in the business, to suffer for this.

"But you can't do this alone."

Same old era

Marion, past chairman of

Montgomery, McCracken, Walker & Rhoads L.L.P

., represented some victims of the

Foundation for New Era Philanthropy

scheme, which lifted millions from sophisticated Philadelphia institutions and credulous Protestants in the early 1990s.

He was also a court-appointed trustee for victims of another Main Line fraud,

Entrust Group-Bentley Financial Services

, after the Securities and Exchange Commission shut it down in 2001.

Operators of New Era and Entrust went to prison; investors got part of their money back, then pressed claims against big financial institutions where they did business, with some success.

After New Era bamboozled the

University of Pennsylvania, the Academy of Natural Sciences

, and evangelical colleges in the mid-1990s, investors won an $18 million settlement from

Prudential Securities

, New Era's broker.

When Entrust and its affiliates sold Midwestern credit unions,

Chester County school districts

and dozens of others investments that turned out not to have the federal insurance they'd been promised, investors won a $33 million judgment against Florida's

Peninsula Bank

and a group of local stockbrokers they had accused of working with the sellers.

Peninsula and the brokers appealed; their briefs are pending before the Third Circuit. Bentley investors are also suing a Philadelphia-area bank and a giant insurer, which have contested the claims.

Errors and Omissions

When he heard about Madoff's meltdown from friends in Palm Beach,

Joseph V. Del Raso

, head of the investment-management practice at

Pepper Hamilton L.L.P

. and another past trustee who has handled fraud victims' claims, quickly found himself listing the places outraged investors might go to get paid.

They could take losses off their taxes. They might get up to $500,000 each (a fraction of most of their investments) from federal brokers' insurance.

"Maybe Madoff had fidelity bond insurance. Transfer agency bonds. Errors and Omissions policies," Del Raso said. "Who were their correspondents and counterparties? Who worked with them? Did they have a prime broker? Should these firms' compliance have picked it up?

"And the investors' accountants, advisers, lawyers - who knew, and who should have known?"

The Financial Times reported last week that three of the Big Four U.S. accounting firms represented Madoff or its major investors. The newspaper said some of the hedge funds that trusted Madoff - and face heavy claims from their own investors - are already planning to sue the bean-counters.


In a pyramid scheme, nobody's safe - even the early investors who got their money out.

When Philadelphia broker

Raymond Mohr

was sentenced to prison in 2003 for duping fellow Masonic Lodge members and suburban country club members out of more than $3 million, investors who got their money back, with interest, were startled to hear from their lawyers that they - the luckier clients - might have to bail out less-fortunate investors.

For all the damage he's accused of wreaking in New York, Boston, Florida, Connecticut and European banking centers, Madoff doesn't seem to have focused on Philadelphians.

It can't be that we're inherently smarter. Maybe local investors learned from our homegrown examples?