Secret fund behind £33bn Madoff scam is uncovered

The business was run alongside his firm's brokerage and investment-advisory units, and was housed on a floor at his Manhattan headquarters to which few staff had access, and which was not linked to the other floors the firm occupied.

Prosecutors and the US Securities and Exchange Commission say Madoff has confessed that his advisory business, which catered to rich people, institutional investors and hedge funds, was "all just one big lie", and the business had been insolvent for years.

But its operations remain a mystery, with investigators trying to figure out where customers' money went. Madoff, 70, told his sons last week he had as much as $300 million left, according to an SEC allegation lodged with a federal court in Manhattan. The agency is looking for additional money that may be recovered for victims.

Madoff's sons, who ran the company's market-making and proprietary units, told employees their father kept them in the dark about the advisory unit and the secret business. Publicly, the firm has listed about $17 billion in assets under management.

Details of Madoff's shadowy side-business remain elusive with so far few indicators as to how much client money it held, who else may have been involved, and how it was kept separate from the firm's registered investment-advisory unit.

Madoff is said to have duped dozens of businesses, and investigators are now probing whether others were involved in the alleged scam.

They say the name of Madoff's wife Ruth appeared on some documents, but she has not been accused of wrongdoing.

Madoff was arrested after his sons told authorities last week that he had confessed to orchestrating a Ponzi scheme with more than $50 billion in losses, the biggest in history.

The affair is a bitter blow to the reputation of US regulators, who never inspected Madoff's company. Evidence is emerging that, had the regulators inspected his registered businesses, they may have discovered the existence of the secret fund.

Madoff was "cryptic" about its investment-advisory activities when discussing them with other employees, the SEC said. The advisory business was a mystery to most staff members, two employees told Bloomberg.

Madoff's offices on Third Avenue in Manhattan had market-making and proprietary trading units on the 19th floor and back-office functions on the 18th. His advisory business was on the 17th floor, which was not linked to the other floors, with virtually no interaction between the two groups.

While Madoff seldom appeared on the 18th and 19th floors during the day, he was known to inspect in the evening for sloppy desks or window blinds that weren't fully drawn.

The only person the employees recalled seeing Madoff consult with on the 17th floor was an executive known only by his first name, Frank.