How he did it - allegedly | Biggest fraud in history? | Who is exposed? | SEC complaint against Madoff | What is a Ponzi scheme? | The 10 most outrageous swindles ever

Royal Bank of Scotland (RBS), the bank majority owned by the UK Government, today admitted that it had an exposure of £400 million to the $50 billion alleged fraud carried out by Bernard Madoff, the Wall Street broker and former Nasdaq chairman.

RBS said in a statement this morning that its exposure was caused through "trading and collateralised lending to funds of hedge funds invested with Bernard L Madoff Investment Securities".

The potential loss is another blow to the beleaguered bank, which is 58 per cent owned by the Government after it accepted £20 billion from the taxpayer as part of the £37 billion bailout of British banks.

Man Group, the world's biggest listed hedge fund manager, also confirmed this morning that its RMF division has about $360 million (£240 million) invested in two funds that are "directly or indirectly sub-advised by Madoff Securities and for which Madoff Securities acts as broker-dealer executing the investment strategy".

RMF is an adviser to Bramdean Asset Management, the fund run by Nicola Horlick, who admitted last week to an exposure of about $25 million through her firm's listed Bramdean Alternatives portfolio.

Mr Madoff, the former chairman of Nasdaq, the technology-weighted US index, was arrested last week and has apparently since admitted to setting up a $50 billion "Ponzi" scheme to defraud investors.

Mr Madoff is believed to have told employees that he was “finished”, that he had “absolutely nothing”, and that “it’s all just one big lie”.

A Ponzi scheme, otherwise known as a pyramid structure, is where older-established investors are given an abnormally high return using money paid in by new clients instead of using net revenues for payments.

Madoff Securities International Limited, the London office that is 88 per cent owned by Mr Madoff, closed its doors on Friday.

It has since emerged that HSBC, Santander, the Spanish bank that owns Britain's Abbey, Alliance & Leicester and Bradford & Bingley, as well as BNP Paribas, France's largest bank, are also exposed to Mr Madoff's funds.

Santander said in a statement that it had more than €2.33 billion (£2.08 billion) worth of exposure to the Madoff scandal.

The bank said that Optimal, one of its funds, had invested the money on behalf of international investors and private banking clients. It added that it had a further €17 million exposed through another of its funds.

HSBC, the banking giant, may have a potential exposure of about $1 billion from loans made to funds investing in Mr Madoff’s venture.

BNP Paribas said last night that it had an exposure of €350 million. Reichmuth, a private Swiss bank, said that it was facing a $325 million loss and it was reported that Benbassat & Cie, another Swiss private bank, had exposure of $935 million.

Although regulatory filings show that Mr Madoff had only about 25 clients, the number who could lose money through funds that invested in Bernard L. Madoff Investment Securities could run into thousands.

Fairfield Greenwich Group, the hedge fund, said that it had $7.5 billion in investments linked to Madoff. Banque Benedict Hentsch Fairfield Partners, a private Swiss bank, has $47.5 million of clients’ money at risk.

Vincent Tchenguiz, the property magnate, who is one of Britain’s richest men, is understood to have invested £40 million with Bramdean.

The Robert I. Lappin Charitable Foundation, an American charity that supports Jewish programmes, invested its entire $8 million endowment with Mr Madoff. The head of the charity has said she does not expect it to survive.

Other wealthy individuals affected include Norman Braman, former owner of the Philadelphia Eagles American football team, Fred Wilpon, owner of the New York Mets baseball team, and J. Ezra Merkin, the chairman of GMAC Financial Services.

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