It takes an extraordinarily heartless conman to swindle a survivor of Auschwitz and Buchenwald and Nobel Peace Prize winner out of all his charitable funds.

Yet that is exactly what Bernard “Bernie” Madoff is alleged to have done to Elie Wiesel, the author of the Holocaust classic Night and a friend from the Jewish community in south Florida.

The Elie Wiesel Foundation for Humanity now admits that it invested $15.2 million (£10.1 million) with Mr Madoff that represented “substantially all of the foundation's assets”. The charity of the Nobel laureate, in New York, will have to raise new funds if it is to maintain its two centres in Israel that help Ethiopian Jews and Darfuri refugees and continue its other work.

“We are deeply saddened and distressed that we, along with many others, have been the victims of what may be one of the largest investment frauds in history,” a spokesman for the foundation said.

The scope of the alleged fraud by Mr Madoff is $50 billion — enough to bail out the entire US car industry several times over. According to court papers he told his sons that he was running a “giant Ponzi scheme” in which early investors were paid with money from later ones.

Caught up in his alleged web of deceit were banks such as HSBC and the Royal Bank of Scotland, Man Group, one of the biggest hedge funds in the City, and Nicola Horlick's Bramdean Alternatives.

Other high-profile investors include Mortimer Zuckerman, the proprietor of the New York Daily News; Senator Frank Lautenberg of New Jersey; Eliot Spitzer, the disgraced New York Governor; and Hollywood titans Steven Spielberg and Jeffrey Katzenberg. Eric Roth, the screenwriter for Forrest Gump and another investor, called himself “the biggest sucker who ever walked the face of the Earth”.

The impact was particularly severe on members of the Jewish community recruited to the alleged scheme through word of mouth.

“These people have had their trust shattered. They range from the small minority who had just a few hundred thousand to people with over $100 million,” said Brad Friedman, of Milberg, a New York law firm preparing multiple suits to recover missing funds. “A huge number knew him personally.”

The Securities and Exchange Commission (SEC) calls such crimes among a particular social circle or ethnic group “affinity fraud”. “Here, what is being targeted was other people who were Jewish, by someone who was Jewish, because they share a common background and common associations,” said Ronald Cass, the dean emeritus of the Boston University School of Law and chairman of the Centre for the Rule of Law.

Mr Madoff, 70, a pillar of Wall Street for almost half a century, is on $10 million bail in his Upper East Side penthouse. He must wear an electronic tag on his ankle and observe a curfew between 7pm and 9am.

Investigators have been carrying away boxes of paperwork from the office on the 17th floor of the Lipstick Building in New York that served as the nerve-centre of his multibillion-dollar operation. His wife, Ruth, 67, who surrendered her passport as a condition of his bail, is also reported to be under investigation.

Their $7 million East 64th Street penthouse has been pledged to secure bail, along with their $9.4 million mansion in Palm Beach, Florida, and their $3.1 million beachfront house in Montauk, Long Island.

It was his sons — Andrew and Mark — who turned Mr Madoff in to authorities on the day that he allegedly told them: “It's all just one big lie.”

Court papers said that Mr Madoff ran into a cash crunch when investors sought to redeem $7 billion this autumn.

Mr Madoff was born in the New York borough of Queens and started his company in 1960 with $5,000 that he had saved working as a lifeguard and a sprinkler installer. Although he never finished law school his early grasp of computers enabled him to pioneer electronic stock trading.

The firm became a leading market-maker, with investment as a sideline. Over the years he delivered his investors a steady 10-13 per cent return that had clients clamouring to give him their money.

Investing with Mr Madoff was considered so secure that clients joked that he was the “Jewish T-bill” [treasury bill]. His brother and sons, his niece Shana and nephew Charles Weiner, all joined the firm.

Mr Madoff and his wife collected wealthy investors while they played golf in the Hamptons, at Old Oaks in Westchester County and the Boca Rio in Boca Raton. “Everybody recommended to everybody that this was somebody who could be trusted,” said one investor who lost millions.

Worst hit by the alleged pyramid scheme was the Palm Beach Country Club in Florida, set up in the 1950s by Jews who were barred from Anglo-Saxon clubs. Up to a third of its 300 members are said to be investors.

He was introduced to the Palm Beach social scene by Carl Shapiro, the women's clothier who met Mr Madoff 48 years ago and treated him like a son. His son-in-law, Robert Jaffe, works for a firm that attracted investors for Mr Madoff.

Mr Shapiro is now the biggest individual loser of the alleged scheme, with $545 million of his personal fortune and $145 million from his family charity invested with Mr Madoff. Watching the arrest of Mr Madoff on television was “a knife in the heart”, he said.

On Saturday night an irate Madoff client reportedly confronted Mr Jaffe at the exclusive Mar-a-Lago Club in Palm Beach.

Suspicions about about the market-beating returns of Mr Madoff have circulated for years, even prompting a 2001 article in Barron's magazine titled “Don't Ask, Don't Tell”.

A rival money manager first alerted the SEC about possible fraud in May 1999 after failing to duplicate Mr Madoff's supposed trading strategies. In one of a series of follow-up e-mails in 2007, Harry Markopolos told the SEC the operation “is likely a Ponzi scheme”.

One wealthy investor told The Times that he pulled his money out of Mr Madoff's fund two years ago. “I didn't figure out it was a Ponzi scheme,” he said. “But he wasn't giving me any information about what he was doing with my money, which is not good.”

Christopher Cox, the chairman of the SEC, said this week that he was “gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations”. He promised to investigate the failings of the regulators, including any possible conflict of interest surrounding the marriage last year of Shana to Eric Swanson, a top SEC official until 2006.

Barack Obama, the President-elect, named a new SEC chairman and called the Madoff case “a massive fraud that was made possible in part because the regulators who were assigned to oversee Wall Street dropped the ball”.

“The hurt the Jewish community is feeling is as much emotional and psychological as it is financial,” said Gary Tobin, the president of the Institute for Jewish & Community Research in San Francisco. “When you have [targeted] Spielberg, an American hero, and Wiesel, a Holocaust survivor, it's hard to get more slimy than that.”

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