FRIENDS of Andrés Piedrahita and Corina Noel were exchanging e-mails last week, trying to ascertain whether their Christmas trip to Mustique was going ahead as planned.

It was supposed to be the usual affair; meet on Boxing Day in Barbados, then fly to the exclusive island by private jet. There they would eat their turkey in the sunshine at Yemanja, the Noel family holiday home, and enjoy views that are reputed to be the best on the island. Or so says fashion magnate Tommy Hilfiger, who lives next door.

Although the guest list had yet to be finalised, the circle usually included a handful of Europe’s financial elite, such as Alberto Cortina, the billionaire Spanish banker, and Lawrence Stroll, the former owner of Asprey.

Other acquaintances include Arki Busson, the London-based hedge-fund impresario and fiancé of actress Uma Thurman, as well as the younger generation of the BotÍn family, the banking dynasty that runs Santander – owner of Abbey and Alliance & Leicester.

In the past few days, however, Andrés and Corina have dropped off the social radar, refusing to answer calls to their Belgravia townhouse or their home in Madrid. Not all the calls were friendly.

As the European head of the investment firm Fairfield Greenwich, Piedrahita was one of the most prolific salesmen for Bernard Madoff. Fairfield, run by Corina’s father Walter Noel, has emerged as Madoff’s biggest single victim and may lose more than $7.5 billion (£5 billion). Many of its clients were lured in through a network of the family’s connections.

Four of Noel’s five daughters married men who worked for the family firm; many of the Europeans exposed to the scam were introduced by Piedrahita, or Yanko Della Schiava, who runs the firm’s operations in Italy, and is married to Corina’s sister Lisina.

Whether it was at his birthday party on the island of Capri, or aboard his yacht in Majorca, Piedrahita was always subtly selling Madoff and, perhaps more importantly, selling the chance to be part of this modern, monied fairytale.

Charming, smooth and gregarious, he made friends easily. Corina, eldest of the Noel sisters, worked in partnership with him, overseeing lavish dinner parties. Piedrahita had close personal relationships with many of his investors, especially the London head of Union Bancaire Privée (UBP) Michael de Picciotto – the pair have been described as “bosom buddies”. UBP has emerged as having a $700m exposure to Madoff.

“Andrés had a big calling card,” said one acquaintance. “He had loads of money and he could make loads of money – this sort of environment breeds comfort among rich people.”

Some professional investors were less susceptible to such sales tactics. Two weeks ago, James Newman, a director at the Jersey-based hedge fund Ermitage Capital, received a phone call.

A marketing man he had never spoken to before was offering him an “exclusive opportunity” to invest in Madoff. The broker claimed it was a “once in a lifetime” chance to get access to one of Madoff’s feeder funds, and join an elite club promising returns of 10% or more.

Had Newman heard of Madoff, the salesman asked? Newman answered that he knew him only too well. Ermitage had considered investing before, due to the impressive returns. Yet Madoff’s refusal to grant a face-to-face meeting, or even to explain what he did to generate these returns, ensured there was no way Ermitage would invest. Unless that policy had changed, Newman said, Ermitage wouldn’t touch it.

Ermitage is a reputable firm. Until a few weeks ago it was chaired by Sir Paul Myners, who gave up his post to move into government. Its biggest investors include Caledonia Investments, the investment trust that manages part of the Cayzer family’s wealth.

Newman explained that Ermitage does not invest in any fund unless he is permitted to carry out proper due diligence. He added that he and his colleagues were among a number of hedge funds that had never been able to fathom the origins of Madoff’s fantastic returns.

The salesman persisted, insisting this really was a great deal. Newman hung up and thought nothing more of it until a few days later, when Madoff allegedly confessed that his fantastic returns were indeed the stuff of fantasy.

It may seem strange for professional investors to be approached in this way, but it was quite common in Madoff’s case.

“There was a whole network of feeder funds all over Europe,” said the chief executive of one prominent fund of hedge funds in London. “There were the three big ones: Fairfield, Kingate and Tremont. Anyone who asked to get in was told that they would have to wait for someone else to come out. Then there were the private banks, which offered access through their own funds.

“There were other ways in. The family offices of wealthy people from places like Switzerland and Luxembourg would occasionally let people invest in Madoff through their fund. It was always presented as a great opportunity.”

Madoff’s supposed investment strategy was based on buying shares in large American companies and hedging the exposure by buying options on the S&P 500. Funds, like Fairfield, that brought him business were charged only broking commission for putting on these trades. According to one investor, all Madoff took was $1 for every option trade and 4 cents for every share traded.

With hindsight, scorched investors can see that this makes sense for Madoff. If he was running a giant Ponzi scheme, paying old investors with new investors’ money, the only thing that mattered was getting new cash in through the door, not charging large commissions.

Introducing money to Madoff was a lucrative business. Fairfield’s London business made profits of £4.7m in 2007 – a 101% increase year on year – and paid out dividends of £3m. As a group, Fairfield reported revenues of $250m in 2007, of which $160m came via the Madoff connection.

Fairfield charged its investors a 1% annual management fee, and would take 20% of any profits made every year. While the structure is not unusual for a hedge fund, all that Fairfield did was pass the money to Madoff. What investors were paying for was the right to get into Madoff’s funds and the due diligence that Fairfield said it was doing on its underlying investments – now a moot point.

Private banks in Switzerland offered their clients the chance to borrow money against Madoff investments, to multiply their returns. It was the loans arranged by these private banks that ensnared the likes of Royal Bank of Scotland, HSBC, Nomura and BNP Paribas in the scandal.

The credit crunch was the undoing of Madoff. Tightening purse-strings around the world encouraged many of his long-standing investors to ask for their cash back and Madoff could no longer maintain the pretence.

Victims continue to emerge around Europe, often through family connections of the financial aristrocracy. Emilio BotÍn, chairman of Santander, is said to have introduced a number of his friends to Madoff funds.

M&B Capital Advisers, run by BotÍn’s son Javier BotÍn-Sanz and his son-in-law Guillermo Morenés, invested about €150m (£140m) of their wealthy clients’ money in Madoff funds.

Some victims have suggested that the close relationships throughout the investment chain may have allowed experienced investors to overlook things. Others argue that the red flags were always there to be spotted.

“I never liked the Madoff fund,” said Anthony Yadgaroff at Allenbridge, the hedge-fund consultancy that has a long track record of exposing bad practice. “If they won’t let you kick the tyres, then stay away – it’s as simple as that.”

Additional reporting by Danny Fortson

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