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'All Just One Big Lie'

Madoff, 70, made his fortune as a middleman between buyers and sellers of stock. He helped pioneer electronic trading as an alternative to the New York Stock Exchange, where buyers and sellers meet in person, and he eventually became chairman of Nasdaq, the first electronic stock exchange.

Madoff built himself into a brand. He came to Wall Street with money saved as a Long Island lifeguard and built a family business employing many relatives, including his sons, and refused to sell the business or take it public. He advertised his integrity.

"In an era of faceless organizations owned by other equally faceless organizations, Bernard L. Madoff Investment Securities LLC harks back to an earlier era in the financial world: The owner's name is on the door," the company's Web site said. "Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing, and high ethical standards that has always been the firm's hallmark."

By the late 1970s, and perhaps earlier, Madoff began managing money for investors, at least in part because he could require people to process trades through his firm. Madoff eventually attracted billions of dollars from investors. Some he knew personally. Others belonged to clubs he was a member of, including the Palm Beach Country Club in Florida and Glen Oaks Country Club in New York. Several large hedge funds invested with Madoff in part because he did not charge traditional fees, instead collecting money solely for processing trades.

The key attraction, however, was Madoff's remarkably successful track record. A hedge fund run by Madoff, which described its strategy as focused on shares in the Standard & Poor's 100-stock index, averaged a 10.5 percent annual return over the past 17 years.

This year, amid a general market collapse, the fund reported that it was up 5.6 percent through November, while the S&P 500-stock index fell 38 percent.

The SEC charged in its complaint that the returns were artificial. Madoff at some point started paying investors with money received from other investors, a Ponzi scheme, according to the SEC.

"Mr. Madoff lured investors to entrust him with substantial sums of money -- in some cases massive amounts of money -- with the false promise of great interest returns," said Mark S. Mulholland, a New York lawyer who filed a class-action lawsuit Thursday against Madoff. He said his firm has been approached by two dozen investors, who lost up to $90 million.

The SEC said it is not clear when Madoff started using new investments to create the appearance of profits. But the alleged ruse was finally exposed by the global financial crisis.

Madoff's investors had requested the return of about $7 billion by the end of the year, part of a broad trend in which investors are pulling massive sums from Wall Street. Madoff told one of his sons earlier this month that he was struggling to find the money. Then he told his other son that he was ready to pay annual bonuses to employees.

The sons confronted their father Wednesday, according to authorities, asking how the firm could pay bonuses if it couldn't pay investors.

Madoff asked them to come to his apartment, saying "he wasn't sure he would be able to hold it together" at the office, the SEC said. There he said he was "finished." The business was "a giant Ponzi scheme" -- "all just one big lie," the SEC documents said.

He estimated that his investors had lost $50 billion.

The sons reported Madoff to authorities. Yesterday, a federal judge placed the company in receivership at the SEC's request.

Outside analysts had raised concerns about Madoff's firm for years.

The company made its own trades and held the shares it bought, unusual practices that kept its activities hidden from view. Madoff also avoided filing disclosures of its holdings with the SEC; the firm said that at the end of every reporting period it sold its holdings and held only cash. Such a tactic is highly unusual because it exposes a fund to large losses by forcing it to sell assets without regard to price.

Madoff, though a pioneer of electronic trading, also refused to provide clients online access to their accounts.

"This was extremely secretive, even for the non-transparent world of hedge funds," said Jake Walthour Jr., head of advisory services for Aksia, a New York consulting firm that advised clients not to invest in Madoff's funds. "It was all done almost in fortress fashion to prevent anyone from knowing what was going on."

But a large number of investors apparently could not resist.

Robert Lappin started investing with Madoff in the early 1990s and eventually entrusted him with the entirety of his family foundation. The Lappin Foundation, created "to keep our children Jewish," gave about $1.5 million to Jewish groups in 2007, including a long-standing program that has paid for about 1,800 teenagers to visit Israel.

Coltin, the executive director, went to sleep Thursday night with an inkling of bad news and woke up at 6 a.m. yesterday, planning to call Lappin. Before she could, the phone rang.

"He said: 'I have to tell you this. Our funds are frozen,' " Coltin said

A little bit later, it became clear that the money had melted away.

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