Madoff: So where's the money, Bernie?

Three weeks ago he was one of Wall Street's grandees and one of its most sought-after investment professionals. Today, he is under house arrest at his $7m (£4.9m) Manhattan apartment, accused of being the biggest swindler that the world of finance has ever seen.

Bernard Madoff faces a court deadline this morning for declaring all that remains of his clients' money, and for setting out the personal fortune he amassed over the decades, including homes in Palm Beach, Florida, and New York's Long Island. What is it going to add up to? Perhaps a few hundred million dollars – but hardly enough to cover the $50bn that Madoff says he stole from investors.

Across the world, wealthy and not-so-wealthy individuals are facing ruin, charities that entrusted money to Madoff are shutting down and lives have been changed forever.

What has become clear is that Madoff's fraud stretched further than anyone imagined in those first days after his confession and arrest on the morning of 11 December. At first blush, it seemed impossible that a single man, no matter how well lauded on Wall Street and well connected in the country clubs of Florida and the Jewish community of New York, could amass $50bn to fritter away.

But as investigators unravel the web of lies spun from Madoff Investment Securities' 17th floor office in Manhattan, a picture is emerging of an international network of individuals, a global aristocracy of finance, who solicited and funnelled the money that fed Madoff's fraud for perhaps two decades. None of these is accused of any crime, neither of fraud nor negligence. They were duped, too, and many face bankruptcy, investor lawsuits and shame. One, apparently unable to live with the knowledge that he pushed $1.4bn belonging to his social and business acquaintances into Madoff, has killed himself.

These are the "blind accomplices" who hold the key to understanding how Madoff perpetrated history's greatest fraud. It seems few saw the full picture of Madoff's money-gathering efforts. But together, they are the tributaries that collected swelling streams of money and channelled them into a giant river that flowed directly to the lipstick-shaped skyscraper in Manhattan where Madoff Investment Securities was headquartered, and which only dried up when the credit crisis struck.

To the outside world, Madoff looked every bit the respectable Wall Street gentleman. Into his fifth decade of trading on Wall Street, he was one of the most outspoken defenders of its professionals. He had helped create – and later chaired – the Nasdaq stock exchange. Even regulators sought his market wisdom, putting him and his sons, who worked in the business, on advisory panels.

Such a reputation appeared to be enough for the likes of Walter Noel, a financier and socialite who splits his time between the paradise island of Mustique, Palm Beach, Manhattan's Upper East Side, the Hamptons and the hedge fund capital of Greenwich, Connecticut, after which his Fairfield Greenwich funds business is named.

The family's burgeoning wealth and philanthropic ventures – and the photogenic presence of Mr Noel's five daughters on the social scenes of New York and London – made them a fixture in newspaper diary columns. Fairfield has emerged as the single most important "feeder fund" for Madoff, making a profit last year of about $200m, in large part from taking fees and sharing profits on the $7.5bn it funnelled to Madoff Investment Securities.

In places as far flung as Switzerland, Spain, Brazil and Colombia it was not Madoff's reputation, per se, that investors were counting on, but those of Mr Noel and his family. Andres Piedrahita, the son-in-law who runs Fairfield's UK office, is a Colombian-born banker living in Madrid and London. Mr Piedrahita has promoted Fairfield's Sentry fund in Colombia for the past 15 years, and Poder, a local business magazine, estimated last week that Colombian investors may have lost $200m with Madoff. In Brazil, where Mr Noel's wife, Monica, hails from a wealthy family with Swiss roots, Fairfield employed Bianca Haegler, a niece, as its representative. In Geneva, the private bank UBP marshalled its clients into Fairfield; UBP's London office is run by a family friend.

UBP, it emerged yesterday, also funnelled money to Madoff via Ascot Partners, run by Ezra Merkin, a long-standing US financier and one of the most prominent philanthropists in the Jewish community, who served with Madoff as a trustee of Yeshiva University in New York and whose gold-plated reputation is such that he has also sat on numerous company boards, including currently as chairman of GMAC, the car loans giant bailed out by the US government.

Mr Merkin told his clients he had invested substantially all their money with Madoff and was "shocked" at the "catastrophe". Facing lawsuits from furious investors, Mr Merkin's lawyers – like those for Mr Noel – say that he was duped and faces big losses personally. As well as running Ascot, Mr Merkin had put most of his own money in its funds.

The same was true for others: Carl Shapiro, the 95-year-old Boston clothing millionaire and philanthropist, introduced Massachusetts charities and Palm Beach club members to Madoff; René-Thierry Magon de La Villehuchet, the French aristocrat and fund manager, killed himself at his desk in the Manhattan office of his Access International fund, which lost an estimated $1.4bn with Madoff. It was his reputation, as much as Madoff's, which had drawn Europe's high-society investors into Access International – names which include the continent's richest woman, Liliane Bettencourt, a large shareholder in the French cosmetics company L'Oreal – and it was his reputation that was vaporised along with the money.

These dizzying international inter-connections are found elsewhere in the network used by Madoff, and which regulators and criminal prosecutors in the US must now unravel.

The Securities and Exchange Commission (SEC) issued a warning a few years ago about "affinity fraud", where bonds of trust in ethnic communities make it easier for conmen to strike, and that is the case in the Madoff scandal, which hit his Jewish community particularly hard. But Madoff hooked in other networks across the world too, making the fraud deeper than first thought. It will take investigators months if not years to conclude their work; civil lawsuits are expected to run for much longer as victims seek compensation from the feeder funds and private banks that poured their money into a $50bn black hole.

Madoff told the FBI he had been running a "giant Ponzi scheme", a classic pyramid fraud. Instead of investing the money, as claimed, he was using cash from new investors to pay existing ones. As investigators rummage through Madoff's office, they have found numerous sets of accounts, ones showing the real flows in and out of his business, and ones which were shown to clients. They believe it is more than 20 years since he began managing other people's money, initially to generate business for the long-standing stockbroking business he founded in 1960 with $5,000 he made as a Long Island lifeguard. His first lie, his first fraudulent book entry, remains unknown.

By the end, the scale of the deception was staggering – it is little wonder Madoff's lawyers are reportedly mulling an insanity defence. Each month, investors got a complicated statement showing lists of blue-chip companies that Madoff had traded using a "sophisticated" formula, and each month it showed a tidy profit totalling double-digit annual returns almost every year. These statements were fake and more than a few Wall Street professionals admitted to being mystified as to how Madoff managed this miracle-grow performance.

But Madoff knew a little bit of mystery goes a long way. This, after all, is Wall Street's pitch – its money managers rely on convincing others that they are cleverer, faster, more knowledgeable and more likely to win than the solo investor can hope to be.

When Barron's magazine asked how Madoff made its returns, Madoff said: "It's a proprietary strategy. I can't go into it in great detail." He even joked about it with regulators at the SEC, the industry watchdog.

There were sceptics. The Boston accountant Harry Markopolos, who makes a tidy living pocketing government rewards for whistleblowing, first told the SEC in 1999 that he suspected Madoff was a giant Ponzi scheme. Across Wall Street, the savviest traders thought that Madoff might be juicing its investment returns by "front-running" at the brokerage part of the business that first made Madoff his name. Front-running involves using knowledge of trades you are about to do for clients to make a profit on a share price move, but Madoff wasn't guilty of that. When the SEC finally investigated him in 2005, it concluded only that he had failed to properly register as an investment adviser – a miss that left observers gasping.

As the years ticked by without any losses – almost unheard of – suspicions should have grown. But Madoff was clever enough to produce slightly lower returns in bad years. Few spotted that the accounts were being audited by a one-man shop instead of a reputable firm, and those that did were satisfied by Madoff's explanation that he was pinching pennies to save investors pounds. As long as a steady stream of new money was coming in, his "blind accomplices" and their clients always got their cash when they came to tap their accounts. That ultimately – disastrously – counted more than anything else.