Madoff fraud may not add up to $50 bln say experts

By Dan Wilchins

NEW YORK (Reuters) - When the dust settles, Bernard Madoff's alleged fraud could turn out to be closer to $20 billion (13 billion pounds) than $50 billion, fund experts said on Friday.

Madoff had about $17 billion under management, according to regulatory filings. But he estimated that investor losses were at least $50 billion, according to the Securities and Exchange Commission's civil lawsuit.

That discrepancy puzzles people across Wall Street. Some of Madoff's fund clients borrowed money to boost their investments with him. But any borrowed money would have just shown up in Madoff's assets under management, according to two people that finance hedge fund investments.

In the SEC's complaint, the $50 billion figure comes from comments that Madoff made to senior employees, who in turn spoke to the government. It is possible that somewhere along that chain, the information was distorted.

Otherwise, it's hard to imagine Madoff's alleged misdeeds generating losses far beyond the assets he managed.

The U.S. accused Madoff of taking money from current investors to pay off prior investors, a ruse known as a "Ponzi scheme."

Typically in these cases, an asset manager or advisor first suffers from big investment losses, and first tries to make back their losses, and failing that, tries to cover them up.

"People don't usually start out with fraud. It's usually some unexpected loss or event that causes them to cut a corner, and then they cut another corner, and pretty soon there are no corners left to cut," said Kathy Patrick, a lawyer at Gibbs & Bruns in Houston who has worked on fraud cases.

But a key element of the Ponzi scheme is that early investors get paid back, meaning they did not lose money.

"That $50 billion is pretty scary, but I wonder where it comes from. That number is just too big," said Brad Alford, president of investment advisor Alpha Capital Management in Atlanta.

(Reporting by Dan Wilchins; Editing by Bernard Orr)