UPDATE 1-Madoff fraud scandal chills wealthy

(Adds quotes from investors’ lawyers)

MIAMI, Dec 12 (Reuters) - Hedge fund managers and other Wall Street professionals are scurrying to tabulate losses from Bernard Madoff’s alleged $50 billion fraud, but the financial pain for individual investors is already clear.

“I expect to get back zero,” Susan Leavitt, an investor in Tampa Bay, Florida, said on Friday. “When he tells the Feds, he has $200 million to $300 million left out of billions, what can you expect.”

Madoff was arrested in New York on Thursday and charged with orchestrating a large finance fraud through an investment-advisory arm of market-making firm Bernard L. Madoff Investment Securities LLC.

Madoff’s advisory business had $17.1 billion of assets under management but many investors may have had indirect exposure by investing through the hedge funds and other of the firm’s clients. Madoff, 70, has said losses were about $50 billion, according to government complaints.

Two hedge funds that invested with Madoff were the $7.3 billion Fairfield Sentry Ltd and the $2.8 billion Kingate Global Fund Ltd. Both reported positive returns during 2008.

Many clients of Madoff, a former chairman of the Nasdaq Stock Market, were recruited at New York and Florida country clubs, such as the Palm Beach Country Club, where Madoff has been a longtime member, according to news reports.

Leavitt, 46, said in an interview that she had recently added $500,000 to a Madoff fund in which she invested substantial amounts since the early 1990s.

A friend introduced Leavitt to the Madoff fund, which had been shut to new investors for many years and produced strong, reliable returns, she said.

“He had a closed fund, which is why people put more money into it, instead of diversifying,” said Leavitt, a full-time mother and former newspaper writer. “You couldn’t just come in off the street and plunk down a hundred thousand dollars.”

In addition to personal investments, Leavitt said the Madoff fund also managed money for a family philanthropy she helped run.

“We had a foundation that we had a lot of money in, a charitable foundation,” she said. “That is gone. We were very philanthropic. Those days are over.”

Leavitt has never met Madoff, owner of a Palm Beach residence and a familiar figure on the Palm Beach society scene, but said, “He is a crook.”

Madoff’s wealthy investors believed in him, typically entrusting money to him for decades, and were often intimates of the financier, Stephen Weiss of the law firm Seeger Weiss LLP told reporters at the Federal Court in lower Manhattan.

“Their children grew up together. They had the utmost faith in his abilities and propriety,” said Weiss, who together with lawyer Brad Friedman of law firm Milberg LLP, represents dozens of people who invested over $700 million with Madoff.

“Many of these people are going to go from being very wealthy to virtually destitute,” Friedman said. “People trusted him and ... he told them, quarter after quarter, that he was making money for them.”

Norman Goldblum, a former town council member in Florida’s Palm Beach, said he docks a boat near one owned by Madoff and knew him casually at the oceanside Palm Beach Country Club, located near the Kennedy family home.

“I used to say hello,” Goldblum said on Friday. “But I never invested with him and I won’t say who did. I don’t like to spread rumors.”

Other members of the Palm Beach club, founded in 1917, also declined on Friday to identify club members who had invested with Madoff.

Local business agencies and regulators in Palm Beach had no records of complaints against Madoff.

“At one point, he was the favored broker of Palm Beach,” a club member told the Palm Beach Post newspaper. “Every big guy was his client. I’ve received dozens of calls about this today. There are a lot of people who lost a whole of money with this guy. But no one will admit to it in public.” (Additional reporting by Martha Graybow in New York; Editing by Bernard Orr)