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Alleged Swindler Nadel Anticipated 'Mini-Madoff' Label

Thursday, 12 Feb 2009 | 8:03 PM ET

Federal prosecutors say disgraced Florida hedge fund manager Arthur Nadel wrote letters home while he was fleeing from authorities last month, including one telling his family he "really anticipated" being labeled a "Mini-Madoff."

Arthur Nadel
CNBC.com
Arthur Nadel

Nadel also wrote hundreds of thousands of dollars in checks from his hedge fund company to himself and his other businesses, including a $120,000 check the day before he disappeared last month. The allegations are included in court papers arguing that Nadel, who is now in custody in New York, should continue to be denied bail.

Nadel, a Sarasota philanthropist who managed six hedge funds under the names "Scoop," "Victory," "Viking," and "Valhalla," went missing on January 14. The following day, investors received letters informing them that the funds -- which Nadel had claimed were worth more than $300 million -- were, in fact, worthless.

Authorities initially investigated the case as a possible suicide, after Nadel had left his family a note saying that since many people would want to kill him, "I will do the job myself." Nadel surrendered to authorities in Tampa on January 27, according to the filing, a day after prosecutors informed his attorney that there was a warrant for Nadel's arrest. A federal judge in Florida denied bail for Nadel, ruling he is a flight risk. Nadel was transferred from Florida to New York this week to face a criminal complaint charging him with securities fraud and wire fraud.

His attorneys have asked that he be freed on bail pending a trial, but prosecutors argue "there are no conditions or combinations of conditions that will reasonably assure his appearance."

"Indeed," the government filing says, "over the past ten years, Nadel lied almost every day to investors and others about his trading activities and his background."

In an undated, handwritten letter to his family included in the filing, Nadel writes, "I'm still alive and have one immediate goal: to prove that my original intent and ongoing state of mind is not stealing, but rather desperate attempts to 'doctor' continuing losses." Nadel claims he has been using all of his money to cover redemptions. "Had I wanted to steal," he writes, "I could have put more than $20 (million) into offshore accounts. There are no such account(s), and there never have been." The faxed letter, discovered in a search of Nadel's home, is signed, "The 'disappeared' Art."

But prosecutors argue Nadel did wire over $20 million from his funds between January 1, 2008 and January 21, 2009, and "it is not clear where this money went." In addition, the government claims, Nadel was writing checks to himself and his other businesses as far back as October 2, in preparation for his escape. On January 9, the week before he vanished, Nadel opened a credit card account for himself. And on January 13, the eve of his disappearance, he managed to withdraw $120,000 from the hedge funds by writing a check to Wachovia Bank and labeling it as an "official" check.

Nadel traveled to San Antonio, Hollywood and San Francisco before turning himself in. Asked by FBI agents where he had been, prosecutors say, Nadel replied that he had been "on vacation."

Nadel, 76 years old, is being held without bail while he awaits federal prosecution in New York on charges of securities and wire fraud.

GE Capital an Alleged Victim

General Electric is among the alleged victims of Nadel.

In court papers filed Wednesday afternoon, GE's financing arm, GE Capital, says it loaned $2.6 million to a Nadel company in 2006 so it could purchase a Lear Jet — but the loan is in default.

The company that purchased the Lear Jet is among those that have had their assets frozen.

GE is the parent company of CNBC.

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