Zuckerman: Shadow Banking System is Over

Wednesday, December 31, 2008 11:43 AM

By: Elaine Barr

Mort Zuckerman has a lot of hindsight these days. A chunk of assets in a charity he controlled turned out to have been invested totally with Bernard L. Madoff Investment Securities.

He lost that money when Madoff's alleged Ponzi scheme unraveled. He didn't lose any of his personal wealth in the collapse.

And although it will take a while for all the dust to settle from the fraud that Madoff allegedly perpetrated, Zuckerman says one effect of the fraud is already evident.

"This shadow banking system of money-market funds, investment funds, private equity funds, and hedge funds that has been largely unregulated, that is no longer going to be possible," he told Business Week in an interview.

Madoff is scheduled to submit a list of his personal assets to the Securities and Exchange Commission, including property that could be made available for restitution. Madoff also will provide the names and locations of entities, bank accounts, brokerage accounts, investments, or assets held by his business.

Zuckerman, the owner of the New York Daily News and U.S. News & World Report, said he had $30 million invested with Ascot Partners, a hedge fund run by J. Ezra Merkin.

Zuckerman said he didn't know Merkin had invested the entire amount with Madoff. He said he never heard of Madoff nor met him. He though Merkin was diversifying.

He found out the hard truth from a letter he received from Ascot.

"There are dozens and dozens of people who thought they were investing in a multiple and diverse group of funds,â€