UPDATE 1-Legal experts see wide fallout from Madoff case

(Adds lawyer quotes in paragraphs 14-17)

By Martha Graybow

NEW YORK, Dec 12 (Reuters) - The arrest of investment manager Bernard Madoff on charges of running a $50 billion "Ponzi scheme" may be only the beginning of the legal saga triggered by the Wall Street veteran.

Legal experts said the case, involving perhaps the biggest-ever Wall Street fraud, could widen as federal prosecutors and securities regulators comb through the books of Madoff's money management firm and investigate his trading activities.

Investors are sure to file civil lawsuits or other legal remedies to try to recover money they placed in Madoff's hedge fund, a process that could drag on for years. Lawyers who represent investors said they already have been getting calls from frantic Madoff clients.

Madoff was charged in a criminal complaint on Thursday with a sole count of securities fraud, a charge that carries up to 20 years in prison. He has been released on $10 million bail.

The case "is in a very early stage," said Robert Giuffra, a partner at law firm Sullivan & Cromwell LLP who specializes in white-collar criminal defense.

"The obvious question that folks are going to have is who knew about this, and if there was a Ponzi scheme, how was it kept concealed for so long?"

Madoff has not been formally indicted by a grand jury in the case and has not yet responded to the fraud charge in court.

He could face additional charges if government investigators find more evidence against him, said attorney Charles Ross, another white-collar defense expert. He said investigators are surely examining the activities of others connected to the hedge fund as well.

"In a case of this magnitude, and with this much money, I would think they would be looking at everyone involved in the business," said Ross, of law firm Charles A. Ross & Associates.

Lawyers who represent investors said they have been busy trying to advise them since news broke of Madoff's arrest.

Attorney Ross Intelisano, of law firm Rich & Intelisano LLP, said he has spoken to three individual investors who were Madoff clients -- one in New York, another in Florida and another on the West Coast.

They were "freaking out, wanting to know if their money was gone," he said. "I don't think they are going to get answers for some time."

A federal judge has appointed a receiver to secure the firm's accounts abroad, and the U.S. Securities and Exchange Commission wants the receiver to take over Madoff's firm, Bernard L. Madoff Investment Securities LLC, and its assets.

Outside the federal courthouse in Manhattan, where Madoff appeared for his initial court hearing a day earlier, two investor lawyers said they were drafting legal action that would soon be filed on behalf of several dozen Madoff clients who had more than $700 million invested with his firm.

Investors are "devastated," said lawyer Brad Friedman, of law firm Milberg LLP, who is representing the investors together with lawyer Stephen Weiss of Seeger Weiss LLP.

"Many of these people are going to go from being very wealthy to virtually destitute," Friedman said. "People trusted him and believed him because he had a tremendous reputation."

Friedman said he was optimistic that investors could seek to recoup money from third parties. "These are the things that we are investigating right now," he said.

Another lawyer, Gerald Silk, who specializes in bringing lawsuits on behalf of large institutional investors, told Reuters his firm is launching its own investigation.

"I have had a lot of calls between last night and this morning from people who have lost a lot of money," said Silk, a partner at law firm Bernstein Litowitz Berger & Grossmann LLP. "There are obviously more questions than answers right now in terms of where investors are going to turn."