Madoff case to rock already shaky hedge funds

"Anyone on the fence regarding redemptions to the fund industry over the next several months will likely put in their requests for capital withdrawal, as confidence in the system and in investment managers has been irreparably impaired," said Doug Kass, who runs hedge fund Seabreeze Partners Management.

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Tremont Capital was an early fan, the people said. Also hedge funds Fairfield Sentry, run by Walter Noel, and Kingate Global Fund, were known as feeder funds for Madoff. And Spanish group BBVA had offered U.S. based advisors a chance to put their clients' money in his hands.