Disgraced American fraudster Bernie Madoff, who operated a $17.5 billion Ponzi scheme has died in prison, at 82.

The scheme was the largest in history, and collapsed in 2008. Bernard L. Madoff Investment Securities LLC, which Mr Madoff founded, was liquidated.

Mr Madoff, who was chairman of the Nasdaq Stock Exchange in New York in the early 1990s, was sentenced to 150 years in prison in 2009.

Investor funds around the world, including a number in Bermuda, were caught up in Mr Madoff's scheme and paid out millions of dollars to victims.

Mr Madoff had built a reputation for delivering steady returns to investors even when markets were volatile. But all was not what it seemed.

In an office kept under lock and key he was "secretly spinning a web of phantom wealth by using cash from new investors to pay returns to old ones", reported Associated Press.

Monthly statements showed double-digit returns, and claimed investor accounts totalled $65 billion. But the statements were fake.

In March 2009, Mr Madoff pleaded guilty to securities fraud and other charges, and said he was "deeply sorry and ashamed".

He was sentenced by US District Judge Denny Chin to the maximum possible jail term. He forfeited all his personal assets, including real estate and investments.

During the years that followed, court-appointed trustees unwound the scheme and recovered more than $14 billion of the $17.5 billion thought to have been put into Mr Madoff's businesses by investors.

Bermuda-based Kingate Global Fund Ltd and Kingate Euro Fund Ltd invested about $3.5 million with Madoff.

Bermuda-based investment fund Thema Fund Ltd and Thema Wise Investments Ltd paid out about $130 million to go to the victims of Madoff. Thema was among many feeder funds that directed cash to Mr Madoff's investment advisory business.

Mr Madoff died of natural causes at the Federal Medical Centre in Butner, North Carolina, according to an AP report.

In a Reuters report, Marc Litt, who led the prosecution of Mr Madoff, said: "His passing closes a dark chapter of deception and greed that irretrievably damaged the lives of tens of thousands of victims. It is unfortunately fitting that he died in jail."