James Nicholson, founder of Westgate Capital Management of New York, has been arrested and charged with securities fraud and bank fraud involving $100 million since 2004, prosecutors and the FBI have said, according to media reports.

Mr Nicholson is alleged to have overstated values by hundreds of millions of dollars, set up a bogus firm of accountants and showed uniformly positive returns to defraud investors.

Prosecutor Joshua Klein told the Manhattan court: "There is a potential additional hundreds of millions of dollars involved and we have no idea where that money is," suggesting up to 372 investors could be affected.

A statement by the US Attorney in Manhattan and the FBI said: "In December 2008, triggered in large measure by the disclosure of charges against Bernard Madoff, numerous investors in funds controlled by Westgate Capital began seeking to redeem their investments."

Mr Nicholson’s lawyer Ira Sorkin also represents Bernard Madoff.