The Lucerne-based private bank, Reichmuth Matterhorn, is the second Swiss financial institution to admit investing in the fraudulent scheme of Bernard Madoff.

Reichmuth Matterhorn said in a statement that it had investments in hedge funds associated with the Wall Street trader of around SFr385 million ($327 million).

On Friday, wealth management bank, Bénédict Hentsch, said it had entrusted Madoff's investment company with SFr56 million of its clients' assets.

The Le Temps newspaper reported that hedge funds and other financial institutions in Geneva had invested SFr5 billion ($4.25 billion) in the phoney scheme.

However, the regulatory body, the Federal Banking Commission, said it was unable to confirm the extent of the impact of the Wall Street scandal on Switzerland.

Madoff, a former Nasdaq stock market chairman and founder of an investment securities company bearing his name, was arrested on a securities fraud charge on Thursday.

He is suspected of running a phoney investment business that lost at least $50 billion and amounted to nothing more than a "Ponzi scheme" - a pyramid-type swindle in which very high returns are promised to early investors.

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