Madoff with the Money (2 page)

Before the end of the day Bernard L. Madoff Investment Securities—the firm that engendered trust because the boss's name was on the door—was taken over by FBI agents, Securities and Exchange Commission investigators, forensic accountants, and federal prosecutors.

There would be no more Madoff bonuses. There would be no more Madoff presents. There would be no more Madoff investment returns. There would be no more life savings. There would be no more Madoff.

All was now gone.

My objective in writing this book was to inform the reader about Bernie Madoff, the man—the self-proclaimed
macher
behind the biggest fraud ever perpetrated. Up until now, he has been an enigma. My goal as an investigative biographer was to dig deep and discover where he got his values and ethics—or lack thereof.

This is not another static business book, a primer on white-collar crime, but rather an in-depth profile, weaving together both the forces that shaped this swindler and the world in which he lived—showing the man Bernie really was.

As you read on, you will learn about his twisted family roots; his dreams of power and riches; the questionable characters along the way who aided and abetted him in his meteoric rise from poor boy in a middle-class Queens, New York, neighborhood, to one of the most powerful men on Wall Street; how that power made him feel above the law; and how it resulted in his fall, his public shame and disgrace.

In pursuit of that story I tracked down dozens of people who knew Bernie best—or thought they did. As a result, a true and often frightening portrait emerges from their candid characterizations and often shocking anecdotes—not only about the man behind the scam, but about his family, the reasons he chose Ruth to be his wife, and his sons' and brother's rise in what has now become the infamous Madoff dynasty. The mostly on-the-record accounts shared by those sources for the first time will, I hope, give readers a fuller, more coherent understanding of the most reviled thief who ever lived.

As the economy worsened in 2008, Bernie Madoff was in desperate straits.

Calls from panicked clients had started coming in to his virtually impenetrable 17th-floor private office in the Lipstick Building on Manhattan's Third Avenue—the office later identified by authorities as Ponzi Central, the epicenter of history's most massive fraud—where his billions of dollars in personal investment accounts were handled in strictest secrecy.

With the stock market crashing, with credit tighter than anyone could remember, with unemployment hitting record highs, with the housing market in free fall, with big banks and investment houses failing or pleading for government bailouts (and getting them), and with automaker giants like General Motors and Chrysler teetering on the verge of bankruptcy, Bernie was facing his own private hell, his own private demons.

Big and small investors in his very exclusive club—a privileged circle of financial institutions, charities, billionaires, celebrities, and some few favored Joe Six-Packs and Wal-Mart Moms—who were receiving steady and huge returns on their investments in good times and in bad, had begun requesting, and then demanding, that their money be returned.

In the past, when they needed money from their accounts, they'd get a check within days. Suddenly, they were getting the stall. Now Bernie was facing redemption demands to the tune of a whopping $7 billion. Bernie realized that if he couldn't cover those requests, his decades-long charade as a self-styled financial wizard and investment messiah was nearing a horrific end.

Still, the man who was “considered a statesman in our industry” by a head of a firm that guaranteed the sanctity of stock trades thought he could elude getting caught, that in a last-ditch blitz of raking in more new big-money investors—unknowing lambs being led to slaughter—he could make good on the funds his earlier investors now wanted returned.

His desperation heightened in early summer when he went on a marathon cash-hunting expedition.

“It was around the end of June when he went to France
really
trying to get more money from wealthy Europeans, or anyone else he could find,” says a longtime close associate of Bernard L. Madoff Investment Securities LLC (BLMIS). In the south of France, he had a gated villa in exclusive Cap d'Antibes, and one of several yachts, all named
Bull
. There were those who later observed that the
Bull
designation did not represent a high-flying bull market as most thought, but rather was an ironic insider joke for the bullshit he was throwing at those he was bilking.

Bernie usually had a very calm demeanor, but now he was clearly in panic mode.

He came back from France in order to attend the very fancy annual company summer party bash on the expensive sand at Montauk in the chic Hamptons, where his posh beachfront home was located. Says the close associate, “Bernie was putting on a happy face for everyone. Then, he left right away again to try to recoup, to try to get more investors to hand him more money as more requests came in from those wanting to cash out.”

They were people and entities that suddenly were becoming cash poor, many of them good friends of Bernie's who knew how bad things were as Wall Street seemed to be laying another egg just like in 1929.

Before the Great Madoff Panic of 2008 was ignited by the worst economic debacle that the United States and the world had faced since the Great Depression, people had begged Bernie to take their money because of the steady and relatively high promised returns. They virtually threw cash at him. They sent envelopes filled with moolah. They made wire transfers in the tens and hundreds of millions of dollars.

If Bernie personally turned them down because they asked too many questions, or because they seemed to be doing their due diligence (which too few did), or because he just felt paranoid about them, they begged their friends who were Madoff insiders to get them in.

Bernie was the Studio 54 of money managers. He and only he could raise the velvet rope and let those hungry for big returns into his private, exclusive club. For a long time the minimum cost of admission was at least $5 million, unless he offered a special dispensation. And he often did. After all, to Bernie money was money.

Just a glance at the web site of Bernard L. Madoff Investment Securities LLC elicited gold-standard trust. The company was described as:

His slogan, “The owner's name is on the door,” engendered trust. After all, this was a guy who once was chairman of the National Association of Securities Dealers Automated Quotations (Nasdaq) system. Gimme a break!

Those who couldn't deal directly with Bernie dealt with trusted middlemen, later called feeder funds, who were sending the cash to Bernie in return for hefty commissions, hundreds of millions of dollars in several cases. As it turned out, those investors who placed their money and trust in feeder funds had never even heard of Bernard Madoff—until the end came, and then it was too late.

But now as the frightful economic year 2008 was coming to a close there was little if any big money like that floating around to throw at Bernie. Now a number of Madoff investors wanted their money back. They needed cash flow, even if it meant losing the promised return.

As P. T. Barnum once famously declared, “There's a sucker born every minute.” It was an anthem Bernie frequently used with certain people close to him when old and new investors showered him with money, says a pal.

The old in late 2008 was one Carl Shapiro, who had begun putting his money with Bernie when he was just a little
pisher
in his early 20s. With a promise from Bernie to reportedly repay with interest or a gain, the elderly Boston entrepreneur and philanthropist who had made a fortune in the garment industry now sent him $250 million.

Still, it was not enough to cover all of the redemptions Bernie was facing.

With the proverbial noose beginning to tighten around his neck, Bernie was overjoyed in early December 2008 when some new millions suddenly came his way—a mere bag of shells compared with the billions he needed to snag, but still nothing to sneeze at.

That infusion of money was the beginning of the end for Madoff, the first in a chain of fast-moving events leading up to his arrest, guilty plea, and imprisonment for running the biggest and slickest Ponzi scheme ever, and getting away with it for decades.

The last person known to be taken to the cleaners was a hugely wealthy businessman by the name of Martin Rosenman, who was president of the heating oil distributor Stuyvesant Fuel Service Corporation, located next to the Cathedral of Deliverance, a graffiti-covered storefront church, in a bleak section of the Bronx, one of New York City's five boroughs.

As one of America's grimmest Christmases in decades approached with hundreds of thousands without jobs, with thousands facing foreclosure on their homes, with the luckier ones desperately holding on to whatever money they didn't lose in their 401(k)s, and with retailers starving for customers, Rosenman appeared to be Bernie's Santa Claus when he called the Madoff offices on December 3.

Rosenman was making a surprise year-end investment—a $10 million offering on which he wanted to start earning a nice Madoff return—now 7 or 8 percent in a time when a measly 2 to 4 percent was available elsewhere.

A friend who had invested with Madoff and done well with him over the years had advised Rosenman to do the same. You can't miss putting your money in Madoff, new investors were being told, Madoff 's a sure thing. So, Rosenman decided to give him a try.

Rosenman was from Great Neck, one of the many affluent, predominately Jewish Long Island communities whose wealthy residents, fabled country clubs, and prestigious institutions would soon see their fortunes in Madoff evaporate. From Long Island to Palm Beach, from Europe to South America, there would be many, many other Rosenmans when all became known, thousands of them.

Playing his exclusivity con game to the hilt, Bernie told Rosenman that “the fund was closed”—closed, that is, until New Year's Day 2009. But if Rosenman, managing member of Rosenman Family LLC, wanted to move his money quickly, he could wire the funds to an account that BLMIS had with a popular and trusted bank, JPMorgan Chase & Company. Bernie promised that Chase would hold the money until the New Year, when it would be transferred into the very elite Madoff fund.

Rosenman wired the money on December 5. Four days later the Madoff firm that Rosenman had entrusted with his millions did what any supposedly ethical company would do—Madoff, or a representative, notified Rosenman that his money was in safe hands, and had been invested in the short sale of $10 million in U.S. Treasury bills, or so it was claimed.

With Rosenman's money in the bank, one could envision 70-year-old Bernie Madoff, once a poor boy from Queens who now owned a couple of yachts, fancy cars, elegant homes, and a 50 percent interest in a $24 million 12-passenger sleek Embraer Legacy jet—a tanned and coiffed dandy of sorts who wore $7,000 suits and sported $700 sweaters and $80,000 watches—gleefully and greedily rubbing his hands together. With his sphinxlike smirk, his chipmunk cheeks, and his beady eyes, he was the anti-
mensch
.

As it later would be revealed in various news accounts, JPMorgan Chase and BLMIS had a business relationship. As part of his massive fraud, Bernie was placing hundreds of millions of dollars through his account at the bank—investors' funds that hadn't been invested by him for years. Moreover, the bank reportedly withdrew its own $250 million from one of Bernie's major feeder funds.