Madoff with the Money Read online

  Table of Contents

  Title Page

  Copyright Page

  Dedication

  Epigraph

  Chapter 1 - Beginning of the End

  Chapter 2 - Growing Up a Madoff

  Chapter 3 - Bernie Hobnobs with the Wealthy, Strong-Arms Some Pals, and Courts ...

  Chapter 4 - From Queens to Alabama, Scamming Homeowners and Hustling Stock

  Chapter 5 - Tying the Knot and Giving Uncle Sam the Business

  Chapter 6 - A Borscht Belt Summer Camp Sets the Stage for Bernie’s Ponzi Scheme

  Chapter 7 - Moving On Up

  Chapter 8 - The Bagel Baker Becomes a Financial Guru, and the Mob Boys from ...

  Chapter 9 - “Whatever You Do, Kid, Never Invest a Penny in the Stock Market, ...

  Chapter 10 - A Madoff Speaks Out and an Empty Promise

  Chapter 11 - Mr. Outside versus Mr. Inside versus the SEC

  Chapter 12 - Life inside the Madoff Piggy Bank, Flashing the Plastic, and ...

  Chapter 13 - A Family (and Sometimes an Office) Affair

  Chapter 14 - Another Arrest, and Blood Relatives Get Taken to the Cleaners

  Epilogue

  Author’s Note on Sources

  Acknowledgements

  Index

  Copyright © 2009 by Jerry Oppenheimer. All rights reserved.

  Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

  Published simultaneously in Canada.

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  eISBN : 978-0-470-57281-8

  For all the legitimate victims of Bernie Madoff’s Ponzi scheme, this story is for you

  If you read things in the newspaper and you see somebody violate a rule, you say well, they’re always doing this. But it’s impossible for a violation to go undetected, certainly not for a considerable period of time.

  —Bernie Madoff, speaking at a panel session about Wall Street, October 2007

  Prologue

  Around nine o’clock on the morning of Thursday, December 11, 2008, the employees of Bernard L. Madoff Investment Securities LLC began drifting into the midtown Manhattan firm’s high-tech offices, where everything was in tones of black and gray, the boss’s chosen colors. More than a few were a bit hung over. The night before they had all joined in toasting the holidays at the festive annual Christmas party that their respected and beloved financial icon threw every year at an upscale restaurant.

  Despite the after effects of all the drinking and food consumption, everyone was feeling fine emotionally, if not physically. Some strong black coffee or a couple of Tums would take care of their ills. The holidays at Madoff were always a joyous time, a time for celebration, and this holiday season was to be no exception. That morning the employees came to work with visions of their promised year-end bonuses dancing in their heads, and with expectations of the usual splendid Christmas presents dispensed by their munificent boss, Bernie, and his lovely wife, Ruth.

  Despite 2008 being in the depths of a recession seemingly on a par with the Great Depression, and with the stock market tanking, generous, wonderful Bernie still promised all of them bountiful bonus money. Two traders alone had brought in some $7 million in profits and were pledged 25 percent of the take.

  There also was no reason to doubt that Madoff ’s gifts would be under the tree. Ruth always knew how to spend money, especially around the holidays.

  “We used to call it Ruth’s ‘Twelve Days of Christmas,’” says a Madoff veteran. “Beginning in the early ’90s she’d spend at least $150,000 a day, give or take, during the holidays, buying gifts, and who knows what else.”

  Her expenditures during the holiday time frame were well documented because certain Madoff employees had the responsibility of keeping tabs on Bernie’s and Ruth’s cash flow.

  “They had so much money coming in and out of their accounts they needed five people to keep track of it,” the employee asserts. “There was a Disneyland atmosphere. Money meant nothing to the Madoffs.”

  Accordingly, Madoff employees were thrilled. They considered Bernie one terrific, generous, magnanimous boss. The more money that flowed, the better. Many of them got well-paying positions with him right out of high school, and learned what they had to know on the job. In return for their loyalty, they earned good salaries, better than most were paid in the financial sector, and nice perks, too. And a few very special ones even became extremely well-off, with big homes and expensive cars and boats.

  A job at Madoff, if you watched your p’s and q’s, meant virtual lifetime security. “Bernie seldom fired anyone,” says a lifer. “You just got recycled into a different department.”

  Some invested wisely with Bernie, trusting his financial acumen—after all, the boss was considered an investor’s dream, a genius, and one of the most powerful money men on Wall Street. How lucky they were to work for him. They thought of Bernie almost like a father figure, a messiah, and most felt secure that they’d have a very pleasant retirement. Unlike the bleak situation at other financial firms in the terrible economy of the latter part of the first decade of the new millennium, no one from Madoff was joining the growing ranks of the unemployed.

  “We were always like one big, happy family,” offers one of those Madoff veterans who had invested their life savings. “Bernie was our god, a wonderful boss, eccentric, sometimes scary eccentric, but still wonderful. He was a stand-up guy.”

  But all of those warm feelings quickly evaporated around 10 o’clock on that wintry December morning. Christmas 2008 for the 180 or so Madoff workers (and for thousands of other Madoff victims across the country and around the world) was going to be far different from Madoff Christmases past.

  The weather service had forecast “a wintry mess” for the tristate New York metropolitan area for that Thursday.

  For the employees of Madoff it would be more like a horrific terrorist attack.

/>   As one longtime employee sadly observes,“12/11 was our own 9/11.” Bernie and Ruth Madoff were about to become as controversial a couple as Julius and Ethel Rosenberg, and as infamous as Bonnie and Clyde.

  Around 10 o’clock that morning, the boss’s younger brother, Peter, the number two in charge of the family-run firm—Bernie’s sidekick for some four decades—entered the trading room on the 18th floor and called for everyone’s attention.

  His hands were trembling, and he needed to lean against a desk to steady himself. His voice was tremulous.

  “I have some bad news,” he told the gathered workers. “Bernie’s been arrested.”

  “He looked scared, teary-eyed, and everyone was suddenly in a state of shock,” vividly recalls one of those standing there, listening in utter disbelief. “Someone asked Peter what happened, and he said he did not know why Bernie was arrested, or for what reason—or whether it was personal, or whether it was business. He said he didn’t know whether it was for good, and he didn’t know whether it was for evil. (This was a claim that would later turn out to be untrue.) And he said,‘Don’t discuss this with anyone.’

  “When we found out later that day what Bernie had done, I remembered how sincere Peter had sounded that morning, and I thought, ‘In his next career he could win an Oscar.’”

  A close and longtime elderly crony of Bernie’s who was permitted by the boss to use a desk and a phone and conduct private business in the office whenever he wanted to—and was a major investor—happened to come in that horrific morning.

  “Peter made the announcement that Bernie had been arrested, and all havoc broke loose,” he recalls, the memory of the moment indelibly imprinted. “I immediately thought,‘It’s a mistake.’ Maybe his passport had expired. Maybe there was an SEC regulation that the company didn’t adhere to, and they were just going overboard on setting an example.”

  Though no smoking was permitted in the office, he lit one up and held his head in his hands for half an hour, contemplating what kind of crazy jam his chum Bernie had gotten himself into.

  Then he left the office in a daze.

  “I was in a state of shock, and I actually walked home from 53rd Street to 83rd Street, and never went back. People started to call me, and I told my friends, ‘It’s all a big mistake. I’m going to go to sleep tonight knowing that tomorrow morning you’ll find out it’s a mistake.’”

  In another section of the three floors on which Madoff had offices in the striking Lipstick Building, the announcement of Bernie’s arrest was made by gregarious, likable, jeans-wearing Frank DiPascali, who everyone knew was the boss’s right-hand man on the 17th floor. No one ever really knew what he did for Bernie, or for that matter what Bernie did in one of those offices on seventeen.

  “We didn’t have a care in the world that morning,” recalls a longtime employee. “Suddenly Frankie comes crashing in telling us the boss has been arrested by the FBI. ‘We’re not certain exactly what happened, ’ he says. ‘He’s engaged a lawyer. Do not talk to the news media, period.’ That’s the first time Frankie ever gave orders like that. We were all sitting at desks and were kind of thunderstruck. ‘What the hell did the boss do to get arrested by the FBI?’ Little did we know.

  “A little while later Charlie Wiener, the boss’s nephew who was head of administration at Madoff, came in with two or three other fellows and introduced them as SEC guys and told us, ‘They are going to be camping out here for a while.’ There was just a little trading that day, and then it stopped and we just sat at our desks like the waking dead.”

  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.

  Chapter 1

  Beginning of the End

  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 th
rowing 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: