The inside story of Bernie Madoff and his $65 billion Ponzi scheme, with surprising and shocking new details from Madoff himself.
Who is Bernie Madoff, and how did he pull off the biggest Ponzi scheme in history?
These questions have fascinated people ever since the news broke about the respected New York financier who swindled his friends, relatives, and other investors out of $65 billion through a fraud that lasted for decades. Many have speculated about what might have happened or what must have happened, but no reporter has been able to get the full story -- until now.
In The Wizard of Lies, Diana B. Henriques of The New York Times -- who has led the paper’s coverage of the Madoff scandal since the day the story broke -- has written the definitive book on the man and his scheme, drawing on unprecedented access and more than one hundred interviews with people at all levels and on all sides of the crime, including Madoff’s first interviews for publication since his arrest. Henriques also provides vivid details from the various lawsuits, government investigations, and court filings that will explode the myths that have come to surround the story.
A true-life financial thriller, The Wizard of Lies contrasts Madoff's remarkable rise on Wall Street, where he became one of the country’s most trusted and respected traders, with dramatic scenes from his accelerating slide toward self-destruction. It is also the most complete account of the heartbreaking personal disasters and landmark legal battles triggered by Madoff’s downfall -- the suicides, business failures, fractured families, shuttered charities -- and the clear lessons this timeless scandal offers to Washington, Wall Street, and Main Street.
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April 01, 2011
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Excerpt from The Wizard of Lies by Diana B. Henriques
An Earthquake on Wall Street
Monday, December 8, 2008
He is ready to stop now, ready to just let his vast fraud tumble down around him.
Despite his confident posturing and his apparent imperviousness to the increasing market turmoil, his investors are deserting him. The Spanish banking executives who visited him on Thanksgiving Day still want to withdraw their money. So do the Italians running the Kingate funds in London, and the managers of the fund in Gibraltar and the Dutch-run fund in the Caymans, and even Sonja Kohn in Vienna, one of his biggest boosters. That's more than $1.5 billion right there, from just a handful of feeder funds. Then there's the continued hemorrhaging at Fairfield Greenwich Group--$980 million through November and now another $580 million for December.
If he writes a check for the December redemptions, it will bounce.
There's no way he can borrow enough money to cover those withdrawals. Banks aren't lending to anyone now, certainly not to a midlevel wholesale outfit like his. His brokerage firm may still seem impressive to his trusting investors, but to nervous bankers and harried regulators today, Bernard L. Madoff Investment Securities is definitely not "too big to fail."
Last week he called a defense lawyer, Ike Sorkin. There's probably not much that even a formidable attorney like Sorkin can do for him at this point, but he's going to need a lawyer. He made an appointment for 11:30 am on Friday, December 12. He's still unsure of what to do first and when to do what, but a Friday appointment should give him enough time to sort things out.
In his nineteenth-floor office on this cold, blustery Monday, Bernie Madoff starts going through the motions. Around him, the setting is incongruously serene: black lacquer furnishings against silvery carpets and darker gray walls, a graceful staircase in the center. His firm occupies the eighteenth and nineteenth floors of the Lipstick Building, a distinctive oval tower on Third Avenue at East Fifty-third Street. Around the curving walls of windows on each floor, slabs of glass hang from the ceiling to form bright offices and conference rooms. Hidden behind locked doors on the seventeenth floor is a bland set of cluttered offices that Madoff also rents, connected to the rest of the firm only by the building's main elevators and fire escapes. It is down there, far from Madoff's light-filled office, that his fraud is invisibly but inexorably falling apart.
A little before lunch, he talks on the phone with Jeffrey Tucker at Fair-field Greenwich. They've known each other for almost twenty years.
Madoff's controlled frustration sounds fierce over the phone lines. What the hell is this, $1.2 billion in withdrawals in just over a month? Hadn't the executives at Fairfield Greenwich been promising since June that they would "defend" against these redemptions? They're even taking money from their own insider funds! Some defense.
He threatens: Fairfield Greenwich has to replace the redemptions already piling up for December 31, or he will close its accounts. He will kill the goose supplying all those golden eggs for Tucker and his wife, for his younger partners, and for the extended family of Tucker's cofounder Walter Noel Jr.
He bluffs: "My traders are tired of dealing with these hedge funds," he says. Plenty of institutions could replace that money, and have been offering to do so for years. But he has "remained loyal" to Fairfield Greenwich, he reminds Tucker.
As calm as a losing litigator, Tucker assures Madoff that he and Noel are working on a brand-new fund, the Greenwich Emerald fund, that will be a little riskier but will produce better returns. It will sell easily, when the markets settle down.
Madoff scoffs at the notion that Tucker and Noel will ever raise the $500 million they hope for--even though the partners are putting millions of dollars of their own money into it already. They'd better focus on hanging on to the money they are losing right now, Madoff says, or he is going to cut them off.
A shaken Jeffrey Tucker writes an e-mail to his partners a few minutes later. "Just got off the phone with a very angry Bernie," he tells them, repeating the threats. "I think he is sincere."
He isn't. The Fairfield Sentry fund will shut down before December 31, but it won't be because Tucker and his partners aren't "defending" against their redemptions. It will be because they have stifled their skepticism for twenty years, determined to believe that their golden nest eggs were safe with Madoff.
Sometime today, people down on the seventeenth floor who work for Madoff's right-hand man, Frank DiPascali, will get the paperwork done so that Stanley Chais, one of Madoff's backers since the 1970s, can withdraw $35 million from one of his accounts. Chais has been loyal to Madoff a lot longer than the Fairfield Greenwich guys.
Around 4:00 pm, friends and clients start to arrive for a meeting of the board of the Gift of Life Bone Marrow Foundation, which helps find bone marrow matches for adults with leukemia. Bernie and his wife, Ruth, support the group because their nephew Roger succumbed to the disease and their son Andrew had a related illness, a form of lymphoma. In ones and twos, the board members show up, climbing the oval stairway from the reception area on the eighteenth floor, where the firm's administrative staff is housed.
At the head of the stairs, they turn right and head for the big glass-walled conference room between Madoff's office and his brother Peter's office. Ruth Madoff arrives and joins them. Eleanor Squillari, Bernie's secretary, has arranged some soft drinks, bottled water, and snacks on the credenza near one of the doors.
Jay Feinberg, the foundation's executive director and a leukemia survivor himself, sits down at one end of the long stone table with a few of his staff members and his elderly father, a board member. Bernie is at the other end, with Ruth on his right. There are people here who were woven into every decade of Madoff's life--Ed Blumenfeld, his buddy and the co-owner of his new jet; Fred Wilpon, an owner of the New York Mets baseball team and a friend since their kids were growing up together in Roslyn, Long Island; Maurice "Sonny" Cohn, his partner in Cohmad Securities since the mid-1980s, a friend who has shared so many jokes with him over the years and now shares his office space.
Ezra Merkin, the financier and conduit to so many Jewish charities, arrives and settles his bulk into the square black leather chair next to Ruth. The elegant stockbroker Bob Jaffe, the son-in-law of Madoff's longtime Palm Beach investor Carl Shapiro and a broker with Cohmad, sits nearby. A few other board members or volunteers find seats at the table. There is a little trouble with the phone, but finally they manage to link in Norman Braman, the genial former owner of the Philadelphia Eagles football team, who presumably is in Florida.
At this moment, most of the people around this table are Madoff's friends, his admirers, his clients. In a few days they, and thousands like them, will become his victims. Their wealth will be diminished and their reputations questioned. Their lives will become a nightmare merry-goround of lawyers, litigation, depositions, bankruptcy claims, and courtroom battles. They will all profoundly regret that they ever trusted the genial silver-haired man seated at the head of the table.
With Ruth taking notes, Madoff turns to the agenda--fund-raising efforts and plans for the big annual dinner in the spring. A fund-raising committee is needed. "Who will take this on?" Madoff asks. Fred Wilpon agrees to do so. The rest of the discussion is routine, except that some members recall Feinberg passing around copies of the foundation's conflict-of-interest policy and getting a signed copy from each member for the file.
By six o'clock, they are done. Madoff escorts his wife and friends through the private nineteenth-floor exit. They head out into the winter night.
Tuesday, December 9, 2008
Things are starting to slip. Madoff has planned to meet with the son of his friend J. Ira Harris, one of the wise lions of Wall Street and now a genial philanthropist in Palm Beach, but the visit is canceled.
Instead, Madoff sits down with his older son, Mark, and explains that, despite the recent meltdown in the market, he's had a very strong year with his private investment advisory business. He's cleared several hundred million dollars, and he wants to distribute bonuses to some employees a little earlier than usual. Not in February--now, this week. He tells Mark to draw up a list of the trading desk employees who should get checks.
Troubled, Mark consults his brother, Andrew. The two men have seen their father tense up a little more every day as the market crisis has wrung them all out. Just a little liquidity strain on the hedge fund side, he told them last month. But he is clearly more than just worried; they've never seen him like this. And now he wants to pay out millions in early bonuses--it doesn't make sense. Shouldn't he be conserving cash, with things as rocky as they are? He should wait to see how things look in two months, when bonus season arrives. But Bernie Madoff is an autocrat-- he is in charge, and he brooks no opposition. Still, the brothers decide they must talk with their father on Wednesday about their concerns.
After the markets close and the firm starts to empty out, Madoff walks across the oval area where the secretaries sit and enters Peter's office. Peter has aged and pulled inward in the two years since his only son died. He still carries Roger's photo in his wallet, one taken after leukemia had already left its stamp on his once-handsome face. For decades before that bereavement, Peter had been Bernie's right hand, his confidant, the technological guru of the firm, the "kid brother."
If Peter has not previously known about his brother's crime--his lawyers will insist later that he did not--he is going to learn about it now. Bernie takes a deep breath and asks his brother if he had "a moment to talk." Peter nods, and Bernie closes the door.
"I have to tell you what's going on," he says.
People speak glibly about "life-changing" moments. Some truly qualify. You propose marriage and are accepted. You hear "You're hired" or "You're fired," and your future shifts instantly. The doctor says "malignant," and everything is different. But anyone who has ever lived through it will tell you: It is profoundly shattering to learn, in one instant, that everything you thought was true about a loved one is actually a lie. The world rocks on its axis; when it is finally steady again, you are in a strange place that resembles but is totally unlike the place you were in just a moment earlier.
So if this is the moment Peter Madoff learns of his brother's crime, it seems unlikely that he immediately contemplates the ruin of his career and his family's fortune, or worries about the chain saw of civil lawsuits and criminal investigations that will chew through the years ahead. Those thoughts will surely come. But if this news has hit him from out of the blue, it is far more likely that his mind just stops and tries to rewind an entire lifetime in a split second, to get back to something real and true.
Peter is a lawyer and the firm's chief compliance officer--they've always been too casual about job titles here, and now it matters. He listens as Bernie explains that he's going to distribute the bonuses and send redemption checks to those closest to him--to make whatever amends he can before he turns himself in. He needs just a few days more, he says. He's already made a date with Ike Sorkin for Friday.
Perhaps still waiting for the world to stop rocking, Peter blurts out, "You've got to tell your sons."
Mark and Andrew had both talked with their uncle Peter about how worried they were about their father, who had grown increasingly preoccupied in recent weeks. They kept asking, "Is Dad all right?" They are frightened, Peter says. Again, he tells Bernie, "You have to tell them."
He would, he would. He just couldn't decide when.
Wednesday, December 10, 2008
Sometime during the morning, Eleanor Squillari sees Ruth Madoff make a quick visit to the office. On Bernie's instructions, she is withdrawing $10 million from her Cohmad brokerage account and moving the cash into her bank account at Wachovia so she can write checks on it if he needs the money. It would not be surprising if she thought her husband needed cash to help cover redemptions from his hedge fund--perhaps she remembers the run on Bear Stearns in February and fears that Bernie is in the same kind of trouble. The distress in the market is apparent to everyone.
Madoff has been at his desk since about nine o'clock, quietly working on what looks like a bunch of figures. In fact, he is probably signing three dozen of the one hundred checks DiPascali prepared last week-- checks totaling $173 million, made out to friends, employees, and relatives, cashing out their accounts.
Peter Madoff comes in early, pressing him again to share his dreadful news with his sons. Bernie agrees that he will, but he still isn't certain about when to do it. Tonight is the office holiday party. Perhaps it's not the right moment. Once he tells them, they will need time to get their bearings. Maybe the weekend would be better.
He calls Ike Sorkin and asks to reschedule their appointment until 10:00 am next Monday, December 15. Sorkin says, "Sure," and changes his calendar.
But the timing is taken out of his hands.
At midmorning, Mark and Andrew Madoff walk past Squillari's desk and enter their father's office. According to her, Peter Madoff goes in, too, and sits on the sofa beside the desk. Legs crossed and arms folded, Peter looks limp--"as if the air has been sucked out of him," she will recall. Mark and Andrew sit in front of the desk, their backs to the door.
Madoff's sons are not accustomed to challenging their father's decisions about running the business. It is entirely his, after all; he owns every share of it. If their father wants to fire them today, he can. But they have to say something. Mark raises the issue of the bonuses, saying that he and Andrew agree that they are premature and unwise.
Madoff initially tries to reassure them. It's just as he told them: he has had a good year, he has made profits through his money management business, and he thinks this is a good time to distribute the money.
The sons stand firm; they challenge their father's explanation. Wouldn't it be wiser to hang on to any windfall in case they need to replenish the firm's capital? As they persist, their father grows more visibly upset. He rises from his chair, glances past them to the oval area beyond. His office is a fishbowl. How can a man with so much to hide wind up without a single spot in his office where he can talk to his sons in private?
He tells his sons that he isn't going to be able to "hold it together" any longer. He needs to talk with them alone, and he asks them to come with him to his apartment on East Sixty-fourth Street. He calls Ruth to tell her that he and their sons are heading over.
Memories of their departure are illogically jumbled, shaken to fragments by the events that followed. Eleanor Squillari recalls asking Bernie where they were going and being told, "I'm going out." Her memory is that Mark whispers something about Christmas shopping. One of the sons gets Madoff's coat from the nearby closet and helps him into it. He turns its collar up, as if he is heading into a storm. Squillari thinks it is only about 9:30 am when she calls down to the seventeenth floor for one of the drivers to go for a car. But the driver later recalls it took nearly ninety minutes to return with the sedan. It seems unlikely that father and sons stood in their winter coats and waited for the car for an hour and a half when they could have hailed a cab or walked to the apartment in less than twenty minutes. It is a detail no one will remember.
Finally, they climb into the big black sedan, Mark in front and Andrew and his father in the back. They seize on a safe topic to discuss in front of the driver: Bernie's grandchildren. They reach the apartment and take the elevator to the penthouse.
Ruth meets them, and they all file into the study that Madoff loves so much, a dark refuge of rich burgundy leather and tapestry fabric, with vintage nautical paintings on the wood-paneled walls and cluttered bookcases embracing the windows.
Madoff breaks down as he talks with his wife and sons; as he begins to weep, they do, too. He tells them that the whole investment advisory business was a fraud, just one enormous lie, "basically, a giant Ponzi scheme." He is finished. He has "absolutely nothing" left. The business--the family business, where his sons had worked all their lives and where they expected to spend the rest of their careers--is insolvent, ruined. He says the losses from the fraud could run to $50 billion. None of them can take in a sum like that, but they know that millions were entrusted to him by his own family, by generations of Ruth's relatives, by their employees, by most of their closest friends.
Madoff assures them that he has already told Peter about the fraud and intends to turn himself in within a week. And he actually does have several hundred million dollars left, he says; that bit is true. Before he gives himself up, he plans to pay that money out to certain loyal employees, to family members and friends.
By now, Ruth and her sons seem to be in shock, almost unable to process the news. Mark is blind with fury. Andrew is prostrate. At one point, he slumps to the floor in tears. At another, he wraps his arms around his father with a tenderness that sears itself into Madoff's memory. When Andrew's world stops rocking, he will say that what his father has done is "a father-son betrayal of biblical proportions."
The brothers leave the apartment and tell the driver to wait for their father. They stumble through some excuse about going together to have lunch. They head south down Lexington Avenue, toward the office, but go instead to see Martin London, a retired partner at the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison who is also the stepfather of Mark's wife. London is a formidable litigator, a scholar of securities law, and a richly honored attorney. He is also one of the people who has trusted Bernie Madoff. On Mark's advice, he has invested with the family genius.
The sons tell him what the family genius has just revealed to them. London is stunned, too, but his legal instincts kick in. He immediately tries to reach a younger colleague at Paul Weiss named Martin Flumenbaum, one of the top trial lawyers in Manhattan.
Flumenbaum, a short, rotund man with a beaming face, is several hours away, at the federal courthouse in Hartford, Connecticut. Following courthouse rules, he had handed over his cell phone when he went through courthouse security this morning. He retrieves it and sees the urgent messages from New York.
When he calls Mark Madoff, who has returned to his downtown loft apartment, he learns about the surreal conversation Mark and Andrew had with their father earlier. Flumenbaum promises to meet them late that afternoon at his Midtown law office, in a sleek tower just north of Radio City Music Hall.
Christmas lights are twinkling in the drizzling winter twilight when Mark's driver pulls up in front of the building. Andrew is already waiting on the sidewalk, and they walk in together. The driver waits, but after about ninety minutes, Mark calls and tells him to go on to the office party.
Flumenbaum greets them when they arrive. As they settle down to talk, Mark and Andrew repeat the story of their shocking day, adding a few explanatory details. Madoff's money management business operates from a small office on a separate floor, they said. It has always seemed successful--they know he has a lot of big hedge fund clients, has turned rich potential clients away--but their father has kept it very private, virtually under lock and key. Dozens of family members have let Bernie manage their savings, trust funds, retirement accounts. Mark and Andrew know he hasn't used their trading desk to buy or sell investments for his private clients--he's always said he used "European counterparties." He has a London office and spends time there, so it made sense.
Now nothing makes sense. Their father, a man they have looked up to all their lives, has plunged them instantly from wealth to ruin. He is not the financial genius and Wall Street statesman they always believed he was; he is a crook, a thief, a con artist of almost unimaginable dimensions. How could they have been so deceived about their own father?
These are not Marty Flumenbaum's immediate concerns. Madoff has made it clear to his sons that he intends to continue his criminal behavior for one more week, distributing what prosecutors will soon be calling "ill-gotten gains" to his relatives, employees, and friends. This vast crime isn't over; it is a work in progress. Madoff's sons have no choice, Flumenbaum tells his new clients. They must report this conversation--this confession--to the federal authorities immediately.
Flumenbaum knows very senior people at the U.S. Attorney's Office in Manhattan and at the New York office of the Securities and Exchange Commission. He makes some calls. When he reaches his contact at the SEC, he sketches out the afternoon's events, the Ponzi scheme allegations, the estimate from Bernie himself that the losses could reach $50 billion.
There is a pause at the other end of the line, then the taut question: Is that billion, with a B?
Yes. Billion, with a B.
The investigative machinery grinds into motion. The FBI musters its financial crime team. The SEC, not for the first time, opens a case file labeled "Madoff, Bernard L."
It's not precisely clear how Madoff spends the rest of this day, the last day he will be able to go anywhere unrecognized. He recalls returning to the office; he remembers Andrew being there and telling him that he and Mark would be consulting a lawyer. As Eleanor Squillari remembers the afternoon, he does not return to his office on the nineteenth floor; she recalls trying to reach him on his cell phone numerous times but getting only his voice mail.
Mismatched memories also distort what happens on the rest of this bizarre day. For Bernie Madoff and his family, today is already etched in acid in their minds, in their hearts--but for the drivers and other junior office employees, it is simply the day of the annual office Christmas party. For them, its devastating significance will not emerge for another twenty-four hours. So, inevitably, some pieces of this puzzle simply won't fit.
Still, Squillari feels sure she would have seen her boss if he had returned to his own office. There is a hand-delivered letter waiting for him there from Jeffrey Tucker at Fairfield Greenwich. In it, Tucker apologizes for not keeping Madoff better informed about pending redemptions and promises to do better in the future. "You are our most important business partner and an immensely respected friend. . . . Our mission is to remain in business with you and to keep your trust," the letter says.
Perhaps Madoff simply goes directly from the lobby to the seventeenth floor, where Frank DiPascali and some of his small crew are working on the checks Madoff plans to distribute.