Praise for Bernie Madoff, The Wizard of Lies
“Henriques…offers a riveting history of Mr Madoff’s shady dealings and the shattering consequences of his theft.”
The Economist
“[Henriques] probably knows more than anyone outside the FBI and the Securities and Exchange Commission about the mechanics of the fraud. As a consequence, in [the book] she is able to add significant detail to the story.... In the end the story holds us not because of the engrossing details of the scam, but because of the human dimension.”
The New York Times Book Review
“Cogent and well researched, Bernie Madoff, The Wizard of Lies is an engaging narrative…. [The book] reveals many moments where Madoff might have been stopped. But his investors were too trusting or too greedy to ask the right questions and US regulators were too cowed and too disorganised.”
Financial Times
“Henriques has been granted an unprecedented level of access to Bernard Madoff… What could she uncover that we haven’t already heard? As it turns out, plenty. Henriques offers an impressive, meticulously reported postmortem not only of the Ponzi scheme but also of Madoff’s entire career.... The definitive book on what Madoff did and how he did it.”
Bloomberg BusinessWeek
“[Madoff] is so much like every one of us that failing to recognize this fact will imperil us at every financial turn. This is one of many revelations in Diana Henriques’ stunning new book... Masterful.”
Reuters
“Compelling.”
The New York Times
“[A] fascinating portrait… In this thoroughly researched and well-written account, Henriques skilfully manages to humanise Madoff without diminishing the monstrousness of his deeds.”
Fort Worth Star-Telegram
Also by Diana B. Henriques
The White Sharks of Wall Street:
Thomas Mellon Evans and the Original Corporate Raiders
Fidelity’s World:
The Secret Life and Public Power of the Mutual Fund Giant
The Machinery of Greed:
Public Authority Abuse and What to Do About It
BERNIE MADOFF, THE WIZARD OF LIES
BERNIE
MADOFF,
THE
WIZARD
OF LIES
INSIDE THE INFAMOUS $65 BILLION SWINDLE
DIANA B. HENRIQUES
A Oneworld Book
First published in Great Britain and the Commonwealth by Oneworld Publications 2011
First published in the USA and Canada as The Wizard of Lies: Bernie Madoff and the Death of Trust by Times Books, 2011
This ebook edition published by Oneworld Publications 2011
Published by arrangement with Times Books, an imprint of Henry Holt and Company, LLC,
175 Fifth Avenue, New York, NY 10010 USA.
Copyright © 2011 by Diana B. Henriques
The moral right of Diana B. Henriques to be identified as the Author of this work has been asserted by her in accordance with the Copyright, Designs and Patent Act 1988
All rights reserved
Copyright under Berne Convention
A CIP record for this title is available
from the British Library
ISBN 978-1-78074- 043-0
Cover design by Dan Mogford
Design by Meryl Sussman Levavi
Oneworld Publications
185 Banbury Road, Oxford, OX2 7AR, England
Learn more about Oneworld. Join our mailing list to find out about our latest titles and special offers at:
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For my colleagues at The New York Times,
yesterday, today, and tomorrow;
and for Larry,
forever
CONTENTS
Cast of Characters
Prologue
1. An Earthquake on Wall Street
2. Becoming Bernie
3. The Hunger for Yield
4. The Big Four
5. The Cash Spigot
6. What They Wanted to Believe
7. Warning Signs
8. A Near-Death Experience
9. Madoff’s World
10. The Year of Living Dangerously
11. Waking Up in the Rubble
12. Reckoning the Damage
13. Net Winners and Net Losers
14. The Sins of the Father
15. The Wheels of Justice
16. Hope, Lost and Found
Epilogue
Notes
Acknowledgements
Index
CAST OF CHARACTERS
THE MADOFF FAMILY
Bernie Madoff, founder of Bernard L. Madoff Investment Securities
Ruth Madoff (née Alpern), his wife
Mark Madoff, their elder son, born 1964
Andrew Madoff, their younger son, born 1966
Peter Madoff, Bernie Madoff’s younger brother
Shana Madoff, his daughter
Roger Madoff, his son
Ralph Madoff, Bernie Madoff’s father
Sylvia Madoff (née Muntner), Bernie Madoff’s mother
AT BERNARD L. MADOFF INVESTMENT SECURITIES
Eleanor Squillari, Bernie Madoff’s secretary
Irwin Lipkin, Madoff’s first employee
Daniel Bonventre, the director of operations
Frank DiPascali, the manager on the seventeenth floor
Jerome O’Hara, a computer programmer
George Perez, his coworker and officemate
David Kugel, an arbitrage trader
THE ACCOUNTANTS
Saul Alpern, Ruth Madoff’s father
Frank Avellino, Alpern’s colleague and successor
Michael Bienes, Avellino’s longtime partner
Jerome Horowitz, an early Alpern partner and Madoff’s accountant
David Friehling, Horowitz’s son-in-law and successor
Paul Konigsberg, a Manhattan accountant
Richard Glantz, a lawyer and the son of an early Alpern associate
INDIVIDUAL INVESTORS AND “INTRODUCERS”
Martin J. Joel Jr, a stockbroker in New York
Norman F. Levy, a real estate tycoon in New York
Carl Shapiro, a philanthropist in Palm Beach
Robert Jaffe, his son-in-law
Jeffry Picower, a secretive New York investor
William D. Zabel, his longtime attorney
Mendel “Mike” Engler, a stockbroker in Minneapolis
Howard Squadron, a prominent Manhattan attorney
Fred Wilpon, an owner of the New York Mets baseball team
MAJOR US FEEDER FUNDS
Stanley Chais, a Beverly Hills investor
Jeffrey Tucker, a cofounder of Fairfield Greenwich Group
Walter Noel Jr, his founding partner
Mark McKeefry, the general counsel at Fairfield Greenwich
Amit Vijayvergiya, the chief risk officer at Fairfield Greenwich
J. Ezra Merkin, a prominent Wall Street investor
Victor Teicher, his former adviser
Sandra Manzke, a pension fund specialist
Robert I. Schulman, her onetime partner
INTERNATIONAL INVESTORS AND PROMOTERS
Jacques Amsellem, a French investor
Albert Igoin, a secretive financial adviser in Paris
Patrick Littaye, a French hedge fund manager
René-Thierry Magon de la Villehuchet, his partner
Sonja Kohn, a prominent Austrian banker and founder of Bank Medici
Carlo Grosso, a manager of the Kingate fund, based in London
Rodrigo Echenique Gordillo, a Banco Santander director in Madrid
COHMAD SECURITIES
Maurice J. “Sonny” Cohn, Bernie Madoff’s partner in this firm
Marcia Beth Cohn, his daughter
WHISTLE-BLOWERS
Michael Ocrant, a writer for an elite hedge fund newsletter
Erin Arvedlund, a freelance writer for Barron’s magazine
Harry Markopolos, a quantitative analyst in Boston
US SECURITIES AND EXCHANGE COMMISSION (SEC)
Christopher Cox, chairman from August 2005 to January 2009
Mary Schapiro, his successor as chairman
H. David Kotz, their independent inspector general
Grant Ward, a regional official in Boston
Ed Manion, his coworker
Lori Richards, a senior official in Washington
Eric Swanson, a lawyer in Washington
Meaghan Cheung, a lawyer in the New York office
Simona Suh, her colleague
William David Ostrow, an examiner in the New York office
Peter Lamore, his colleague
Lee S. Richards III, a New York lawyer in private practice, appointed as receiver for Madoff’s firm
FAMILY LAWYERS
Ira Lee “Ike” Sorkin, defence lawyer for Madoff
Peter Chavkin, lawyer for Ruth Madoff
Martin Flumenbaum, lawyer for Mark and Andrew Madoff
FEDERAL BUREAU OF INVESTIGATION (FBI)
Ted Cacioppi, special agent
B. J. Kang, his colleague
FEDERAL PROSECUTORS IN MANHATTAN
Preet Bharara, US attorney for the Southern District of New York
William F. Johnson, chief of the Securities and Commodities Fraud Task Force
Marc Litt, the lead prosecutor in the Madoff case
Lisa Baroni, his colleague
SECURITIES INVESTOR PROTECTION CORPORATION (SIPC)
Irving H. Picard, the trustee for the Madoff bankruptcy case
David J. Sheehan, his chief legal counsel at Baker & Hostetler
FEDERAL JUDGES IN MANHATTAN
Louis L. Stanton, a district court judge
Burton R. Lifland, a bankruptcy court judge
Denny Chin, a district court judge
Richard J. Sullivan, a district court judge
VICTIMS’ ADVOCATES
Helen Davis Chaitman, a lawyer in New Jersey
Lawrence R. Velvel, a law school dean in Massachusetts
Prologue
TUESDAY, AUGUST 24, 2010
Glimpsed through the glass double doors at the end of a long prison hallway, he is not recognizable as the impassive hawk-faced man who was marched incessantly across television screens around the world less than two years ago. He seems smaller, diminished—just an elderly man in glasses talking deferentially to a prison official and looking a little anxious as he waits for the locked doors ahead of him to click open.
Escorted by an associate warden, he steps from the sunshine of the prison’s sealed courtyard into the dim, cheaply panelled visiting room. The room would have fit easily into a corner of his former penthouse in Manhattan. Its furnishings consist entirely of faded plastic lawn furniture—red armless chairs around low tan tables—and it is illuminated today only by light from one large window and a row of vending machines.
On most of his occasional visits to this room, it had been filled with prisoners and their families. But as he enters with his escort on this Tuesday morning, the room is empty except for his lawyer, a guard, and the visitor he has finally agreed to see. As the rules require, he sits facing the guard’s desk, where the associate warden settles down to wait. He unfolds a single sheet of ruled paper; it appears to be some handwritten notes and a few questions for his lawyer. He spreads the sheet out on the table in front of him.
The creases in his tan short-sleeved shirt and trousers are knife-sharp, despite the humidity of this late summer morning. His hair is shorter, but it suits his slimmer frame. His black leather trainers are gleaming. Aside from a small spot where the brass plating on his belt buckle has worn away, he is as carefully groomed as ever. Even though he does not much resemble the heavier, better-dressed man shown so often in the news reports after his arrest, he still has a quiet magnetism that draws the eye.
For more than two hours, he answers questions, sometimes with a direct gaze and sometimes with eyes that shift to the empty patio outside the window beside him. He is soft-spoken and intense, with occasional flashes of wit. He loses his composure just once, when he talks about his wife. Throughout, he seems unfailingly candid, earnest, and trustworthy.
But then, he always does—even when he is lying. That is his talent and his curse. That is what enabled him to pull off the largest Ponzi scheme on record. That is what will enable him to spin the facts and obscure the truth about his crime for as long as he lives, if he chooses to do so.
Bernard L. Madoff—Inmate Number 61727054—is the best-known prisoner currently held at the sprawling Federal Correctional Complex on the outskirts of Butner, North Carolina.
The Butner-Creedmore exit on Interstate 85 does not announce that the prison is located here. There are no clearly marked signs within the little hamlet, just a few narrow black-and-white painted pointers at intersections, old-fashioned and easy to miss. The prison is not on the local map in the telephone book, so visitors have to ask the motel clerks for directions.
The twisting route from the motorway involves urban-sounding byways like Thirty-third Street and E Street but is lined mostly with vine-blanketed trees and weed-strewn fields. The prison complex looms suddenly out of the pine woods on the right. It consists primarily of four large buildings set in a floodlit clearing among the lowland forests and fields.
To the right, set slightly apart on the eastern edge of the property, is a minimum-security prison, the colour of manila folders and distinctively free of walls or fences. Almost hidden from view behind a thick stretch of trees to the left is a large modern prison hospital, whose separate entrance is farther along the two-lane road that meanders past the complex. And just visible up on a small wooded hill at the centre of the complex is a multi-storey medium-security prison clad in corrugated grey stone.
Madoff is housed in a fourth facility on the Butner grounds, another medium-security prison to the left of the main entrance, down a short drive lined with flowering white crepe myrtle trees. The low grey-stone building is laid out like a giant game of dominoes. Except for its entry-way, it is completely surrounded by a double row of towering chain-link fences taller than the building itself. The encircling fences are lined with shimmering swirls of shiny razor wire. A watchtower stands at one corner of the large, nearly treeless exercise yard, and guards cruise the narrow roads winding through the complex, constantly alert for wandering prisoners or too-curious visitors.
The unit’s cinder-block entryway is a low-ceilinged maze of security screening equipment, lockers for visitors’ belongings, pay phones, and offices. A set of locked doors leads into a sort of double airlock; the rear doors of each section are sealed before the doors ahead swing open. The last pair of doors opens into a wide white hallway leading to the visiting room. The corridor is immaculately clean and decorated, incongruously, with black-and-white Ansel Adams posters of big skies and wide-open spaces.
The sense of impenetrable isolation descends as soon as the last set of doors thud shut. Mobile phones are out of reach, left in the lockers by the entryway. No written messages can be handed to the prisoner, who is constantly watched during visits. Without permission, not even a notebook can be carried into the visiting room; no tape recorders are allowed. Like laboratory rats or ants in a glass-walled colony, these prisoners are under constant scrutiny in a way few Westerners can fathom. Phone calls—collect calls only—are rationed and monitored. Letters are opened and read. Every human interaction is policed, regulated, constrained, limited, fettered—including this one.
All media visits require the prisoner’
s invitation and the warden’s approval. After nearly a month of paperwork, the green light from the warden came with barely a week’s notice. The time allowed is limited, and that limit is politely enforced. (A follow-up visit will be authorized in February 2011. In the interval, Madoff will send along a note promising to mail his responses to any additional questions. He keeps his promise, sending several lengthy handwritten letters over the next few months and arranging to send short messages via the restricted and closely monitored prisoner e-mail system.)
Until today, Madoff’s only visitor, apart from lawyers, has been his wife. Until now, he has not answered any independent questions about his crime except when standing in a courtroom, responding to a judge.