. . . a leading international market maker. The firm has been providing quality executions for broker-dealers, banks, and financial institutions since its inception in 1960.... With more than $700 million in firm capital, Madoff currently ranks among the top 1% of U.S. securities firms.... Clients know that Bernard Madoff has a personal interest in maintaining an unblemished record of value, fair dealing, and high ethical standards that has always been the firm’s hallmark.
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.
And as it would turn out, Marty Rosenman became the very last investor to give money to Madoff in the days before his enormous criminal scheme would come crashing down.
Not surprisingly, there was no record of the Rosenman-Madoff transaction. Moreover, the Treasury bill sale was “never authorized” by Rosenman, bogus or not.
As Rosenman’s attorney, Howard Kleinhendler, later stated, “We don’t think any securities were bought or sold. To the contrary, we think he [Madoff] was deliberately collecting money. He was trying to get more money in the door for this final distribution he wanted to make.”
On December 9, the same day that Madoff let Rosenman know that his $10 million had been invested, Bernie made a surprise revelation regarding the distribution referenced by Kleinhendler. Bernie declared that he planned to dispense fat bonuses to his employees, friends, and family members amounting to as much as a startling $300 million, according to investigators. About a hundred signed checks totaling $173 million were never sent and were later discovered in his desk drawer after his arrest.
Like others among some 14,000 present and former Madoff investors, many of whom were bilked with catastrophic losses, Rosenman sued to get back his money—and seemingly caught a break. Irving Picard, who was subsequently named trustee after the scandal broke to oversee the dismantling of Bernie’s evil Ponzi empire, agreed to set aside the $10 million and not put it in the pot that would eventually—it was hoped—be generally distributed to Madoff victims. But a bankruptcy judge later ruled there would be no special treatment for Rosenman, a decision that was then appealed.
Whichever way it turned out, Bernie’s fraud didn’t leave Rosenman and his family destitute. Far from it. The Rosenman company had been acquired by the Hess Corporation in 2008; the Rosenmans were extremely wealthy. As Kleinhendler noted, the $10 million was not the Rosenman family “nest egg . . . not something that will dramatically affect their life.” Many of Bernie’s investors fit that profile, a demographic in which $10 million didn’t mean the end of the world to them, but that still didn’t excuse Bernie’s crime.
If the Rosenman family wanted its $10 million back, Bernie’s wife—the well-coiffed, well-preserved, shop-until-she-dropped Bergdorf blonde who would soon become known to the world and in tabloid headlines as Ruthie—also wanted some millions for herself.
Two days before Thanksgiving 2008, and a few days before she and Bernie celebrated their 49th wedding anniversary, the petite 68-year-old self-styled socialite gave hersel
f a $5.5 million cash present in the form of a whopping withdrawal from her account at a company called Cohmad Securities Corporation, a Madoff tentacle and feeder fund that would come under intense scrutiny by authorities.
Cohmad was the merger of the names Madoff and Cohn—the latter for Maurice “Sonny” Cohn, an old friend of Bernie’s. Cohmad, along with Cohn and his daughter, Cohmad president Marcia Cohn, would later be sued by the Securities and Exchange Commission (SEC) for bringing investors to Bernie and ignoring and even participating “in many suspicious practices that clearly indicated Madoff was engaged in fraud.”
An SEC official stated that Bernie “cultivated an air of exclusivity by pretending that he was too successful to trouble himself with marketing to new investors. In fact he needed a constant in-flow of funds to sustain his fraud, and used his secret control of Cohmad to obtain them.”
Then, on December 10, with the clock ticking like a time bomb on Bernie’s fraudulent operation, Ruth withdrew another $10 million. When her greed was disclosed some weeks later in a court action, the tabloid New York Post’s headline blared:“Shocking Withdrawals on Eve of Bust.”
By making those withdrawals, many wondered, did Ruth Madoff know the roof was about to cave in?
Up to the end, she had maintained an office at Madoff headquarters where Cohmad also had its office. And in her 50th high school reunion book—an event that Ruth and Bernie attended on November 7, 2008, just a month before his house of cards collapsed—she proudly boasted: “Bernie and I worked together in the investment business that he founded.”
Was Ruth Madoff helping her desperate husband in his last-ditch efforts to bring in more money? Or was she just socking away cash to cover herself in the future? In the coming months there would be much speculation about that money, and what Ruth knew and when she knew it.
According to a veteran Madoff executive with close ties to the family, it appears that Ruth may have been one of her hubby’s longtime family partners and participants bringing in investors.
The executive tells the following story:
In late April 2008, a well-to-do elderly couple decided to move from New York City to Palm Beach. As they were beginning to settle in, the husband suddenly died of a heart attack. In September 2008 the widow, a member of the Palm Beach Country Club, many of whose wealthy members would lose fortunes to Bernie, “got into a foursome on the golf course with Ruth and some other ladies,” states the Madoff insider. “The widow had never met Bernie Madoff. But by the end of September she had all her money with Bernie. So, it seems Ruth was working for him. I was shocked.”
So much was happening, and only a close-knit circle was aware.
On December 8, for instance, an anxious and stressed Bernie blew his top in a telephone conversation with Jeffrey H. Tucker, co-founder, with high roller Walter Noel, of the Fairfield Greenwich Group, soon to be identified as the Madoff firm’s largest feeder fund. Beginning in 1989 Fairfield Greenwich began spoon-feeding Madoff billions of dollars in investor money and received hundreds of millions of dollars in fees simply for being the intermediary. Bernie was furious with Tucker because many of Fairfield’s investors, frightened by the worsening economy, were pulling out enormous amounts of money, known as redemptions. Bernie wanted the growing outflow of funds halted ASAP, and he strong-armed Tucker.
“Just got off the phone with a very angry Bernie who said if we can’t replace the redemptions for 12/31 he is going to close the account,” Tucker, a former Securities and Exchange Commission official, wrote in a letter to Fairfield’s executive committee. “His traders are ‘tired of dealing with all these hedge funds’ and there are plenty of institutions who can replace the money. They have been offered this all along ‘but remained loyal to us.’ . . . Not sure of our next step but we best talk. I believe he is sincere.”
The epitome of the con artist, Bernie the bully had successfully intimidated Tucker. Tucker was clearly worried about losing Fairfield’s long connection with Madoff. As soon would be disclosed, however, there was no one waiting in the wings, as Bernie threatened, willing to pump much-needed money into Madoff ’s now relatively empty coffers. Tucker quickly followed up with an apologetic letter to Bernie. “Our firm is very dependent on its relationship with your firm. . . . You are our most important business partner and an immensely respected friend.... Our mission is to remain in business with you and keep your trust.”
The Fairfield Greenwich Group, like a number of other such Madoff-connected entities, would soon be the subject of a lawsuit for its “complete disregard of its fiduciary duties . . . its flagrant misrepresentations to investors [that] rise to the level of fraud,” all of which the firm adamantly denied.
On the evening of December 9, 2008, a day before Ruth’s $10 million money grab, a highly revelatory meeting took place between Bernie and his top lieutenant and younger brother, Peter Madoff, the senior managing director and chief compliance officer of BLMIS. Bernie is said to have confessed to Peter, who had worked virtually side by side with him for some 40 years, that he had been operating a monster Ponzi scheme on the side. If such a confession was actually made, Peter, as head of compliance, had an obligation to immediately report his brother’s criminal activities to the proper authorities, such as the SEC. He did not.
The next day, December 10, Bernie supposedly made a similar confession to his sons, Mark and Andrew, who also had worked closely with their father, and were the recipients in recent years of a whopping $31.5 million in what were claimed as loans from their parents, money that later would become part of the case. Mark was in charge of the legitimate stock-trading arm of his father’s firm, while Andy was now heading up a relatively new entity called Madoff Energy, which involved the buying, restoring, and selling of abandoned oil rigs to small oil companies and wildcatters. The Madoff scions were said to have been as shocked as their Uncle Peter when the patriarch of the dynasty told them what he had been up to. After he made his so-called confession to his sons, the brothers contacted a lawyer friend, Martin Flumenbaum, and then filed a report with the authorities.
Like so much in the Madoff saga, though, one has to question the veracity of the confession scenarios that were spun. Many inside and outside the company—investors, investigators, longtime family friends and associates, and the public at large—found it hard to swallow that none of the family members knew about Bernie’s nefarious activities, and that Bernie had acted alone. The family seemed too close-knit and too involved with the company that was founded a half-century earlier to be unaware of the patriarch’s activities. And there was speculation that the alleged admissions made by Bernie to his sons and brother were a way to protect them from possible prosecution. In other words, they didn’t know anything about any of the bad stuff until Bernie told them—just hours before he was busted.
On the night of December 10, the employees of BLMIS gathered for the company’s annual Christmas party thrown for the second year in a row at festive Rosa Mexicano, an upscale Upper East Side Manhattan restaurant, a short walk from the Madoff offices. Little did the merry partygoers know that this would be their last joyous time together.
Earlier in the day Andy Madoff, the chief executive of Madoff Energy, had told his assistant, Toniann Astuto, an eight-year Madoff veteran, that he would see her later at the party. But neither Andy nor his brother Mark made an appearance, which surprised Astuto and others. The boys were usually at the Madoff employee bashes, having a grand old time.
But the revelers had no idea of the Madoff drama that was unfolding behind closed doors, or of the dynamite about to be ignited.
Neither presumably did J. Ezra Merkin, a close associate of Bernie’s who was holding a benefit for the Israel Museum that same night in his Park Avenue apartment, surrounded by his priceless collection of Rothkos and some of New York’s wealthiest Jews and patrons of the arts, many of them Madoff investors (most unknowingly). As president of Manhattan’s exclusive Fifth Avenue Synagogue and a world-class investor, Merkin
headed several huge private investment funds that were feeding billions into Madoff. Merkin would soon become enmeshed in the Madoff scandal, accused of fraud and deception in a civil suit. The clock was ticking on Merkin, too, that night.
Although the Madoff scions failed to make an appearance at the Christmas bash, Bernie, Ruth, and Peter were in attendance. Bernie needed to keep up appearances, even as the end neared.
One longtime employee, William Nasi, who had been Bernie’s personal errand boy and messenger beginning in the late 1960s, perceived a change in “the boss’s mood” compared to Christmas parties past.
Bernie always acted like a politician—squeezing the flesh, kissing babies, playing the crowd, going from table to table, playing the role of the boss.
This time when he showed up, Ruth was acting out that role. Bernie just stood there silently. There was total dead silence from Bernie. He never said a word that night. He had that thousand-yard stare, that combat stress stare. He walked like an ambulatory zombie.
Another veteran Madoff employee, Amy Joel, whose late father, Martin J. Joel, had been a trusted friend and colleague of Bernie’s and whose surviving family would be one of those financially wiped out, notes that Bernie always rented fabulous places for the Christmas party. “He always did it great, and it cost him a pretty penny,” she says. Like Nasi, Joel agrees that Bernie’s mood was far more somber at the 2008 party.
I thought it was odd because Bernie and Ruth sat at a corner table by themselves in the front of the restaurant looking out. I guess they thought the feds were going to come and get him that night. I went over to say something to Bernie. He seemed very tense. Peter circulated and said hello to everyone and wished us a happy holiday.
Madoff with the Money Page 2