Meanwhile, the Madoff employees—the traders, the secretaries, the computer guys, everyone—were all having a festive time, though a bit less joyful than in past years.
“The mood was a little bit more somber because obviously the economy was going down the toilet,” observes Astuto, who had joined the Madoff organization as the secretary and personal assistant to Peter’s glamorous fashionista daughter, Shana Madoff, a lawyer, the company’s compliance officer, and a divorcee who had recently married a former SEC official. Shana, who was pregnant, had arrived at the party late and looking unnerved.
“We all knew that things were not going well in the world. And the Madoffs, Bernie and Ruth, weren’t around as much at the party as they usually were,” continues Astuto. “Bernie, Ruth, and Peter didn’t seem quite in a party mood. Normally, especially Peter, you’d see him circulating. He’d come around to everybody, laughing and joking, but not this time. He usually had his wife, Marion, with him. But she didn’t come because he said she had a headache.
“I saw Bernie and Ruth in the food line and I wished them a happy holiday and I asked them where Mark and Andy were. Ruth said Mark’s wife, who was pregnant at the time, wasn’t feeling good, so she wasn’t sure they were going to make it, and Andy was running late because of his girlfriend. I said, ‘Oh, okay,’ but they never showed up, which was a little odd.”
Bernie’s personal secretary of a some 20 years, Eleanor Squillari, a good-looking, tough-talking, 50-something Staten Islander with a snarky manner, was enjoying the party, but she had been seeing changes in Bernie’s physical and emotional makeup as the end drew near. In the office he seemed in a trance. Once strong and dominating, his voice had become “almost inaudible. . . . If he wasn’t staring into space, he was looking down, working on figures.” She told some of her confidantes in the office that he appeared at times to be “in a coma.” Under intense stress and anxiety, Bernie was taking medication for high blood pressure, and sometimes had such intense back pain that he was forced to lie on his back on the floor of his office.
When others in the office asked if the boss was okay, Squillari would tell them no, quickly adding, “But he’s not dead,” at least that’s what she told Vanity Fair.
Squillari was to Bernie what Rose Mary Woods was to President Richard “Tricky Dick” Nixon: She was the secretary and gatekeeper who also was the keeper of the flame and the keeper of the boss’s personal, intimate secrets. Once a Madoff investor, she had taken her money out some years before, or she would have lost it all.
Still, everyone except for the grim-appearing Madoffs were having a fun time at the party, and better yet the annual bonuses were due soon.
Rosa Mexicano was jumping that night.
“It was a great blast,” Bill Nasi thought at the time. But looking back several months later, he compares those hours of fun to the hours before another immense and historic tragedy.
“It was like dancing on the foredeck of the Titanic before it hit the iceberg. For us, it hit the iceberg the next day.”
Around 8:30 A.M. on Thursday, December 11, Theodore Cacioppi, an FBI agent, along with a partner, arrived at the chic and exclusive prewar cooperative apartment building at 133 East 64th Street, a short stroll from Central Park, showed his identification to the doorman, walked through the conservative lobby with its leather chairs and an orchid in a vase—the orchid was Ruth’s idea (the Madoff offices always had fresh orchids on display)—and took the elevator up to the two-level penthouse, the Madoffs’ 4,000-square-foot, $7 million aerie filled with great art and priceless antiques.
With just two apartments on each floor—it was that elegant a building—the feds easily found the Madoffs’ door. More visible tenants inhabited the co-op, such as Today show co-host Matt Lauer, who would later complain about his loss of privacy in having to weave his way through the small army of reporters staking out the Madoffs in order to get to his apartment.
Cacioppi, who had been with the Bureau for six and a half years and had been “personally involved” in looking into allegations against Bernie, knocked on the door, but the doorman had already telephoned up, alerting the Madoffs to their early-morning visitors. Bernie, wearing a pale blue bathrobe and slippers, had told him they were expected.
At the moment the FBI agents walked into the foyer of the Madoff apartment they already knew that Bernie had admitted his crimes to several close associates, according to Agent Capiocci’s sworn complaint and deposition that was filed with the U.S. Magistrate Judge for the Southern District of New York, Thomas F. Eaton, on the day Bernie was booked for fraud. The close associates, listed as three “senior employees,” were known to be his sons and his brother. Peter was told first, and then Mark and Andy—purportedly on the day of the Christmas party at which they were no-shows. Their attorney, Flumenbaum, of the prestigious Paul, Weiss, Rifkind, Wharton & Garrison firm, asserted that the brothers had no knowledge of their father’s criminal activity before he informed them the day of the party.
Beginning in early December, according to Capiocci, Bernie had revealed that he had been running a “separate” investment advisory business for clients that was not part of the Madoff firm’s trading and market-making activities, and that he had kept the financial statements for that operation “under lock and key.” Bernie, who appeared “to have been under great stress,” disclosed “he was struggling to obtain the liquidity necessary to meet requests for approximately $7 billion in redemptions.” Bernie said he “wasn’t sure he would be able to hold it together.”
At a subsequent meeting at his apartment he informed his associates—his sons—that his investment advisory business was “a fraud,” that he was “finished,” that he had “absolutely nothing,” that “it’s all just one big lie,” and that he was running “basically, a giant Ponzi scheme,” and “had for years been paying returns to certain investors out of the principal received from other, different investors,” according to the FBI agent’s report.
Bernie stated that “the business was insolvent, and that it had been for years,” and he estimated that “the losses from this fraud to be at least approximately $50 billion.” Bernie claimed he had $200 million to $300 million left and he “planned to use that money to make payments to certain selected employees, family, and friends.”
He also stated he was going to give himself up to the authorities.
Earlier in the year he had claimed in a government filing that he managed $17.1 billion in assets for just 23 clients, which would turn out to be a lie as enormous as his crimes. In fact, as investigators would determine, there were thousands of investors over the years and as much as $65 billion of their money.
Facing Bernie in his richly appointed apartment, Agent Capiocci said, “We’re here to find out if there’s an innocent explanation” for what had been alleged. Bernie’s response was short and not very sweet. He said, “There is no innocent explanation.” According to Capiocci, “Madoff stated, in substance, that he had personally traded and lost money for institutional clients, and that it was all his fault. Madoff further stated, in substance, that he ‘paid investors with money that wasn’t there’... that he was ‘broke’ and ‘insolvent’ and that he had decided ‘it could not go on’ and that he expected to go to jail.”
Bernie, the one-time power-broker trader, one of the pioneers of modern Wall Street, a “pillar of finance and charity,” as the New York Times described him, was then placed under arrest—just hours after he celebrated Christmas with his employees. At the FBI’s office, he called his lawyer, Ira Sorkin. “Hi, it’s Bernie, I’ve just been arrested and I’m handcuffed to a chair.”
At his arraignment that day, wearing a white striped shirt, no tie, and dark gray slacks, he was initially charged with a single count of securities fraud, a charge that would later escalate. For a time he would remain free on $10 million bail and confined to his fancy apartment—home detention with electronic monitoring—a judge’s decision that infuriated Bernie’s victims and raised questions in the
public’s mind about the justice system, a system where common criminals without money or reputation are immediately incarcerated for far lesser crimes because they can’t afford to post bail.
A spokesman for the SEC, which would come under extreme congressional and media criticism for ignoring red flags in the past about Bernie’s criminal activities, called his fraud “stunning” and “of epic proportions,” and the regulatory agency swiftly filed separate civil charges.
Like a tsunami, the news of the arrest of a Wall Street legend, a former chairman of Nasdaq, a noted Jewish philanthropist, spread quickly. On CNBC, the business channel with the stock crawl that was a daily habit for millions from Wall Street to Main Street, the shocking, mind-boggling news was flashed:
“If you are working on a trading desk, stop what you are doing for one second before you walk out the door and clean your desk out for the day,” announced anchor Michelle Caruso-Cabrera.
“Bernie Madoff has been arrested.”
By day’s end, the Madoff offices had become a crime scene—invaded by FBI agents, federal prosecutors, probers from the SEC, and forensic accountants who got access to everything—the computers, the laptops, the cell phones, the e-mail.
Over the next few months into 2009, accounts of the crimes of Bernie Madoff would quickly unfold, and the tragic stories of his victims would become public.
Desperately seeking to end his controversial house arrest, revoke his $10 million bail, and put him behind bars, prosecutors went to court with startling evidence that Bernie and Ruth had sent some of the fruits of his crimes in secret packages to relatives and friends over the Christmas 2008 holidays. The booty, which was reportedly worth more than $1 million, included gifts to his brother Peter, sons Mark and Andrew, and other relatives. These “swag bags,” according to investigators, ranged from inexpensive $25 cuff links and mittens that cost $200 to eye-popping bling that included diamond-encrusted Cartier and Tiffany watches, diamond brooches, diamond and jade necklaces, and jewelry fit for royalty or a rapper. Later confiscated by the prosecutors, the gifts had been sent by Bernie after he had pledged to the SEC that he wouldn’t dispose of any assets. His lawyers claimed it was all one big mistake, and the judge declined to revoke bail and send him to jail.
Then came an overwhelming shocker. With as much as an estimated $65 billion missing, shell-shocked Madoff investors who now had no idea what had been done with their money learned that the stocks and Treasury bills listed in such detail on their account statements had never actually been traded—and Bernie’s incredible deception had been going on for at least 13 years. The bombshell was dropped in late February 2009 by Irving Picard. The New York Times observed that the revelation “demolishes the theory that Mr. Madoff was an honest man driven into fraud by the relentless market strain of recent years.”
Speculation that there would be a federal grand jury investigation, more admissions of guilt, the naming of co-conspirators, and especially a plea bargain deal in exchange for naming names ended on March 12, 2009, just three months after Bernie’s arrest, when he pleaded guilty in open court to a cornucopia of felony charges—securities fraud, investment adviser fraud, mail fraud, wire fraud, money laundering, international money laundering to promote specified unlawful activity, international money laundering to conceal and disguise the proceeds of specified unlawful activity, making false statements, perjury, making a false filing with the SEC, and theft from an employee benefit plan.
Wearing a $7,000 custom-tailored Savile Row suit—under which was a bulletproof vest to protect him from furious investors—Bernie pleaded guilty to the biggest swindle in history. As he stood before Manhattan Federal Judge Denny Chin, he stated in a low voice:
I am so deeply sorry and ashamed. As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal. . . . I am painfully aware that I have deeply hurt many people.
To the best of my recollection, my fraud began in the early 1990s.
He further admitted that he “never invested” the money entrusted to him by thousands of investors. “Instead, those funds were deposited in a bank account at Chase Manhattan Bank. When clients wished to receive the profits they believed they had earned with me or to redeem their principal, I used the money in the Chase Manhattan bank account that belonged to them or other clients.”
He said he believed his classic, but monstrous, Ponzi operation “would end shortly, and I would be able to extricate myself and my clients from the scheme. However, this proved impossible, and as the years went by I realized that my arrest and this day would inevitably come.”
But perhaps the most shocking statement of all was his claim that he had acted alone, that he had pulled one of the biggest frauds of all time just by himself.
The judge immediately ordered that Bernie be locked in the Metropolitan Correctional Center near the courthouse to await formal sentencing. Rather than his spectacular penthouse, he would now live in an eight-by-eight-foot maximum security cell, as Prisoner No. 61727-054.
All told, he faced a maximum sentence of a century and a half in prison—at the age of 70.
Bernie Madoff, who used to boast that he was “the most powerful man on Wall Street,” was destined to die behind bars.
Outside the courthouse, victims of his scheme cheered as he was driven off to his new home under tight security.
“Bernie Madoff in Slammer at Last,” screamed a headline in the New York Daily News.
His first full day in jail was Friday the 13th of March.
In a lead editorial that day, the Wall Street Journal observed: “In a world that seems able to argue about any subject, the Madoff saga isn’t open to argument. . . . The condemnation raining upon his head is universal.”
Still, with Bernie’s guilty plea on record and the swindler behind bars, there were more questions than there were answers.
Nobel Peace Prize laureate Elie Wiesel, who had escaped Hitler’s death camps only to be victimized again, and by a fellow Jew no less, to the tune of $15.2 million from his Elie Wiesel Foundation for Humanity, plus the entire life savings of Weisel and his wife Marion, thought he had an answer. He publicly termed Bernie a “psychopath,” adding, “It’s too nice a term for him. . . . ‘Sociopath,’ ‘psychopath,’ it means there is a sickness, a pathology,” observed Wiesel. “This man knew what he was doing. I would simply call him thief, scoundrel, criminal.”
But the scorn leveled upon Bernie by a man of peace like Wiesel and thousands of others publicly and privately didn’t answer the bigger questions:
How did Bernie Madoff become one of history’s biggest, most brazen thieves, a financial titan who led a twisted, bizarre double life like some financial Dr. Jekyll and Mr. Hyde?
Where did he learn his values and ethics, or lack thereof, that fueled his twisted psyche?
Who aided and abetted him along the way?
Why did people trust him?
What made Bernie Madoff tick?
Here, now, is the true story of the Ponzi King, his rise and fall, from those who knew him best, or thought they did.
Chapter 2
Growing Up a Madoff
Bernie Madoff was a born operator who always seemed to know his way around the system—even when he was a young punk growing up in Queens.
In English class during his sophomore year at Far Rockaway High School, Bernie and his classmates were assigned to read a book and deliver an oral report. Bernie wasn’t much of a student, and cared little about academics. Reading wasn’t especially high on his list of things to do.
“Prior to the presentations,” recalls classmate Jay Portnoy, “Bernie looked at my book. He just opened it up and said, ‘Oh, yours looks boring.’ I asked him why and he said, ‘It doesn’t have any pictures.’”
Bernie essentially ignored the reading assignment, and even let a couple of his pals, like Portnoy and Bernie’s best friend, popular and good-looking Elliott Olin, in on the fact that he wasn’t going to spend his spare time reading. He fe
lt it was easier to just fake his way through class. Beyond that, he wasn’t considered by his pals to be the brightest light in the academic firmament.
“Bernie didn’t take the assignment, or school, that seriously,” asserts Portnoy.
Even then Bernie was too busy thinking of ways to make money—an endeavor impressed upon him at home by his parents, Ralph and Sylvia.
“Money,” maintains a longtime family friend, “was the Madoffs’ aphrodisiac.”
So Bernie figured he’d just deal spontaneously with the book report when the time came.
And it did, quite suddenly.
Bernie was one of the first in the class to be called upon by the teacher. Unshaken—and thoroughly unprepared—he strode confidently to the front of the room and successfully winged it.
“He gets up there and, looking quite serious, says, ‘The book I’m reporting on is called Hunting and Fishing by Peter Gunn,’” remembers Portnoy. “And Elliott was in the second or third row and blurted out, ‘Peter Gunn!?’ followed by some stifled giggles.”
Peter Gunn was the name of a suave, sophisticated TV detective.
“Our first inclination was to laugh, and then we realized we didn’t want to throw the guy in,” continues Portnoy. “If Bernie could carry it off, all the more power to him. We all kept quiet because we didn’t want to blow his cover. No one wanted to see Bernie fry. For about 10 or 15 minutes Bernie just went through this whole story about Hunting and Fishing and pretty much was making the stuff up as he went along.
“He stretched it out smoothly and talked about a subject very few of us knew anything about, being from Queens. He acted as if he knew about hunting and fishing, which I’m sure the teacher knew nothing about. When Bernie was finished, she asked to see the book. Bernie said he didn’t have it. He told her, ‘I had to return it to the library.’We all had to stifle a laugh.”
In hindsight, Portnoy thought it was possible that the teacher “saw through” Bernie’s deception because she was only a decade older than her students “and pretty sharp. But, nobody could really get mad at Bernie. His put-on persona carried him through.”
Madoff with the Money Page 3