Frank Avellino and Michael Bienes took charge of the many modest accounts that had accrued at Sunny Oaks and elsewhere, and at that point their firm became the first official Madoff feeder fund.
Over the years Avellino and Bienes would become hugely wealthy—as would other feeder fund operators—doing nothing but recruiting investors and passing on their money to Madoff, for which they received lucrative commissions and finder fees.
“It was easy money with Bernie,” Bienes acknowledged in a TV interview with the program Frontline after Bernie was imprisoned. “Easy, easy-peasy money.” He thought to himself, he said, “I’m a little too lucky. Why am I so fortunate?”
“All you needed was five thousand dollars to get into Avellino & Bienes,” states Cynthia Levinson Arenson, who by then was helping run Sunny Oaks and had started investing on her own, following in the footsteps of her parents, who had earlier put a hefty portion of their money with Bernie.
“Avellino & Bienes started out promising 18 percent,” she says. Steady returns were Bernie’s modus operandi and one of his lures, and that hefty return continued through good economic times and bad from the early 1960s until the early 1990s.
She asserts that “everyone knew that the money was going to Bernie” even though it was now handed over to Avellino & Bienes.
“Cynthia’s mother was just beside herself with just how much money Avellino was paying out,” states David Arenson. “She was trying to get everybody [to invest], saying ‘Avellino’s paid 25 percent last year,’ so the people at the hotel were like, ‘Oh, my God! How can I get in on this?’ I don’t think there was a lot of thought as to how they were getting such high returns; it was just that it was being done—because those people were not sophisticated about finances.”
Bernie had seen something he liked and trusted in Bienes and begun courting him. The two had quickly become trusted friends and associates in a very lucrative business relationship.
Bienes tells a bizarre story about that courtship—an encounter at an upscale nonsexual private club that permitted members to swim in the nude, according to a story in Fortune magazine.
“I once went swimming naked with him,” he said after Bernie was in jail awaiting formal sentencing for bilking thousands of investors. Bienes continued, “He invited me to the New York Athletic Club on Central Park South. He asked me to come and meet him and get a rubdown. We didn’t discuss anything, really. I think he wanted to get the feel of me, you know, and bring me into his orbit.”
The next invitation for Bienes was to a buffet lunch, part of the bar mitzvah celebration for one of Bernie’s two sons. “I remember my partner, Frank Avellino, and myself and Bernie meeting in the middle of the dance floor, and we were saying, ‘Thanks for having us.’ And he said, ‘Hey, come on, we’re family, aren’t we?’ And at that moment, he had me. We were family. Oh my God! I was in!”
Unlike others who knew Bernie well, the many from high school on up who considered him “a dummy,” “a schmuck,” and “a putz,” Bienes either was sincerely overwhelmed by what he perceived as Bernie’s greatness or he saw money signs flashing like neon on The Strip in Vegas, or a combination of both.
To Bienes, Bernie “had a presence about him, an aura. He really captivated you.” Beyond that, he and Avellino jokingly considered Bernie “our boyfriend” because, Bienes later claimed, they thought they were his only client who was feeding him investors. That was an astonishing assertion in light of the fact that they had been doing business with Bernie for decades, and knew there were huge numbers of other investors.
By the mid-1980s, Avellino and Bienes were doing little else but drumming up more and wealthier investors for Bernie, and all were raking in big money—Avellino and Bienes eventually became multimillionaires, and Bernie’s coffers had filled with more than $450 million from about 3,200 investors they had sent his way, which was just the tip of the Madoff iceberg.
In 1992, the SEC acted on a tip that incredibly outrageous returns—20 percent or more—were being offered to investors and guaranteed by the Avellino firm. The allegations strongly suggested that a Ponzi scheme was being operated—the very first official red flag raised that appeared to point to Bernard L. Madoff Investment Securities.
As it turned out, the firm of Avellino & Bienes was not registered to trade securities, which the accountants were accused of doing.
When the SEC began its probe of the firm, Bienes acknowledged years later that he and his partner were worried. “We had doubts, and we passed them on to Bernie. . . . Bernie said, ‘I know the biggest lawyers on Wall Street. Don’t worry.” Bienes asserted that Bernie was calling the shots. “I was always captive to him. He owned us.”
The investigation came to a quick end when the partners agreed to return all of the money that had passed through them, some $440 million. They were fined $350,000, and their business ordered closed. Their attorney in the matter was one Ira Sorkin, the same Ira Sorkin who 16 years later would represent Bernie when his Ponzi scheme collapsed.
The probe of Avellino & Bienes turned up some interesting evidence, one piece being that while the firm was overseeing almost a half billion dollars of investor money for Madoff, no records were ever kept.
“My experience has taught me to not commit any figures to scrutiny when, as in this case, it [sic] can be construed as ‘bible’ and subject to criticism,” responded Avellino in writing when asked by auditors appointed by the court to prepare a balance sheet. “In this present instance, quite severely, I explained how the profit and loss can be computed from the records you now hold in your possession that Bernard L. Madoff and I supplied.”
For reasons unknown, Bernie Madoff does not appear on record in the case—the recipient of the feeder money was described simply in the SEC complaint as an unnamed broker.
Shut down by the government, Avellino and Bienes continued to feed investors to Bernie, and Bernie stayed in business unscathed. Feeder fund operators were instructed to keep Madoff ’s name a secret. As time would tell, many of the thousands of investors who claimed losses in the Ponzi scheme never knew that their money wound up in his hands.
One of the SEC administrators at the time, Martin Kuperberg, was quoted in the Wall Street Journal as stating, “There’s nothing to indicate fraud.”
This would be the first but certainly not the last time the SEC would seriously fumble the ball when it came to Bernie Madoff.
After the SEC probe ended, Bienes established an accounting firm called Mayfair Bookkeeping at a time when Bernie had established a London office in the posh Mayfair district. Like Bernie, who had a villa in the south of France, Bienes had a fancy residence in London.
Because of the ongoing Bienes-Madoff connection, the once small-time accountant made so much money that he lived like royalty on an estate worth almost $7 million. He became a philanthropist and a figure of respect in the upper echelon of South Florida—a giver of lavish parties and fund-raisers, and a benefactor of the arts community in Fort Lauderdale. He and his second wife, Dianne, were even knighted by the Catholic Archdiocese of Miami, which an observer noted was “not a small feat for a Jewish kid from New York.”
With Bernie behind bars, the 72-year-old Bienes decided to go public, claiming he, like thousands of others, was a Madoff victim. He maintained he lost $10 million to Bernie. He gave sometimes inarticulate, self-serving, convoluted interviews to Frontline and to the South Florida Sun-Sentinel and was quoted in Fortune magazine. Asked by the Frontline reporter how he thought Bernie was able to generate consistent big returns for his investors—before they lost everything—Bienes quizzically responded, “I don’t know. How do I know? How do [you] split an atom? I know that you can split them. I don’t know how you do it. How does an airplane fly? I don’t ask.”
Bienes also maintained to the Florida newspaper that he always thought Bernie was legitimate, that he was a genius investor. He swore that he knew nothing about a Ponzi scheme.
If I did, would I have all my
money there? . . . I’m not totally crazy. . . . Doubt Bernie Madoff? Doubt Bernie? No. You doubt God. You can doubt God, but you can’t doubt Bernie. . . . Madoff is the enemy. He’s a swindler. He’s a crook. He stole our money. . . .
My life changed from being a very wealthy man with nothing to look forward to but the rest of my life with ease and charitable giving and all the good things, and just in a second my whole life blew up. I stood there knowing that I was in debt, and I could be forced into bankruptcy.
He also admitted that for years he and Avellino “were the go-between between Madoff ” and the many investors.
“He put on an incredible act,” observed the business blogger Joe Weisenthal, writing about Bienes’ television debut.
Avellino, who had remained silent, lived just as high as Bienes—multimillion-dollar homes in Palm Beach and Fort Lauderdale and a $10 million house in Nantucket where he reportedly asked his housekeeper to put her life savings of $124,000 in one of many foundations and partnerships in which he was involved, in her case a “fictitious entity.”
She lost it all, according to a lawsuit she filed. Avellino also is alleged to have given her the bad news about her loss and the Ponzi scheme a full 10 days before Bernie was arrested—a strong indication he knew along with Bernie and his closed circle that the ceiling was about to cave in.
In the wake of Bienes’ going public, the Wall Street Journal, quoting unnamed sources “familiar with the matter,” reported in May 2009 that Avellino was among at least eight Madoff investors and associates of the fraudster who were being investigated by federal prosecutors “for signs of complicity.” Bienes was not among those named.
The others included two philanthropists—82-year-old Stanley Chais and 67-year-old Jeffry Picower—who had major investments with Madoff, along with one of Bernie’s close friends, 96-year-old Carl Shapiro, who parlayed about $20 million into what’s been reported to be more than $1 billion through Madoff over the years. Shortly before Bernie was arrested, Shapiro was the one who handed over $250 million to Bernie. Chais’s foundation was taken for more than $100 million, and he personally reportedly lost about $400 million.
It was believed by investigators, according to the Journal’s sources, that Picower and Chais dictated to Bernie how much return they wanted on their investments. Chais was known to have funneled many California customers to Madoff. After the report appeared, all denied any wrongdoing.
Civil suits were filed by attorney Irving Picard, the trustee overseeing the bankruptcy liquidation of the Madoff firm, who was seeking to recoup billions of dollars to divide among victims. The suit alleged that Chais, a Bronx-born onetime Beverly Hills money manager, and Picower, an accountant and lawyer from Palm Beach and New York City, got exorbitant returns from Madoff—as much as a mind-numbing 950 percent.
Lawsuits alleged that a whopping $6 billion in claimed profits had been withdrawn from Madoff. This was far more than their original investments for various family members and foundations. None of the many thousands of other Madoff investors got anywhere near the returns grabbed by Chais and Picower. In his lawsuit, Picard alleged that the two either knew or should have known that they were “reaping the benefits” of “manipulated purported returns, false documents and fictitious reports.” Chais, according to Picard, requested phony losses from Madoff for tax-avoidance reasons. Chais’s foundation, which had almost $180 million in assets, was left with a big zero in Bernie’s scheme. All denied any wrongdoing and claimed no knowledge of a Ponzi scheme.
Then, on June 22, 2009, just a week before Bernie’s scheduled formal sentencing, the SEC filed a bombshell complaint alleging that Chais had “committed fraud by misrepresenting his role in managing the funds’ assets and for distributing account statements that he should have known were false.”
The complaint, filed in federal court in New York, stated that for the past four decades “Chais has held himself out as an investing wizard who managed hundreds of millions of dollars in investor funds. . . . In reality Chais was an unsophisticated investor who did nothing more than turn all of [his three] funds’ assets over to Madoff, while charging the funds more than $250 million in fees for his purported ‘services.’
“Although Madoff managed all of the funds’ assets, many of the funds’ investors had never heard of Madoff before the collapse of his Ponzi scheme, and had not known that Chais invested with Madoff until Chais informed them after Madoff ’s arrest.”
The SEC also alleged that Chais “ignored red flags” that indicated that Bernie’s reported results “were false. For example, Chais told Madoff that Chais did not want there to be any losses on any of the funds’ trades.”
The complaint further alleged that “Madoff did not report a loss on a single equities trade. Chais, however, with the assistance of his accountant, prepared account statements for the funds’ investors based upon the Madoff statements, and continued to distribute them to the funds’ investors even though he should have known they were false.”
Shockingly, according to the SEC, Chais and his family members and “related entities” withdrew more than $500 million more than “they actually invested with Madoff.”
The SEC complaint sought injunctions, financial penalties, and court orders requiring Chaise to “disgorge” his “ill-gotten gains,” and the SEC said its investigation was ongoing.
Meanwhile, the folks from Sunny Oaks in the Borscht Belt where Bernie’s investment advisory business began all fared terribly.
“When Avellino & Bienes was shut down in 1992,” says Cynthia Arenson, “Bernie realized that a lot of the people in Avellino were Saul and Sara Alpern’s friends, his in-laws’ friends, the friends of Ruth Madoff’s parents. So out of the kindness of his heart, Bernie said, ‘Okay, if you have $50,000 you can go directly with me.’ At that point to get into Bernie you needed $500,000. To a certain extent he didn’t want to bother. When he had a little account like $50,000 like my son had, he’d just put it into T-bills and he didn’t bother trading with it. It wasn’t worth it to him. He was looking for big bucks to play with.”
Among those small investors Bernie earned the sobriquet “T-bill Bernie.”
In the end, Cynthia Levinson acknowledges that while she suffered $750,000 in Ponzi losses, she estimates that she had taken out that amount through the years because of the high returns she was getting.
“In all those years,” she says, “I essentially made nothing, but it looked good on paper.”
David Arenson and his wife, Marilyn, opened a $10,000 account with Avellino & Bienes around 1990. Because it was such a small amount, he says, it paid a 10 percent return.
“My father and Cynthia always got a higher return than we did because they had a lot more money in Madoff,” he says. “I always felt that if you had more in there or if Bernie was sitting in his little office arbitrarily deciding who gets what that he might say, ‘Oh, Cynthia has more. I’ll give her an extra $5,000 this year.’ So it was kind of an arbitrary, weird thing.”
As Arenson’s health declined with his aggressive form of chronic leukemia that he knew would eventually require a bone marrow transplant and with him facing a possible early death, he decided to withdraw $10,000 to $20,000 in principal every year. In the end, when Bernie admitted his giant fraud, Arenson had lost $65,000.
Says Arenson:
We had been using the money, as opposed to the people we knew who kept reinvesting. Madoff gave you a choice. They could either send you a check every quarter or you could simply have them reinvest. I know people who just had it reinvested and they suddenly found that they had a million dollars [on paper]. But it all turned around to bite them in the butt when they lost everything that they had.
They were going back to the early ’90s when Avellino collapsed. After a while they became used to the idea that their money was always waiting for them. It was like the Treasury Department. Madoff was synonymous with bank.
Everybody in my family and this web of friends had almost everyt
hing invested in Madoff. People felt comfortable putting more and more money into Madoff, putting all their eggs in that basket. But if that family connection with Saul Alpern hadn’t been there, they wouldn’t have felt so comfortable. I don’t remember anybody in the family—cousins, siblings, anybody—saying, “Oh, God, I’m turning this down. It seems to make sense to everybody else.” Nobody expects to be the victim of the world’s largest Ponzi scheme, especially after 16 years. I actually took out $10,000 in 2007 to invest in a stock and it was sort of greeted as, “Why would you want to do that? You’re taking it out of Madoff to invest in a stock?!” They thought it was crazy.
Most, if not all, of Arenson’s family were victims of Madoff. His brother, Dan, a helicopter pilot with three children, had an account; and so did their sister, Julie. Arenson’s aunt—his mother’s sister—left her estate to a daughter. “She inherited money from her family and also put her own money in,” Arenson says. “It was in the hundreds of thousands of dollars my guess is.”
One of Cynthia Arenson’s cousins, Robin Warner, a former producer at Fox News, is said to have lost upwards of $1 million to Madoff after investing a couple of hundred thousand dollars inherited from her parents, who were friends with the Alperns, along with money she had earned and saved.
Saul Alpern had convinced Warner’s father to invest in the 1980s. Later, she invested with Madoff through Avellino & Bienes. Initially she thought Madoff “was good as gold.” As she told a colleague after the roof fell in, “This was not greed. Why would you want to put your money anywhere else?”
“She was one of those who kept reinvesting, but also living on a 10 percent annual return, or $100,000 a year,” says Arenson. “She wasn’t spending. She didn’t live high on the hog. Now it’s all gone. She has nothing.”
At first, Warner is said to have told family members that she “wanted to kill” Madoff, but then said she didn’t want him dead “because he knows where the money’s hidden,” and she was hoping to recoup some of her losses.
Madoff with the Money Page 9