by Brian Ross
Madoff then instructed Vijayvergiya to keep away from answers that might reveal that Madoff was actually acting as an investment adviser. The SEC requires investment advisers to formally register, and Madoff had never done that in his five decades of serving as one. Now it was important to Madoff that he not be seen as the wizard who was making all the big decisions about what to buy and sell.
“I mean, the idea is that it’s—is that we’re not the one that’s making the decision how much to—I mean, you know—you know, we’re not the one that’s operating the fund,” Madoff coached Vijayvergiya.
At one point in the two-hour conversation, Madoff put the two men from Fairfield Greenwich on hold. He apologized when he came back on the line. “I’m sorry, if I get anymore solicitations for charity, I’m going to kill myself,” Madoff said.
Finally, Madoff told Vijayvergiya not to worry, that the SEC “has no idea what the hell is going on” in the rapidly changing financial landscape. “The guys come in to do a books and records examination and they—they whatchamacallit—you know, they ask you a zillion different questions and we look at them sometimes and we laugh, and we say, are you guys writing a book?”
Madoff’s contempt for the SEC investigators was deep. “These guys, they work for five years at the commission, then they become a compliance manager at a hedge fund now.”
“Right,” said the Fairfield Greenwich risk manager. “Or they—they go work for proprietary trading desk. Nobody wants to stay there forever,” Madoff said. Madoff knew the power of greed.
Remember, said Madoff, “you’re best off just being, you know, casual.”
“We’re trying,” responded the Fairfield Greenwich lawyer Mark McKeefrey. “We’re trying to be cool and to just cooperate and get it over with and get them out of here.”
Vijayvergiya was interviewed on December 21, 2005, and the Fairfield Greenwich executives later gave Madoff a full report on the testimony. According to the Fairfield Greenwich lawyers, Vijayvergiya “did not follow Madoff’s implied suggestion, but rather told the SEC during the interview about his recent conversation with Madoff.” The Massachusetts secretary of state, William Galvin, says the transcript reveals a lot more than an “implied suggestion” from Madoff.
“They followed his instructions, they followed his coaching,” said Galvin. “If there’s anything remarkable about that conversation beyond his brazenness, it was how confident he was that he could steer them into deceiving the SEC.”
When the SEC interviewed Madoff “voluntarily” on May 19, 2006, he spun hours of tall tales that also easily deceived the SEC staff investigators. There were six or seven SEC investigators in the room, one of them wearing a vest with the initials SEC on the back, like the vests worn by agents on law-enforcement raids.
Madoff was asked by the investigators if it was correct that all of the trades for his investment advisory clients were done by the London office.
“Yes,” replied Madoff.
If the SEC staff had subpoenaed the records of the London office, it would have known this was a lie. But they did not question anyone in London, nor did they question Madoff’s brother, Peter, or Bernie’s sons, Mark and Andy, who were on the board of directors of the London office.
“Who are the counterparties to the options contracts?” the SEC lawyer asked.
“They’re basically European banks,” said Madoff, who was not asked to provide specific names or validating documents.
“Who has custody of the assets?” the SEC asked. “We do,” said Madoff. It was a particularly bold lie because there were no assets. No stocks. No U.S. Treasury notes. Investigators have since found e-mails in which Madoff’s right-hand man, Frank DiPascali, allegedly ordered the creation of documents showing that the assets were being held by Madoff.
“What is approximately the total amount of assets traded for these persons?” Madoff was asked.
“My guess would be something, a few hundred million dollars,” replied Madoff. At the time, if his clients’ monthly account statements had been added up, it would have indicated that the total amount of assets under management was in the tens of billions of dollars.
Madoff would later wonder “why didn’t I get caught sooner?” In an interview in prison with Joe Cotchett, a lawyer planning to sue the Madoff family, Madoff said that this SEC session was the closest he came to getting caught.
Madoff told Cotchett that at one point, the SEC investigators said they wanted to see the actual stocks and securities held by Madoff.
“Where are they physically?” the SEC lead lawyer asked.
“With the Depository Trust Company,” Madoff lied.
It was a Friday afternoon and Madoff told Cotchett that he expected he would be arrested by Monday after the SEC went to the Depository Trust Company and found that there were no stocks being held there for Madoff’s investors. “I was sure they got me,” Madoff said.
But the SEC lawyers never went to the Depository Trust Company, Madoff said. They took his word. At the time, in early 2006, Madoff estimated to Cotchett he had approximately $20 billion in U.S. Treasury notes. If true, and if he had been caught then, his victims would have had $20 billion to split up, instead of the $1 billion that was found after Madoff’s arrest in 2008.
It was a hectic time for Madoff in 2006 and 2007 as he steered the SEC investigators away from the evidence that would have exposed his crimes. He did most of it without lawyers, who would have wanted to know the full story of what was happening on the seventeenth floor if they were expected to defend him.
Madoff did hire one prominent Washington law firm, WilmerHale, to deal with the issue of his failure to register as an investment adviser. Company records show Madoff paid WilmerHale $40,000 for its legal services in dealing with the SEC. The WilmerHale lawyer working for Madoff, Brandon Becker, has since left the firm and declined to comment. His name continued to be in Madoff’s “little black book.”
WilmerHale general counsel, Bruce Berman, said the firm dealt solely with the “narrow issue” of whether Madoff should register as an investment adviser. The SEC confirmed in a July 2006 letter that WilmerHale’s representation was limited to the issue of registration, according to Berman. “He was careful in the way he used his lawyers,” said Berman. Madoff billing records show that Madoff discussed his “market basket strategy” with the lawyers, but Berman said Madoff never gave them any reason to believe he was engaging in fraud.
“It is quite possible he lied to us in describing a trading strategy that didn’t exist.” Berman said the firm recommended that Madoff register as an investment adviser, and he did.
The SEC closed its investigation of Madoff on November 21, 2007. Over the course of twenty-three months, Madoff had pulled the strings like a master puppeteer, coaching Fairfield Greenwich, creating reams of phony documents, and lying through his teeth. It worked.
“The staff found no evidence of fraud,” concluded the SEC in the Case Closing Recommendation filed by the Division of Enforcement. The SEC staff was somehow able to reconcile its finding with Madoff’s earlier attempts to withhold information about customers’ accounts and “mislead” (sic) its investigators about the nature of his trading strategy.
Branch chief Meaghan Cheung, who had expressed such contempt for Markopolos, signed off on the closing narrative along with the staff attorney who reported to her and the district administrator to whom she reported.
The SEC did find that Madoff had violated requirements that he register as an investment adviser. But that was a minor issue to the SEC, and it was resolved with “discussions” between Madoff and the staff that led Madoff to formally register as an investment adviser.
Madoff was pleasantly surprised when the SEC investigators closed the case after finding “no evidence of fraud.” From Madoff’s point of view, the incompetence of the SEC had once again kept him in business. Many of those same SEC investigators would be ordered back to the Madoff offices early on the morning of December 12. Madoff
was under arrest in what the government was now calling the “world’s biggest Ponzi scheme.” Just as Markopolos had said so many times over so many years earlier.
“I recognized them from when they were here before,” recalled Eleanor. “They had their heads down and had kind of that hangdog look.”
“Clearly, the SEC failed as it has failed here in the past,” said Massachusetts secretary of state Galvin. “If you were looking for a summary of why we have so many problems in our financial services sector, there it is.”
Galvin, a Democrat, pointed to a culture in Washington during the Bill Clinton and George W. Bush administrations in which government tried to be “partners” with the industries it regulated. “The philosophy that was prevalent at the time, which was somehow government was in the way, we really didn’t need any regulation, we were holding back our economy if we continued to do that, that was a fraud, too.”
CHAPTER
SEVEN
Eleanor
ELEANOR SQUILLARI ADORED BERNIE MADOFF in every way.
Even after the arrest, his secretary of twenty-five years was comfortable describing her feelings.
“I loved Bernie,” she said in tears. “I did. I did.”
Since the arrest and the revelation that he was a crook, however, she has come to feel a sense of betrayal and great anger. She is a woman scorned.
“I guess you could say he used me,” she said with a sigh. “I knew a certain side of Bernie that I cared about. I thought he was a great guy.”
Eleanor started working for Madoff in 1984, at the age of thirty-three. A tall, shapely, attractive brunette with an infectious laugh, she was a divorced mom raising a daughter and son.
“She was a looker,” recalled Little Rick, the office messenger who was sometimes dispatched by Madoff to pick up marijuana in Spanish Harlem.
Eleanor started as the main receptionist when Bernard L. Madoff Investment Securities was still located at 110 Wall Street. Former employees say it was a place of fast-talking dealers and back-office workers who drank and partied hard, used lots of drugs, and liked to have sex on the boss’s sofa with whomever they could find for the night.
After a brief stint working with the traders, Eleanor took over as the secretary for Bernie and his brother, Peter. “They were funny, they were smart. I thought they were good-looking and that they had their act together.”
She also saw an intense sibling rivalry. “They fought all the time. Bernie would always set the rules and always had the last say. And Peter would follow.”
Eleanor took great pride in her work. She made sure to be one of the first people in every morning, leaving her house on Staten Island at 5:40 a.m. to catch the X30 express bus or the ferry across the harbor for the hour-long trip to the office in Manhattan.
Like generations of women from Staten Island who have crossed the harbor every morning before dawn to work as secretaries for the city’s powerful lawyers and financial titans, Eleanor was a power behind the throne at the Madoff firm. Her position as the boss’s secretary meant she was the gatekeeper for anyone who needed time with Bernie. She ran his schedule, fielded the phone calls he didn’t want to deal with, and kept his secrets—or at least the ones he chose to share with her. The “wild men” in the back office were careful about trying to hit on the boss’s secretary.
Madoff could be a difficult boss, whose needling, crude jokes, and insulting comments were unrelenting. He would come out of the men’s room with his zipper down, and when Eleanor rolled her eyes, “he would say ‘Oh, come on, you know you want it.’” He wouldn’t hesitate to tell her to “shut up” or suggest she was being paid too much.
In her early days there, she said, Bernie would feel free to pinch or pat the behinds of women in the office.
“In the beginning, I was much younger, and if he would be insulting, I would take it personally,” recalled Eleanor. “He seemed to be somebody who liked to insult you.” She is not a shy person and she soon felt comfortable enough to fire back. “‘You know, you really shouldn’t be talking to me like that.’ He would pay attention to that and he would stop for maybe two weeks. And then he would go back to it.”
They developed an easy, familiar relationship that allowed him to abuse her, with her tacit permission. “He knew that when he was under a lot of pressure he could yell at me, he could snap at me. When we were alone, I’d say, you know, you don’t talk to people that way. We had that kind of relationship where he would listen.” She knew there was no chance he would fire her. “He goes, I can’t fire you; he goes, look how long you’ve been my secretary, people would believe you if you said something about me. So then I knew I could say whatever I wanted.”
She was the office wife. Her salary was close to $80,000 a year, with a yearly bonus of almost $20,000. It was very good money for not a lot of work. Sometimes, Eleanor spent hours shopping online from her desk computer. When Bernie decided to cut off e-mails after the SEC asked questions about an e-mail from one Madoff employee, Eleanor successfully lobbied to have her connection restored. Increasingly, she was Bernie’s eyes and ears when he spent weeks away in Florida or France. From her perch on the sleek nineteenth floor, in front of Bernie’s glass-walled office, life looked very good to Eleanor, who learned to ignore Bernie’s ugly side. “We thought we were working for this wonderful man. I loved my job and I loved the people that I worked with. And I was able to give my children everything that they needed.”
There were always plenty of rumors around the office about Bernie’s relationships with a long list of attractive women employees. They talked about the blonde on the seventeenth floor, and how Bernie was said to have paid for her apartment, where he visited her regularly. There was talk of a brunette, much younger than Bernie, who was abruptly dispatched to London. There was talk about his first secretary, Annette Bongiorno, who would become a multimillionaire and an alleged partner in his crimes. There were the escort service women and the professional masseuses. And there was even office gossip about Eleanor. She was included on two trips to ski resorts that Bernie organized for the staff. He gave her two photographic portraits of him to hang over her bed. “I did not hang them above my bed, that’s for damn sure,” said Eleanor. She stored the portraits in a closet. “I don’t leave here thinking about you,” she said she often reminded him. “So if he was under that illusion, I told him to get over it. And he said, ‘Really?’ and I said, ‘Really.’”
“I’m not going there,” she said when asked directly about rumors that she had an affair with Bernie. “There are much more important things to know about Bernie.”
And since his arrest, no one has been more vocal or done more to make sure that everything else about Bernie, apart from the office gossip, is made known.
He stole from clients Eleanor came to know personally. He was ready to steal from her. “When my father passed away, I was a young single mom with two children. He took my money. He knew what he was doing. And you know, when he hired me he said, if you’re loyal, he said, and you work hard, you’ll go far. We’ll take care of you. That was a lie. And I believed it.”
Eleanor felt that even her presence outside his office for so many years had played a role in perpetuating Bernie’s fraud. “Part of the setup was that Bernie was able to say—and he loved to say—that ‘Eleanor has been my secretary for twenty years. We don’t have a big turnover; everybody here has been here forever.’ Well that made the firm look very stable.” She had no idea of the scam taking place two floors below her desk, on the seventeenth floor.
On the day of the arrest, she refused to believe her boss could have done anything illegal.
“Oh my God, you know, somebody’s framing him. So I put a call in to his house, because he had to be there and I left a message and told him that I loved him.”
It was when he called back twenty minutes later that she realized the painful truth. “I hung up the phone and I didn’t want to admit it to anyone. I was still in the protective mode, I was stil
l trying to protect him, and then I started to realize that this is what he had done. And I went home and I couldn’t get out of bed Saturday because I knew. I knew.”
Once she realized “he was a horrible person,” she was heartbroken. “And then I started to get angry, I started to get really angry.”
Anger and tears turned to action. She had to do something. Eleanor, essentially, opened her own investigation into her former boss. “I was looking at everything in a different light now.” She wrote a first-person account of life as Bernie Madoff’s secretary for Vanity Fair, which, according to someone at Vanity Fair, paid her at least $50,000. She made copies of every document she could find in the office and turned them over to the FBI. She recovered a two-foot-tall stack of documents copied directly from Madoff’s filing cabinet and desk. These documents include spreadsheets, calendars, master phone lists, and legal bills.
“I was going to give it a shot because there had to be something in my files, in my drawers, anything. There had to be something. And I said, all right, here’s a pattern. I did files on travel. I did files on calendars. I did files on people who may be of interest. I didn’t know what I was doing, but I was doing it.”
Among the most interesting documents Eleanor gave to the FBI was a copy of Madoff’s expensive goatskin Hermès address book, the “little black book” that is a who’s who of people Madoff considered his “most important contacts,” with numbers for the office, home, and cell. After each name and number, Eleanor jotted down what she knew about the person and his or her relationship with Madoff.
In addition to the masseuses, escort service women, and the prominent SEC official already mentioned, there are dozens of other names that have provided important investigative leads to the FBI and other government agencies.