The net losers were less inclined to take a public stand. They found it less upsetting to remain silent—after all, Irving Picard and David Sheehan were fighting their fight, and they were loath to open themselves to attacks from the most vocal net winners. But in the absence of any public outcry from the thousands of net losers, Picard and Sheehan stood alone as the only visible defenders of the “cash in, cash out” approach.
14
THE SINS OF THE FATHER
A little before 3:00 PM on Wednesday, June 17, 2009, SEC inspector general H. David Kotz, an elfish-looking man with dark hair and deep-set eyes, entered the Metropolitan Correctional Center, a cocoa-coloured building in the shadow of the towering federal buildings on Foley Square in Manhattan. With Kotz was his slender, blond deputy, Noelle Frangipane.
They came to ask Bernie Madoff how he had eluded dozens of SEC investigators for more than a decade.
Inside the MCC, they were shown to a small conference room furnished with only a handful of chairs—no table, no desk—where they were joined by Ike Sorkin and his colleague Nicole De Bello.
After a brief wait, Madoff arrived, escorted by a guard, who removed his handcuffs. Despite spending three months in jail, he looked much as he had on the newscasts and television specials over the past six months, except for his prisoner’s uniform.
Kotz asked to swear in the witness, but Madoff declined to take the oath. He simply nodded when Sorkin reminded him of his obligation “to tell the truth.”
Madoff immediately had some matters he wanted to set straight. He claimed that the prosecutors and Irving Picard had misunderstood some of the things he had said in his proffer session in December. “There’s a lot of misinformation being circulated” about the case, he began, though quickly adding, “I’m not saying I’m not guilty.”
He then spun out a true-false version of what had really happened, giving Kotz a firsthand look at how he had toyed with SEC lawyers for years.
He insisted that everything he had told the SEC about his split-strike conversion strategy and his computer algorithms had been true—in the very beginning, he’d actually been buying stocks and options and had been successful at it, he said. “Even with artificial intelligence, you still need to have a gut feel,” he went on. “It’s a combination of technology and trader’s feel, and I was a good trader.”
He repeated what he had said in court—that his fraud began in the early 1990s as a temporary measure. “I made commitments for too much money and then I couldn’t put the strategy to work,” he told Kotz, laying on the jargon and weaving fantasy and truth together. “I had a European bank, I was doing forward conversion, they were doing reverse conversion. . . . I thought I was going to be able to do it.” When his profits fell short, he said, “I thought, ‘Fine, I’ll just generate these trades and then the market will come back and I’ll make it back.’ ”
He added, “But it never happened. It was my mistake not to just be out a couple hundred million dollars and get out of it.”
In an almost surreal way, Madoff kept assuring Kotz—accurately—that the investment strategy he pretended to be using all those years could have worked, could have been real, was “not that exotic.” Big Wall Street firms might be claiming now that they saw through him, but his clients had included several former top executives at Merrill Lynch and Morgan Stanley, he said truthfully.
“Credible people knew it could be done or they wouldn’t be clients . . . all you have to do is look at the types of people I was doing this for to know it was a credible strategy,” he continued. Those people “knew a lot more than this guy Harry”—meaning Harry Markopolos. Madoff did not acknowledge that even if the strategy could have been used honestly, it could not have produced profits almost every month for nearly two decades—and it could not have been used honestly on a multibillion-dollar scale without overwhelming the markets.
His contempt for the SEC’s failure to catch him was gentle but withering. “It all comes down to budgets, I guess,” he said.
Madoff answered other questions posed by Kotz: He hadn’t used a lawyer for his SEC testimony in May 2006 because he thought going in without one would suggest that he had nothing to hide. He hadn’t been worried, either. “I had good answers for everything,” he said. “Everything made perfect sense.”
And, no, he hadn’t been worried when Frank DiPascali was also questioned in early 2006, he said, lying as smoothly as ever: “He didn’t know anything was wrong, either.” And, no, he had never created fake DTCC records to show the SEC. In fact, he insisted that the SEC investigators who looked at Avellino & Bienes in 1992 had seen that his trades were real. He said he had had no idea the two men “had thousands of clients.”
Madoff’s opinion, which almost seemed to be taking shape as he answered Kotz’s questions, was that the SEC’s relentless focus on a crime he wasn’t committing blinded it to the crime he was committing—otherwise, they could easily have caught him. They “asked all the right questions, but it was still focused on front-running,” he said, adding, “It never entered the SEC’s mind that it was a Ponzi scheme.” Even after asking for his DTCC clearinghouse account number, the SEC never checked to see if the stocks and bonds on the client statements were actually there.
“If you’re looking for a Ponzi scheme, it’s the first thing you do,” he told Kotz.
Madoff had been astonished at that. He remembered thinking, “After all this, I got away lucky.”
In a rare reflective moment, Madoff observed: “I got myself in a terrible situation. It’s a nightmare.” Businesslike and composed until now, he lost his grip for a moment when he reflected on the “living hell” his family was facing: “It’s a tragedy, it’s a nightmare.” But soon he regained his footing and asserted that he did a lot of good for the industry before he did anything wrong. “The thing I feel worst about, besides the people losing money, is that I set the industry back,” he said.
By now, Kotz began to wonder if Madoff himself knew where the line between truth and lies was located. Months later, one exchange that day would remain sharp and suggestive in his mind.
Did you create false documents to give to the SEC?
No, Madoff answered, almost affronted. He said he gave the SEC the same documents he gave to his customers.
But weren’t those customer statements actually false documents?
No, they weren’t. Madoff paused for what seemed like thirty seconds, then gave a tiny nod to reality.
“I could see how you might see them as false,” he said.
On Monday, June 22, Ike Sorkin delivered a letter to Judge Denny Chin, who would sentence Madoff the following week. “We seek neither mercy nor sympathy,” Sorkin wrote. “Respectfully, we seek the justice and objectivity that have always been—and we hope always will be—the bedrock of our criminal justice system.”
His letter was one of the rituals of American justice. It was Sorkin’s chance to persuade Judge Chin to ignore the demands the government was making—the 150 years tallied up when Madoff agreed to plead guilty—and the forever-after prison term that Madoff’s victims demanded in the e-mails and letters the prosecutors were collecting to submit to the judge.
A confidential “presentencing report” by the federal probation office had just arrived at Judge Chin’s chambers. It detailed the history of Madoff’s crimes and the devastating human damage they had inflicted. The report recommended a prison term of fifty years.
In his letter, Sorkin urged the judge to consider a sentence of a dozen years. Given Madoff’s age and the early age at which his parents died, that would allow at least for the thin possibility that Madoff would one day be released from prison—at age eighty-three.
Sorkin acknowledged the storm of justified anger and “heart-wrenching stories of loss and deprivation” reflected in the victims’ letters to the court. Those letters uniformly demanded that Madoff be locked up for the rest of his life. The victims’ fury, he wrote, was “no doubt justified in light of th
e circumstances” of a case that involved such grave injury to so many people. Sorkin promised that Madoff “will speak to the shame he has felt and the pain he has caused” at the sentencing hearing.
Sorkin observed that the messages the victims had submitted to Judge Chin were free of the anti-Semitic vitriol and death threats contained in some of the letters that Sorkin and his client had received. But these messages still disturbed Sorkin deeply. “The unified tone of the victim statements suggests a desire for a type of mob vengeance,” he wrote. “It is the duty of the court to set aside the emotion and hysteria attendant to this case and render a sentence that is just and proportionate to the conduct at issue.”
When word of Sorkin’s request became public, it simply poured more fuel on the fiery outrage of Madoff’s victims.
On Friday, June 26, a fax machine came to life in the law office of Peter Chavkin, disgorging a legal document’s signature page. When Chavkin and his client, Ruth Madoff, signed this page, she would be handing the government more than $80 million worth of property—a portfolio of municipal bonds, the Manhattan penthouse, the beach home in Montauk, the Palm Beach house, the three-bedroom apartment on the French Riviera, the boats and cars, the furniture and artwork, the Steinway piano her son Andrew had played, her fur coats, her well-worn designer handbags, the vintage jewellery, the Wedgwood china and Christofle silver, even Bernie’s class ring from Hofstra University, class of 1960.
She would be signing away every treasured thing she had thought was hers—until that December day when her husband revealed that her dream world had been built entirely from dreams he had stolen from other people, many of them people she had known and loved all her life.
In offering Ruth Madoff this civil settlement, the prosecutors were making some significant admissions—publicly and implicitly. Publicly, they were conceding that they might not be able to prove in court that they had a valid claim to the $14.5 million in equity that Ruth held in the Manhattan penthouse and the beachfront home in Montauk, properties purchased before the date Madoff claimed his fraud began. They were also acknowledging that, if she decided to, she could fight them in court over the other $70 million she would be handing over.
But the unspoken message behind the settlement was that the prosecutors had no criminal charges to file against Ruth Madoff. If they had had any, then this civil settlement would have been unnecessary. If she were to be indicted and convicted, they could seize every penny she had under the criminal forfeiture laws, and there would be nothing she could do to stop them.
So in exchange for agreeing to sign over these assets without a fight, Ruth was allowed to keep $2.5 million in cash to furnish herself with a new home, a new life, some kind of future.
It was perhaps the only personal exoneration she could hope for, even though it protected her only from further claims by the prosecutors. It didn’t protect her from claims filed by anyone else—including Irving Picard, the bankruptcy trustee. And it certainly didn’t protect her from the suspicion and insults she faced every day in the world outside this quiet law office in a tower attached to the Chrysler Building.
She signed the settlement anyway, in a firm hand, as did Chavkin. At some point, the page was faxed to Judge Chin and the federal prosecutors downtown.
The stage had now been set for Monday’s performance. On June 29, spectators squeezed elbow to elbow on every polished bench in the richly decorated ceremonial courtroom on the ninth floor of the federal courthouse, with its wood-panelled walls and gilded coffered ceiling. The marshals scanned the crowd, alert for any outburst.
As was his style, Judge Chin swept gracefully onto the high, carved bench, the prosecutors and defence lawyers already positioned at tables before him. Just minutes before 10:00 AM, Bernie Madoff was brought in and seated at Ike Sorkin’s side. He appeared thinner, no longer looking as carefully tailored in the familiar grey suit, white shirt, and grey tie that Ruth had been allowed to send from his apartment the previous week. He looked haggard and grey, his once-silvery hair now a lank pewter.
The four-act drama of a criminal sentencing was about to begin.
After a few curtain-raising procedures, Judge Chin invited Madoff’s victims onstage. Hundreds of them had sent in letters and e-mails, and many were present in the court on this day. Nine had asked to address the court, and a microphone had been placed at the ornate rail that divided the spectators’ benches from the area reserved for the lawyers and the judge.
Dominic Ambrosino, a retired New York City corrections officer, squeezed out of a crowded bench near the front. He described the life-altering decisions people had made because they believed their money was safe. His pension payout, his retirement, the proceeds from his and his wife’s sale of their house, their purchase of a motor home to pursue a dream of travel—all were decisions they could not undo, decisions made only because they had trusted Madoff.
Maureen Ebel, the petite sixty-one-year-old widow who spoke at the plea hearing, aimed her first arrows at the SEC, which, “by its total incompetence and criminal negligence, has allowed a psychopath to steal from me and steal from the world.” She was now working three jobs and had sold her home and many of her possessions. “The emotional toll that this has taken on me has been devastating,” she said.
Multiple jobs were all that sustained Thomas Fitzmaurice and his wife, both sixty-three. Madoff “cheated his victims out of their money so that he and his wife Ruth and their two sons could live a life of luxury beyond belief,” he said—a life “normally reserved for royalty, not for common thieves.”
Fitzmaurice read his wife’s message to Madoff. Her children have provided “constant love and support,” she wrote. “You, on the other hand, Mr Madoff, have two sons that despise you. Your wife, rightfully so, has been vilified and shunned by her friends in the community. You have left your children a legacy of shame. I have a marriage made in heaven. You have a marriage made in hell, and that is where you, Mr Madoff, are going to return.”
Carla Hirschhorn described the loss of her daughter’s university tuition fund in the middle of her junior year and the frantic uncertainty of how to pay bills. “Since December 11, life has been a living hell,” she said. “It feels like a nightmare we can’t wake from.”
Sharon Lissauer, a fragile blond model in a pale summery dress, was near tears before she began. She had trusted Madoff with everything, and he stole everything. “He has ruined so many people’s lives,” she said in a soft, oddly gentle voice. “He killed my spirit and shattered my dreams. He destroyed my trust in people. He destroyed my life.”
Burt Ross, a charismatic elderly man supporting himself on two walking sticks, tallied his losses at $5 million. He then eloquently addressed Madoff’s life. “What can we possibly say about Madoff?” he asked. That he was a philanthropist? “The money he gave to charities he stole.” A good family man? “He leaves his grandchildren a name that mortifies them.” That he was a righteous Jew? “Nobody has done more to reinforce the ugly stereotype that all we care about is money.” Ross invoked Dante’s Inferno and condemned Madoff to the lowest circle of hell.
A young man named Michael Schwartz explained that part of a trust fund Madoff had stolen from his family had been “set aside to take care of my twin brother who is mentally disabled.” He concluded: “I only hope his prison sentence is long enough so that his jail cell becomes his coffin.”
The next speaker was Miriam Siegman, who repeated a wish made during Madoff’s plea hearing—that he be publicly tried, that the full truth come out in a courtroom before a jury, that he acknowledge “the murderous effects” of a crime that had already driven a few people to suicide.
The final speaker was Sheryl Weinstein, a well-spoken accountant and the former chief financial officer of Hadassah. In two months, her pale heart-shaped face framed by sleek blond hair would be on the cover of a memoir she was secretly writing, in which she would claim to have had a brief extramarital affair with Bernie Madoff. On this day, she said, �
��I felt it was important for somebody who was personally acquainted with Madoff to speak.” She described “this beast who I called Madoff. He walks among us. He dresses like us. He drives and eats and drinks and speaks. Under the façade, there is truly a beast.”
It was a wrenching recital, punctuated by soft sobs and steadied by anger. Whether eloquent or clumsy, each victim testified to a profound sense of betrayal—by Madoff, by the SEC, by the courts, by life.
In an earnest tone, Judge Chin thanked them and tilted his head: “Mr Sorkin?”
The defence counsel, under the circumstances, is often little but a diversion between acts. Who could defend the man who caused all the heartbreak that had mesmerized the courtroom for nearly an hour? Yet, somehow, Sorkin had to try.
“We cannot be unmoved by what we have heard,” he said. “There is no way we cannot be sensitive to the victims’ suffering. This is a tragedy, as some of the victims have said, at every level. . . . We represent a deeply flawed individual—but we represent, Your Honor, a human being.”
Sorkin closed simply by urging a sentence free of vengeance, free of rage. “We ask only, Your Honor, that Mr Madoff be given understanding and fairness.”
Now it was time for act two, Bernie Madoff himself.
He had a prepared speech, like his statement in March, but this one sounded more authentically like the man who existed before December 11, 2008.
“Your Honor, I cannot offer you any excuse for my behaviour,” he began, facing the judge. “How do you excuse betraying thousands of investors who entrusted me with their life savings? How do you excuse deceiving 200 employees who have spent most of their working life working for me? How do you excuse lying to a brother and two sons who have spent their whole adult life helping to build a successful and respected business?”
Bernie Madoff, The Wizard of Lies Page 35