Whatever their personal dramas, though, both sons had official titles at the Madoff firm, titles that gave them legal responsibilities as licenced Wall Street professionals. So both of them were sitting ducks for civil litigation by the SEC, which could accuse them of a failure to adequately supervise the business, especially after the firm began to receive such steady infusions of capital from their father’s secret fraud. But as late as the autumn of 2010 US federal regulators had not made even that anticipated accusation against the Madoff sons.
To be sure, the regulators who might make that accusation had failed to detect Madoff’s devious strategies, too. This was the curious paradox in the public’s certainty about the family’s guilt: no one seriously disputed that Madoff had successfully and repeatedly hidden his crime from regulators, foreign accounting firms, hedge fund due-diligence teams, and his savviest professional investors. Why was it so implausible that he had hidden it from his wife, who had no official role at the firm, and from his sons, who worked in a separate part of the business and learned only as much about his private, closely held investment management business as Madoff chose to tell them?
Even so, there was nothing to prevent regulators from accusing the Madoff sons of failing to supervise their father’s business.
There would be a certain irony if they were held responsible for what happened in the bowels of their father’s brokerage firm, because their father had never even made them his partners. They were simply at-will employees, albeit extremely well-paid ones. Their father was the sole owner of Bernard L. Madoff Investment Securities; nobody disputes that he had always been almost obsessively in charge.
With their father’s confession and arrest, any of their assets that had not been consumed in their father’s crime were certain to be claimed for his victims—on the grounds that everything they got from the firm over most, if not all, of their years of employment had been their father’s ill-gotten gains. The business they expected to inherit had been destroyed, along with the personal and professional reputations on which they might have built new careers. Half the world thought they were criminals, and the other half thought they were too naïve or lazy to discover that their father was one.
Although neither the SEC nor the US attorney filed any court cases against Mark or Andrew in the first two years after their father’s arrest, almost everyone else did. It increasingly began to seem that personal bankruptcy would be the only way they would be able to preserve any assets at all for their families. Whatever their skills or experience, it would be a brave employer indeed who openly offered a job on Wall Street to one of Bernie Madoff’s sons.
Ruth Madoff was in an even more precarious situation in the months after her husband’s arrest. Her sons at least still had their young families, their in-laws, their closest friends. But her decision to stand by Bernie had cut her off from her sons and almost everyone else in her world except her husband’s lawyers.
Within a week, she was being insulted in print, caricatured in cartoons, and openly accused of criminality by some of Madoff’s victims. She was badgered by crowds of photographers on the few occasions she left the apartment to shop or, later, to pay a weekly visit to her husband in jail. The attacks on the Internet were especially virulent. One cultural anthropologist memorably observed that Ruth was “perceived as the succubus to Bernie’s incubus”—in plain English, a life-sucking female demon working hand in hand with an equally evil male demon.
Her only proven offence? Not walking out on her husband after his confession. According to a confidential source, she later explained her decision like this: “I had a love affair with someone for fifty years—I couldn’t abandon him, even though he had committed this terrible crime. If you had a grown child who committed a terrible crime, what would you do? Would you abandon him?” So she stayed, apparently staggered by the crime but somehow unable to desert the man who had committed it.
Some of her relatives and a few close confidantes privately stood by her, even though her husband had robbed them, but none could step up to defend her in public. Many lifelong friends shunned her, some because of constraints imposed by their lawyers and others out of justifiable fury over Madoff’s betrayal of them. She was unwelcome at her hairdresser’s, shunned by her florist, turned away at a favourite restaurant. Her own sons blamed her for not walking out on their father, although they did not believe she was his accomplice.
Overnight, a woman whose peers had never considered her lifestyle garish or vulgar found herself accused of greedy, gaudy, nearly criminal excess—as if the East Sixty-fourth Street apartment suddenly had become a full marble-clad floor at Trump Tower, and Montauk had started parading its wealth with more swagger than any of the Hamptons. There were frequent breathless stories predicting her imminent arrest even after the civil forfeiture deal leaving her $2.5 million was approved by Judge Chin.
By then, it looked as if she would lose even that. On July 29, 2009, Ruth Madoff was sued personally by Irving Picard, who demanded the return of $44.8 million that he claimed she had received from the Madoff firm in the six years before it was bankrupted by her husband’s crime. The complaint detailed more than a hundred wire transfers from the firm to her personal accounts or to companies in which she had invested. It did not cite any evidence that she had participated in the fraud or had even known about it.
After forfeiting $80 million to her husband’s victims, Ruth Madoff could not possibly meet the trustee’s demands. She did not have $44.8 million—she had exactly $2.5 million and now feared most of that would be required to settle the case with Picard.
Picard was not trying to get blood from a stone. He simply wanted a judgement against Ruth Madoff that would obligate her to pay any future earnings—from a memoir, for example—into the victims’ asset pool. Her lawyer, Peter Chavkin, was outraged and said so. Bernie Madoff could not comment publicly, but he was equally furious. Any inclination he might have had to cooperate with Picard—and, admittedly, little had been evident—nearly evaporated the day he learned that his wife had been sued. It would be more than a year before he would even meet with Picard’s legal team.
Could Ruth’s life become more humiliating? It could. In August, one of her husband’s victims, Sheryl Weinstein, the accountant and former chief financial officer of Hadassah who had spoken so eloquently about Madoff’s beastliness at his sentencing, published the memoir in which she claimed that she had had a brief sexual affair with him in the mid-1990s. The tell-all was studded with hurtful comments about Ruth and her sons—that she “had Bernie on a short leash” and “was intimidated by the social circles in which they were traveling,” and that Bernie’s comments about his sons made them seem “spoiled and obnoxious.”
Of course, it is possible that Madoff had affairs; he was an attractive, seductive man, and every marriage encounters some rocky terrain at times that can tempt spouses to stray. But, in a less hysterical environment, even this might have been seen as proof that Ruth did not know about her husband’s crime: What lunatic would risk cheating on a wife who knew he was a crook and could turn him in with one phone call, a wife whose lawyers certainly could have cut her a pretty good deal in exchange for nailing him? If Ruth were Madoff’s accomplice and caught him cheating, he risked far more than the mere fury of a woman scorned.
Time and again, Ruth Madoff’s lawyers tersely denied or refused to comment on the more outlandish allegations about her. But when Weinstein’s memoir was published, Chavkin saw a teachable moment and seized it. He said that Ruth had been totally unaware of both her husband’s crime and the purported affair.
If the affair really happened, Chavkin continued, it “stands as a powerful reminder to those who say Ruth must have known of her husband’s criminal scheme, that there are some things that some spouses—however close they are—do not share with each other.”
Still, the public’s appetite for dirt about this fragile sixty-eight-year-old woman seemed bottomless. More than eighteen months after Madoff�
�s arrest, ABC News ran a news story and a brief Web site video segment, complete with telescopic camera footage, trumpeting a hot new discovery: Ruth Madoff had changed her hair colour from blond to light auburn, perhaps because she thought that would allow her to move incognito through Manhattan. Little chance of that, obviously.
There is no denying that Ruth, Mark, and Andrew Madoff would have deserved all these hardships—and worse—if they had indeed been guilty of participating in the vicious crime that shattered so many people’s lives, or even of suspecting it and keeping quiet. If they were accomplices, they deserved to be more than vilified in the media; they deserved to be indicted, convicted, sued, ruined, and imprisoned for life.
But in the oceans of ink and galaxies of cyberspace devoted to Ruth Madoff and her sons, few, if any, commentators asked the obvious question: What if they were innocent?
Perhaps they simply trusted Bernie Madoff, without question—as all his victims did. Perhaps they honestly assumed they were the lucky beneficiaries of his obsessively private but hugely successful hedge fund business, as the heirs of any Wall Street billionaire would. Perhaps, if they did ask him, he bamboozled them with the same phoney paper trail that had fooled regulators for years.
That would be an uncomfortable truth.
Thousands of Madoff’s victims suffered enormously from his betrayal of their financial trust—indeed, their lives were nearly ruined. Although most still had their families and friends, they had lost their money, their place in society, their sense of security about the future, their confidence in their own judgement—they had lost it all in an instant, in a heartbeat.
Ruth, Mark, and Andrew Madoff lost all of those things, too—all their money, their social position, their sense of security, their confidence in their own judgement, any hope for a better future. And in the same heartbeat, they also lost almost every cherished relationship in their lives, including their connections to one another.
If Ruth Madoff was innocent, she learned in an instant that she had been married for nearly fifty years to a living, breathing lie. She lost every happy memory, every scrapbook moment of their life together. Behind his mask, the husband she still adored, her sweetheart since she was thirteen years old, was actually an accomplished criminal who had been stealing for decades from thousands of people, including almost every member of her family and virtually all of their friends.
If it was true that Mark and Andrew Madoff were innocent, they learned in a heartbeat that their father had lied to them with every lecture about life, every pretense of honesty, every gift, every holiday. He had lied with every luxury he presented as the harvest of his genius and hard work, when it actually was all just loot from his crimes, some of it stolen from them and from people they all loved. The firm they thought they were helping to build was the scene of a historic fraud. Some of the employees they had trusted may have been their father’s accomplices. He had destroyed their future, and he had also destroyed their past. They had nothing left of their father, not even their memories.
Overnight, they all became social pariahs, scorned, slandered, sued, even physically threatened. No one but hired hands would defend them in public and few would publicly admit feeling any pity for them at all. And that might well be the case for as long as they lived—even if prosecutors never filed any charges against them. Without a single documented fact placed into the record, the supreme court of public opinion had already indicted, convicted, and banished them all, without appeal.
And that was exactly what they deserved, if they were guilty.
Yet if Ruth, Mark, and Andrew were innocent, then all three of them were Bernie Madoff’s victims, too—just possibly, his most damaged victims. But this was not a possibility anyone was willing to acknowledge in public in the summer of 2009. It was not something many of Madoff’s victims would ever acknowledge.
15
THE WHEELS OF JUSTICE
The fog of suspicion that engulfed the Madoff family would be especially thick around Peter Madoff.
Peter worked at his older brother’s shoulder for almost forty years, filling his gaps and constructing the framework of technology that had made his firm so admired in the industry. Their offices were never more than a dozen steps apart. They supported each other through dreadful tragedies and celebrated great achievements together.
The intimacy of Peter Madoff’s relationship with his brother, both in and out of the office, left him more vulnerable to civil lawsuits and criminal investigation than any other member of the Madoff family. He had been a senior executive and the chief compliance officer for the Madoff firm, and the SEC could conceivably hold him accountable for failing to prevent or discover his brother’s crime, even if he was never officially accused of knowing about it. Regulators would argue that, as a lawyer and licenced securities professional, he could not have failed to discover the crime if he had been doing his job properly.
Peter had signing authority for one of the firm’s bank accounts until about 1985. Although he was not an accountant by training or a partner in the firm, he could have gotten access to the firm’s general ledgers and might have seen the creative accounting and emergency loans arranged during the cash crisis in 2005 and early 2006, despite the awful distraction of his son’s illness during those frantic months. And, as chief operating officer of Madoff’s investment advisory business, he arguably should have made it his business to know what was happening on the seventeenth floor, however much his brother tried to shoo him away.
Like everyone else in the family, Peter was the target of lawsuits by Madoff victims. In late March 2009, he was sued by Andrew Ross Samuels, the grandson of Martin J. Joel Jr, the longtime Madoff broker and friend. Peter was the trustee of the university fund that Joel set up for his grandson, a trust fund totally wiped out by Bernie’s fraud. Peter settled that lawsuit by midsummer, but by then he was tangled in court in New Jersey in a lawsuit filed by US senator Frank Lautenberg’s two grown children and their family foundation, which had lost about $9 million in the Ponzi scheme.
That lawsuit argued that Peter, by virtue of his position at his brother’s firm, was responsible for the damage done by the fraud, whether he knew about it or not. The paperwork in the Lautenberg litigation revealed that Peter Madoff had repeatedly asserted his Fifth Amendment rights at a civil deposition, saying that the prosecutors had advised him that he was the subject of a criminal investigation. The most serious status prosecutors assign in a criminal case is to identify someone as a “target” of an investigation; being identified as a “subject” is less conclusive but, for Peter Madoff, no less worrisome.
How could Peter not have known? Sure, he was the perpetual “kid brother”, and he was never made a partner in the business. Still, how could Bernie have hidden his crimes from Peter for so many years? Even people who knew Peter Madoff and trusted his integrity had a hard time finding plausible answers to that question in the weeks and months after Bernie’s arrest.
Peter’s lawyer, John R. “Rusty” Wing, answered every inquiry by repeating what he had said from the first: that his client had not known about or participated in his brother’s fraud.
By the time the criminal investigation entered its third year, no criminal charges had been filed against Peter, nor had the SEC lodged a civil complaint over his handling of his supervisory duties at his brother’s firm. But, of all the Madoffs, it was Peter whose legal fate was surely the most uncertain.
The seesaw of the Lautenberg case perfectly captured that persistent uncertainty.
In September 2009 the presiding federal judge denied Peter’s motion to dismiss the case, citing factual disputes about whether he had exercised enough control within the firm to bear some of the blame for his brother’s fraud. Yet, in November 2010, the same judge denied the Lautenbergs’ motion for a summary judgement in their favour. It wasn’t enough, the judge said, to argue that Peter Madoff simply could not have been deceived or misled about what his brother was doing. The judge recognized th
at Peter’s position at the firm, “his many years of close association with his brother,” and the “gross nature” of the fraud “would cast substantial suspicion about Defendant’s culpable involvement in those activities.” But, he concluded, “suspicions based upon titles without specific evidence of conduct and responsibilities cannot be the basis of legal judgments.” So far, the judge said, that specific evidence had not been presented.
After suing Ruth Madoff for $44 million in July 2009, Irving Picard filed a clawback lawsuit on October 2 against Peter Madoff, Mark and Andrew Madoff, and Peter’s daughter, Shana, also a compliance officer at the defunct firm.
But that carefully drafted lawsuit—written by people who had issued hundreds of subpoenas for documents, conducted dozens of interviews, and examined more of Madoff’s internal records than anyone with the possible exception of the FBI—did not provide any evidence that Peter or any of the other family defendants had been Bernie Madoff’s accomplices.
To the contrary, the suit flatly said that the trustee was not accusing them of knowing about the fraud until Bernie Madoff confessed—although this careful phrasing was ignored by those convinced of the family’s guilt. Rather, the lawsuit simply asserted that the Madoff family executives should have discovered the fraud and could have prevented it had they not been “completely derelict” in their professional duties. “Simply put, if the family members had been doing their jobs, honestly and faithfully, the Madoff Ponzi scheme might never have succeeded, or continued for so long,” the trustee’s brief argued.
In a subsequent court filing, David Sheehan made the trustee’s position even clearer. The trustee “has not taken on the burden of proving criminal complicity or common law fraud by these defendants,” he wrote. “By so strenuously denying [that] they knowingly participated in the Ponzi scheme, the defendants have moved to dismiss a case the trustee did not bring.” Peter Madoff’s lawyers were quick to point out in court that “the trustee’s concession is significant: in his year-and-a-half investigation, he plainly has uncovered no evidence that Peter Madoff was aware of or involved in his brother’s fraud.”
Bernie Madoff, The Wizard of Lies Page 37