162 Madoff had done no options trading at all on that date: Ibid., pp. 307–8.
163 too large to fit into the agency’s limited imagination: A history professor who read an early draft of this book observed that the SEC’s reactions in the Madoff case were reminiscent of the response of U.S. leaders in the years before Pearl Harbor to reports that the Japanese were planning an air assault on Hawaii. Given the disparity in the military and economic power of the two nations, the reports just seemed too far-fetched to be credible—except in hindsight.
163 “If I was talking to a brain surgeon”: Kotz Report, Exhibit 267 (an excerpted transcript of the interview), p. 47.
163 “Everybody goes to the over-the-counter market on options”: Ibid., pp. 64–65.
164 “I’d like to go over this list”: Ibid., pp. 88–89.
164 “I thought it was the end, game over”: Kotz Report, Exhibit 104, pp. 3–4.
164 “if you’re looking at a Ponzi scheme”: Ibid., p. 3.
165 “Do you recall telling Peter”: Kotz Report, Exhibit 267, pp. 103–5.
165 Lamore was furious: Kotz Report, Exhibit 48, p. 182.
165 “I just remember sitting there”: Ibid., p. 250.
165 “I mean, ‘lying or misleading’ to ‘fraud, Ponzi scheme’ to me was a huge step”: Ibid., p. 184.
165 despite all the lies they had discovered, there was no evidence of fraud: Kotz Report, Exhibit 390. The Case Closing Memorandum, which relayed this conclusion, was apparently written in January 2007, but its author, Simona Suh, went on maternity leave and the final report officially closing the case was not completed until she returned. It was then delayed while she followed up on an anonymous tip reporting (quite accurately) that Madoff was looting the estate of Norman F. Levy; Madoff denied managing money for Levy, and the matter was dropped.
166 The turnaround in Europe was nothing short of spectacular: One good proxy for the growth in the overall hedge fund market was the popular cross-border funds called UCITS, an acronym for Undertakings for Collective Investments in Transferable Securities. Sales of stock-based UCITS—the best comparison to the funds Madoff serviced—increased 25 percent in the first nine months of 2006, compared with the same period in 2005.
166 “I said, ‘I want to sell’ ”: Confidential interview.
166 Sonja Blau: In litigation filed by the Madoff trustee in December 2010, she is described as having been known by two other maiden names: Sinja Blau and Sonja Türk. The latter maiden name is also cited in Miriam Shaviv, “Could This Frum Lady Be Madoff’s $40m Agent?” Jewish Chronicle, July 9, 2009; and Haig Simonian and Eric Frey, “Profile: Bank Medici’s Sonja Kohn,” Financial Times, Jan. 7, 2009. Kohn’s mother, also sued in the trustee’s case, was identified as Netty Blau.
166 an importing business in Milan and Zurich: Picard v. Kohn, p. 61.
167 by 1985 she had obtained her broker’s licence: Central Depository Records for Sonja Kohn, maintained by FINRA.
167 the firm paid more than $125,000 to settle the disputes: Ibid.
167 Kohn was introduced to Madoff: Picard v. Kohn, p. 62. The trustee asserted that Madoff paid Cohmad “at least $526,000” over the years for this introduction.
167 suggested he talk with a dynamic Austrian woman: Confidential interviews.
167 worked with some of the top money managers in Europe: Arvedlund, Too Good to Be True, p. 130; New York secretary of state corporate records.
167 commonly identified as being from Eurovaleur: Interview with Squillari.
168 Infovaleur was “a sham”: Picard v. Kohn, p. 23.
168 “over tea at the Ritz or Claridge’s in London”: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Leon Flax, et al. (hereafter Picard v. Flax), filed as Adversary Proceeding No. 10-05267 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, pp. 19–20. Flax was also among the directors and executives of Madoff’s London affiliate who were sued by Picard in the British courts. No lawyer had entered an appearance for Flax in bankruptcy court or responded to the trustee’s claims at the time this book was sent to production.
168 Through her lawyers, Kohn insisted that she never had any knowledge of Madoff’s fraud: David Crawford, “Madoff Kickbacks Alleged in Austria,” Wall Street Journal, July 3, 2009, and a telephone interview with Andreas Theiss, Kohn’s Viennese lawyer, on Dec. 12, 2010.
169 She also reportedly introduced Madoff to Charles Fix: “Taki” Theodoracopulos, “Madoff’s Make Away,” Taki’s Magazine, published online at www.takimag.com, Jan. 12, 2009. Theodoracopulos was an investment client and social friend of Charles Fix.
169 “Austria’s woman on Wall Street”: Nelson D. Schwartz and Julia Werdigier, “Austria’s ‘Woman on Wall St.’ and Madoff,” New York Times, Jan. 7, 2009.
169 the aristocracy of European banking: Unlike Kohn’s Bank Medici boutique, Credit- anstalt had a corporate pedigree that really did include the legendary Medici banking family of Italy.
169 the Herald fund, which opened for business in April 2004: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Herald Fund SPC, et al. (hereafter Picard v. Herald Fund), filed as Adversary Proceeding No. 09-01359 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 10.
169 none sent more fresh money to him during his 2005 cash crisis: Pierre Clauss, Thierry Roncalli, and Guillaume Weisang, “Risk Management Lessons from Madoff Fraud,” as posted online on Apr. 8, 2009, p. 10. Electronic copies of the study are available at: www.ssrn.com/abstract=1358086.
169 would pump more than $1.5 billion into Madoff’s hands: Picard v. Herald Fund, p. 10.
170 Littaye insisted that no one at Access deal with Madoff except through him: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. UBS AG, et al. (hereafter Picard v. UBS), filed as Adversary Proceeding No. 10-04283 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 53.
170 the connection was through a French bank executive: Benjamin Masse-Stamberger, “Revelations: Affair Madoff: Le rapport secret qui accuse JPMorgan,” L’Express, Oct. 7, 2010.
170 he first met Madoff in 1985: Alan Katz, “Madoff Investor Awaits ‘Imbecile’ or ‘Dupe’ Verdict (Update 1),” Bloomberg news service, Jan. 5, 2009.
170 Madoff was impressed by Littaye’s European connections: Alan Katz, “Madoff Investor’s Suicide Was an ‘Act of Honor,’ Brother Says,” Bloomberg news service, Jan. 2, 2009.
170 the beautiful provincial estate near St Malo: Ibid.
170 an Access executive confirmed an odd fact: The details of this 2006 episode are taken from Picard v. UBS, pp. 55–57. According to that complaint, the account was based on internal records subpoenaed by the trustee from Access International and sworn interviews with the Access employee, identified as Theodore Dumbauld, and the independent analyst, identified as Chris Cutler, the founder of Manager Analysis Services LLC.
170 “I did my best to inject doubt in a courteous yet effective manner”: The description of Cutler’s approach and Littaye’s reaction is from e-mails between Dumbauld and Cutler, quoted in Picard v. UBS, p. 57.
171 a small investment from a multinational development bank in Central Africa: Auditors’ General Report, Central African States Development Bank (CASDB), Year ended December 31, 2008, p. 73.
171 Madoff feeder funds based in the Cayman Islands: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Harley International (Cayman) Limited (hereafter Picard v. Harley), filed as Adversary Proceeding No. 09-01187 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 11.
171 In the course of raising a total of $4.5 billion: Picard v. Fairfield Sentry Origin
al Complaint, p. 13.
171 would ultimately raise at least $1.5 billion: Main Madoff Liquidation, “Motion for Entry of Order Pursuant to Section 105(a) of the Bankruptcy Code and Rules 2002 and 9019 of the Federal Rules of Bankruptcy Procedure Approving an Agreement by and Among the Trustee and Optimal Strategic U.S. Equity Limited and Optimal Arbitrage Limited,” p. 4.
171 Many of the feeder funds paid “retrocession fees”: Picard v. Kohn, p. 96.
172 its largest individual account was under $750,000: These details are drawn from Main Madoff Liquidation, “Affidavit of Gregory J. Adams in Support of Anchor Holdings LLC’s Claim.”
172 “These investors did not wish to be protected from risks”: Mark Jickling, “Hedge Funds: Should They Be Regulated?” Congressional Research Service, updated July 2, 2007, p. 6.
172 the concept of “hedge funds for everyone”: See Franklin R. Edwards, “Hedge Funds and Investor Protection Regulation,” Federal Reserve Bank of Atlanta quarterly review, Fourth Quarter 2006; and Franklin R. Edwards, “New Proposals to Regulate Hedge Funds: SEC Rule 203(b)(3)-2,” presented at the Conference on New Initiatives to Regulate Hedge Funds, at Columbia University, Oct. 21, 2004. In the latter at p. 15, Edwards writes, “Rather than focusing exclusively on restricting access to hedge funds as a way of protecting investors, the SEC should explore ways to make at least some hedge fund strategies more available to investors” (emphasis in the original).
174 sold $20 million worth of these derivative contracts: FGG 2007 Profile, p. 64.
174 Soon, Nomura Bank International: Sales brochure for Fairfield Sentry Ltd. USD 3X Leveraged Version.
175 would soon be offered by HSBC, Citibank, Fortis, Merrill Lynch: See “Press Release of Irving H. Picard: Trustee for Liquidation of Bernard L. Madoff Investment Securities Seeks $1 Billion from Seven Global Financial Institutions in Madoff Ponzi Scheme,” Dec. 8, 2010. The actual complaints against the banks were filed under seal in U.S. Bankruptcy Court for the Southern District of New York.
176 the return on the Fairfield Sentry fund in 2006: The Sentry fund produced a return of 6.44 percent in 2004 and 7.26 percent in 2005, but in 2006 its rate of return was 9.38 percent.
177 “there is a well-known cloud over the head of Madoff”: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. J.P. Morgan Chase & Co., et al., filed as Adversary Proceeding No. 10-04932 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 31. The bank vigorously denied the trustee’s allegations in this case, which remained under seal until Feb. 2, 2011.
178 pledging $1 million to the school: Confidential interviews.
178 doubled Frank DiPascali’s annual salary: DiPascali Criminal Information, p. 44.
178 a new sixty-one-foot fishing boat: Ibid.; “The United States of America’s Application for a Preliminary Order of Forfeiture (Final as to the Defendant) etc.,” filed Apr. 21, 2010. Many of DiPascali’s possessions were auctioned off by the U.S. Marshals Service on June 24, 2010. The boat and three family cars fetched just under $1 million.
178 He did not file his personal income tax returns for 2002 and 2006: DiPascali Criminal Information, pp. 43–45;SEC v. DiPascali, p. 15.
179 She emphatically denied the charge: In a telephone interview, Roland Riopelle, a lawyer for Bongiorno, said she was “very vigorously contesting” both the criminal and civil cases filed against her and “wants to try her best to vindicate herself, because she is innocent.”
179 no evidence it had any impact on the unwise decisions: Kotz Report, pp. 408–9.
179 he hadn’t even known Shana was dating an SEC lawyer: Kotz Report, Exhibit 104, p. 10.
179 appearing on a panel at the Philoctetes Center: A transcript of the session (hereafter Philoctetes Transcript) was obtained from the Web site of the Philoctetes Center. The page references are to the PDF version of the transcript.
179 “You have to understand, Wall Street is one big turf war”: Philoctetes Transcript, pp. 7–8.
180 “which sometimes the regulators lose sight of”: Ibid., p. 8.
180 “Wall Street—just so you understand the scale of it”: Ibid.
180 “Now, no one is going to run a benefit for Wall Street”: Ibid.
180 “Today, basically the big money on Wall Street is made by taking risks”: Ibid.
180 “By and large, in today’s regulatory environment”: Ibid., p. 9.
10. THE YEAR OF LIVING DANGEROUSLY
181 chief compliance officer for the private money management business: SEC Public Filings, Form ADV, Uniform Application for Investment Advisory Registration filed by Bernard L. Madoff Investment Securities in February 2005.
181 an annual interest rate of 4.13 percent: Picard v. Madoff Family, p. 29.
182 the firm’s office holiday party: This passage is based on the Securities Industry Year-book, a review of Bernard L. Madoff Investment Securities employee lists, and interviews with Squillari, BLM, three confidential sources who attended the 2007 office party, and confidential sources familiar with the operation of the Madoff firm.
183 On Madoff’s calendar, this evening belongs to New York City Center: BLM appointment calendar for 2008.
183 Bernie Madoff catches a night flight to Palm Beach: Ibid.
183 the touching moment when Shapiro takes the microphone: Shannon Donnelly, “He’s 95, and He’ll Sing if He Wants To,” Palm Beach Daily News, Feb. 20, 2008.
184 his successful application to the Palm Beach Country Club: Picard v. Cohmad, p. 15.
185 Some HSBC units have been recommending various Madoff feeder funds: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. HSBC Bank PLC, et al. (hereafter Picard v. HSBC), filed as Adversary Proceeding No. 09-01364 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, as amended, p. 106.
185 As early as 2001 a few bank executives were expressing doubt about Madoff: Ibid., p. 16.
185 a chilling list of what could go wrong: Ibid., pp. 107–11.
185 the bank will ask KPMG to do yet another assessment: Ibid., p. 111.
186 When the Wall Street division of the American Jewish Committee honoured Madoff: Program for the event, held at the Harmonie Club on Nov. 15, 1999, provided to the author. The list of donors to this event, “A Tribute to Bernard L. Madoff,” was a Who’s Who of the Madoff victims. The “patrons,” those who contributed $10,000 or more, included Edward Blumenfeld, the real estate developer; Stanley Chais, the early feeder fund operator; Maurice J. “Sonny” Cohn, cofounder of Cohmad Securities; Sonja Kohn of Bank Medici; Robert I. Lappin, whose foundation lost millions; Norman F. Levy, whose children’s fortunes were caught in the scandal; Mr. and Mrs. Peter Loeb, members of a fabled Wall Street family; Walter M. Noel Jr and Jeffrey Tucker of Fairfield Greenwich Group; Jeffry M. Picower, the biggest winner in Madoff’s Ponzi scheme; Carl Shapiro, one of Madoff’s earliest investors; and Sterling Equities, an investment vehicle for Fred Wilpon and the Wilpon family, which owned the New York Mets. The ranks of lesser donors is packed with Madoff victims—Jerome Fisher of Nine West; Mrs. Martin Joel, the widow of Madoff’s onetime officemate; Paul Konigsberg’s accounting firm; the Bernard A. Marden family; Ivy Asset Management; Madoff’s high school friend Michael Lieberbaum; steel industry heiress Gladys C. Luria; Mike Engler’s widow, Marja Engler; Carl Shapiro’s son-in-law, Robert Jaffe; prominent New York lawyer Howard Squadron and his wife, Anne; and artist management impresario Howard Thau.
187 pension funds and other institutional investors will demand more information: E-mails between Fairfield Greenwich and the fund management company Unigestion in August 2008 cite the “new set of rules that Pension funds have put in place after the Bear Sterns [sic] collapse” as the reason Unigestion is withdrawing its money from the Fairfield Greenwich hedge funds invested with Madoff.
187 “many
investors use Sentry like a checking account”: Galvin Fairfield Greenwich Complaint, Exhibit No. FAI 00005367, e-mail from Charles Murphy dated Friday, Apr. 25, 2008, at 12:37 PM.
188 “I don’t know why I agreed to see you”: This passage is based on interviews with the retired businessman and his accountant, supported by records maintained by the businessman’s secretary and BLM appointment calendar.
189 it has five bedrooms and baths: The online real estate listing by Killen Real Estate described and provided photographs of the home, at 51 Wanoma Way, when it was put on the market for $7.5 million after Madoff’s arrest.
190 the financial consultant in Boulder, Colorado: The passage is based on Picard v. Fairfield Sentry Amended Complaint, pp. 133–36 and Exhibits 76 and 77.
191 Bernie Madoff is meeting with four visitors from Florida: Details of the visit and its aftermath are contained in MorseLife Foundation Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc., filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, on July 16, 2009; and Kathleen Chapman, “Merrill Lynch Negligent on Madoff, Lawsuit States,” Palm Beach Post, July 28, 2009. The firm denied the allegations. The case was subsequently moved from state court to the U.S. District Court for the Southern District of Florida, where Merrill Lynch Bank & Trust Company was substituted for Merrill Lynch as the defendant. In an opinion dated July 21, 2010, the court ruled that the dispute had to be submitted to arbitration, as required in the foundation’s contracts with the Merrill Lynch entities. The federal case was stayed pending the outcome of the arbitration process.
Bernie Madoff, The Wizard of Lies Page 50