Bernie Madoff, The Wizard of Lies
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192 one client is pulling $74.5 million out of the Sentry fund: Galvin Fairfield Greenwich Complaint, Exhibit 27.
192 “there are certain aspects of BLM’s operations that remain unclear”: Ibid., Exhibit 19.
193 “the biggest single counterparty exposure risk we have at FGG”: Ibid., Exhibit 28.
194 the Madoffs’ small stucco town house: Details about the town house are from Alan Katz, “Madoff’s Three-Bedroom Riviera Retreat Belied Ponzi Scheme Role,” Bloom-berg news service, Jan. 8, 2009. The rest of the passage is based on confidential interviews.
195 a reassuring “Dear Investor” letter: Galvin Fairfield Greenwich Complaint, Exhibit 49, p. 1.
196 “looking to do an orderly exit tomorrow”: Ibid., Exhibit 13, p. 1.
196 DiPascali has not confirmed his “orderly exit”: Galvin Fairfield Greenwich Complaint, p. 89, paragraph 254 reports that the chief risk officer and another partner at the firm both acknowledged in sworn testimony that the investor letter was not accurate.
196 Madoff will not reach the safe harbour of US Treasury bills until Friday: Ibid., Exhibit 49, pp. 2–16.
196 The account statements are all lies: Regulators in Massachusetts summed it up this way: “Investors experienced a double falsehood: Madoff was sending fake records to Fairfield that Fairfield claims it did not detect and Fairfield misrepresented what those records said to customers.” Galvin Fairfield Greenwich Complaint, p. 89, paragraph 255.
196 “not providing risk capital to anyone”: Ibid., Exhibit 33.
197 all records of his dealings with Kohn be destroyed: Picard v. Kohn, p. 8.
197 More than a half-billion dollars in cash is about to pour out: Picard v. Herald Fund, p. 11.
198 a modern seven-storey boutique building on East Seventy-fourth Street: The new building, called LUX 74, was also home to Ken Starr, a Ponzi schemer to the stars who pleaded guilty in September 2010.
198 The one thing he has no intention of doing: Madoff Criminal Information, p. 22.
199 Tucker, Noel, and McKeefry file into Madoff’s offices: The passage is based on details in Galvin Fairfield Greenwich Complaint, Report on “BLM Operational Due Diligence” visit on Oct. 2, 2008, included as Exhibit 35.
200 Stanley Chais is in town from Los Angeles: BLM appointment calendar; First BLM Interview.
200 in June he wrote investors in his partnerships: SEC Chais Complaint, p. 12.
200 Madoff privately wonders if Chais suspects his fraud: First BLM Interview.
201 the amounts he has wired recently to the Kingate Euro fund: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Kingate Global Fund et al., Second Amended Complaint in Adversary Proceeding No. 09-01161 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 13.
201 The day gets off to a bad start for Amit Vijayvergiya: This passage is based on e-mails filed as Exhibit 30, Galvin Fairfield Greenwich Complaint.
202 JPMorganChase is revving up to pull $250 million: Claudio Gatti and Diana B. Henriques, “JPMorgan Exited Madoff-Linked Funds Last Fall,” New York Times, Jan. 28, 2009. A bank spokeswoman acknowledged that the bank “became concerned about the lack of transparency to some questions we posed as part of our review.” A source close to the bank recalled being told at the time that the bank’s “due-diligence people had too many doubts” about the performance of the underlying funds, which were operated by Fairfield Greenwich Group. “They felt the consistency of its performance wasn’t any longer credible” given the downturn in the overall market, the source said.
202 J. Ezra Merkin’s office in the black granite tower at 450 Park Avenue: Details in this passage are drawn from New York University v. Ariel Fund Ltd., Gabriel Capital Corp., J. Ezra Merkin et al., Supreme Court of the State of New York, County of New York, filed Dec. 24, 2008, and from Attachment B in that lawsuit, the Affidavit of Maurice Maertens.
202 For some reason, Ezra Merkin does not say: His failure to do so would be cited among the complaints in the civil fraud case filed against him in 2009 by the New York State attorney general, Andrew M. Cuomo. The case was pending in state court in February 2011. Lawyers for Merkin, who denied that he had any knowledge of the Ponzi scheme, also denied in court filings that he had misled his investors or misrepresented the way his hedge funds operated, as Cuomo asserted.
203 “which is so consistently and significantly ahead of its peers”: These details are drawn from copies of these documents posted online by Benjamin Masse-Stamberger, author of “The Madoff Affair: The Secret Report Accusing JPMorgan,” L’Express, Oct. 7, 2010. (The documents themselves were posted in English, although the article was published in French.)
203 “I can see the price you want”: These quotations are based on a certified translation of the conversation provided to the author.
204 “we are simple people from Switzerland”: The Swiss banker quoted in the conversation was identified in the L’Express account as Laurent Mathyson-Gerst, a director of Aurélia Finance, an investment firm in Geneva. He and the four other directors of the firm were named in criminal charges related to their alleged mismanagement of client assets invested with Madoff. As of publication, that case was pending, and the directors had denied any wrongdoing. No separate actions had been filed citing this recorded conversation. See Silke Koltrowitz and Emma Thomasson, “Swiss Judge Allows Charges in Madoff Losses Case,” Reuters, April 24, 2009.
204 a worried businessman in Dubai arrives for a meeting: Details of this meeting are drawn from Jitendra Bhatia et al. v. Standard Chartered International, et al., originally Case No. 1:09-cv-02410 (LTS) in U.S. District Court for the Southern District of New York; the case was consolidated with Anwar et al. v. Fairfield Greenwich Limited, et al., Master File No. 09-cv-0118 (VM), also for the Southern District of New York, pp. 5, 7–8, 10–12.
205 a staggering $850 million: Picard v. Fairfield Sentry, Exhibit 2.
205 Madoff is sure he can forestall disaster: First BLM Interview; e-mail from BLM, Feb. 20, 2011.
205 Increasingly, he is inclined to say no: Ibid.
205 It is Thanksgiving Day: This passage is based on cited news accounts, comments by the chairman of Grupo Santander (the bank’s holding company), confidential notes and interviews, and lawsuits filed against the bank.
206 He is surprised that Madoff scheduled it on the holiday: Confirmed by a bank spokesman, based on comments by the bank chairman at the company’s annual meeting, February 2009.
206 Echenique Gordillo is here at the request of the CEO of the holding company: Ibid.
206 Optimal’s analysts have written memos citing weaknesses: In re: Santander–Optimal Securities Litigation (hereafter Santander Litigation), Consolidated Amended Class Action Complaint, Case No. 09-cv-20125 (PCH), U.S. District Court, Southern District of Florida.
206 always managed to persuade themselves that Madoff was still safe: See Jonathan Clark, “Madoff Securities,” Optimal Investment Securities, an internal report dated July 2006, and a memo “To: Manuel Echeverria, From: Karine Courvoisier, Re: Meetings with Bernard Madoff and lawyers in New York—September 18–19, 2002,” p. 4, both filed as exhibits in Santander Litigation.
206 the mood becomes tense, maybe even threatening: Terrence Owen Jones, a former Optimal executive, told plaintiffs’ lawyers in the Santander Litigation (at p. 116) that the reason for the meeting was that Optimal was withdrawing $400 million from Madoff, but he did not indicate when Madoff was told about the planned redemption. According to the bank, the redemption request was not made until Echenique Gordillo returned to Madrid, although El Confidencial, a Spanish publication, reported that Echenique Gordillo delivered the news, prompting Madoff’s angry response. (Charles Penty, “Santander Sought to Withdraw Madoff Funds, El Confidencial Says,” Bloomberg news service, Dec. 24, 2008.) But in a subsequent report, the Financial Times said that “what happened at the meeting is disputed,”
with one “banker with knowledge of the meeting” saying it was a “routine” inspection. (Joanna Chung, Victor Mallet, and Brooke Masters, “Santander Praised Madoff Weeks Before His Arrest for Alleged Fraud,” Financial Times/FT.com, Jan. 23, 2009.) The bank confirmed to the author that the meeting was scheduled because its chairman was concerned about the Madoff investment, and the visit was not routine, so the El Confidencial account seems more likely to have captured the mood of the meeting, if not all the details.
207 Bernie Madoff sits down for a talk with Frank DiPascali: These details are drawn from DiPascali Criminal Information, p. 19.
207 Madoff is tired of the relentless struggle: First BLM Interview.
207 He wants to use this money: Prosecutors, in criminal charges against DiPascali’s colleague JoAnn “Jodi” Crupi, will assert later that she and DiPascali persuaded Madoff to make these payments. In any case, he either initiated the request or approved it and described it to his sons as his own idea.
208 He returns from his street corner meeting and starts following orders: DiPascali Criminal Information, p. 20.
208 Frank DiPascali leaves his spacious hilltop home: U.S.A. v. Daniel Bonventre, Annette Bongiorno, JoAnn Crupi a/k/a/“Jodi,” Jerome O’Hara and George Perez (hereafter Second Superseding Bonventre Indictment), filed on Nov. 18, 2010, as S2-10-cr- 228 (LTS), U.S. District Court, Southern District of New York, pp. 41, 69. This indictment added Bongiorno and Crupi to the indictment pending against Bonventre, Perez, and O’Hara.
209 Crupi tells him she plans on “sticking to my story”: Ibid., p. 69.
11. WAKING UP IN THE RUBBLE
211 closed their doors almost immediately: The Robert C. Lappin Foundation also closed immediately, but later reopened with new funding. The Picower Foundation was to be reendowed after Jeffry Picower’s widow reached an out-of-court settlement with the bankruptcy trustee.
213 At one breakfast panel, held at the “21” Club in Manhattan: The author’s notes from covering the event.
213 The Institute for Jewish Research in Manhattan organized an evening panel discussion: The author’s notes from covering the event.
213 “perfect storm for the anti-Semites”: Anti-Defamation League press release, Dec. 19, 2008.
215 Roughly a thousand Madoff accounts: SIPC-Garrett Letter, p. 10. Not all of those accounts would file claims. Of the 846 approved claims of less than $500,000, the fictional balances totaled $1.6 billion; the total out-of-pocket cash those victims lost, under the net equity method, was $176.5 million.
215 not “How much did you lose?” but “How much do you have left?”: This passage was drafted by the author early in 2010, but the distinction was phrased in similar terms in the eloquent essay by Stephanie Halio, “How Our Lives Have Changed,” in The Club No One Wanted to Join: Madoff Victims in Their Own Words, ed. Erin Arvedlund, comp. Alexandra Roth (Andover, Mass.: Doukathsan Press, 2010), p. 121.
219 few people in Washington considered SIPC as “insurance” against wall-to-wall fraud inside a brokerage house: See several GAO reports on SIPC, including General Accounting Office, “Securities Investor Protection: A Regulatory Framework Has Minimized SIPC’s Losses,” September 1992.
220 the GAO was still critical of how SIPC handled its public relations duties: See Letter to the Honorable John D. Dingell, Ranking Minority Member, Committee on Energy and Commerce, House of Representatives, et al., from Orice M. Williams, Acting GAO Director for Financial Markets and Community Investment, GAO, dated July 9, 2004, pp. 5–7.
220 the GAO warned that SIPC was not really prepared: General Accounting Office, “Securities Investor Protection,” p. 3.
221 SIPC liquidated 109 firms: These figures are all drawn from the relevant SIPC annual reports, available online at its Web site, www.sipc.org.
224 their first confidential meeting with Bernie Madoff and his lawyers: This passage has been reconstructed from confidential interviews with as many of the participants as possible and from Madoff’s own recollections of the event.
226 Madoff could not get four people to sign a surety bond: Letter dated Dec. 17, 2008, to U.S. magistrate judge Gabriel W. Gorenstein from Marc Litt, assistant U.S. attorney, filed in the Madoff criminal case, 08-Mag. 2735, in U.S. District Court for the Southern District of New York.
227 “When I first heard the news that Madoff had been arrested”: Kotz Report, p. 363.
227 he armed himself with a shotgun to prepare for the possibility: Markopolos, No One Would Listen, pp. 207–8.
227 he provided copies of his extensive documentation to reporters: Ibid., p. 209.
227 “the complicated steps that Mr. Madoff took”: SEC press release, “Statement regarding Madoff Investigation,” Dec. 16, 2008, Press Release No. 2008-297.
228 “The Commission has learned that credible and specific allegations”: Ibid.
228 directing him to open an independent investigation: Interview with H. David Kotz.
229 she met him only a handful of times: Madoff would tell SEC Inspector General Kotz in June 2009 (see Kotz Report, Exhibit 104, p. 9) that Schapiro was a “dear friend,” and that she “probably thinks ‘I wish I never knew this guy.’ ” When the Kotz exhibits were released, the SEC immediately put out a public statement denying Madoff’s claims of friendship. Kotz confirmed that he found no correspondence between Schapiro and Madoff in her SEC files.
229 sorting through some of their personal treasures: Details in this passage are drawn from court documents and transcripts, auction catalogues, and confidential interviews.
12. RECKONING THE DAMAGE
231 “I am supposed to believe that one day he gets up in the morning”: Arvedlund and Roth, Club No One Wanted to Join, pp. 16–17.
231 “everything had vaporized”: Ibid., p. 179.
231 “In the 50 seconds it took to read that fax”: Ibid., pp. 35–36.
232 “life-shattering phone call that changed my world”: Ibid., p. 160.
232 “I couldn’t catch my breath and thought I might be having a heart attack”: Ibid., p. 46.
232 “I was hoping that it was all a terrible mistake”: Ibid., p. 117.
232 “Everything he worked for all his life was gone—‘poof!’ ”: Ibid., p. 99.
232 Steven Norton of Fort Lauderdale had just driven quietly home: Ibid., p. 171.
232 “Kate, we just lost our house”: Interview with Gordon Bennett.
233 “The feather doesn’t enable you to fly”: Confidential interview with victim.
233 Another supposedly came from Harry Markopolos: Markopolos, No One Would Listen, p. 99.
233 “A castle of cards falling down in one CNBC news flash”: Confidential interview.
234 “It’s a complete nightmare”: Zachery Kouwe and Michael Wilson, with reporting by Nelson B. Schwartz, “Financier Is Found Dead in a Madoff Aftermath,” New York Times, Dec. 24, 2008.
234 locked the door behind them: Confidential interview.
236 the judge in the Bayou case ruled: Michael J. Missal, Richard A. Kirby, Rebecca L. Kline Dubill, and Michael D. Ricciuti, “The Madoff Dissolution: A Consideration of the Bayou Precedent and Possible Next Steps,” a publication of K&L Gates law firm, Dec. 17, 2008, p. 4.
236 were ordered to return their fictional profits: Although other aspects of this bankruptcy court ruling in the Bayou case were reversed on appeal to U.S. District Court, this conclusion on fictional profits was affirmed. See Judge Paul G. Gardephe, In the Matter of Bayou Group LLC, et al., Debtors, Christian Brothers High School Endowment, et al., Appellants, WestLaw 2010, WL 3839277, pp. 42–43.
237 “Mr. Litt, why don’t you tell me exactly what we’re here for”: This passage is based on the official transcript of the hearing before Judge Ellis, a copy of which was provided to the author.
237 the Wall Street Journal published an article: Dan Slater, “SEC to Probe Relationship Between Madoff’s Niece and Ex-SEC Lawyer,” Dec. 17, 2008.
239 The Serious Fraud Office in London was
investigating: Katherine Griffiths, “Bernard Madoff’s UK Staff Investigated by Serious Fraud Office,” Telegraph.co.uk, Mar. 27, 2009, among several other citations from British publications.