239 not getting the cooperation he had expected from the London liquidators: Letter from Joon P. Hong of Richards, Kibbe & Orbe to U.S. district judge Louis L. Stanton, dated Jan. 23, 2009, and First Richards Report.
239 French prosecutors had begun a preliminary inquiry: “Paris Prosecutor to Investigate Madoff’s France Businesses for Fraud,” Jurist Legal News & Research, Jan. 21, 2009, accessible at www.jurist.law.pitt.edu/paperchase/2009/01/dnp-madofffrance.php.
239 Spanish regulators were examining losses in the Optimal funds: Thomas Catan, Christopher Bjork, and Jose de Cordoba, “Giant Bank in Probe over Ties to Madoff,” Wall Street Journal, Jan. 13, 2009.
239 Austrian officials had begun an emergency examination of Bank Medici: “Austria Regulator Assumes Control of Bank Medici,” New York Times, Jan. 2, 2009.
239 “I think things are moving a little bit slower”: Transcript of the hearing on the Main Madoff Liquidation, at this point titled “In the Matter of the SIPA Link,” pp. 20–21.
240 “‘Denial’ is not just a river in Egypt”: Notes of the author, who covered the hearing.
240 “The SEC is a group of 3,500 chickens”: Ibid.
240 “In order to minimize the risk of discovery”: Testimony of Harry Markopolos, Chartered Financial Analyst, Certified Fraud Examiner, Before the U.S. House of Representatives Committee on Financial Services, Wednesday, Feb. 4, 2009, 9:30 AM, pp. 3–4.
240 “each of us feared for our lives”: Ibid.
241 armed only with legal technicalities: Notes of the author, who covered the hearing.
241 “We thought the enemy was Mr. Madoff”: Diana B. Henriques, “Anger and Drama at a House Hearing on Madoff,” New York Times, Feb. 4, 2009.
243 As his son Willard Foxton later recounted in a moving BBC documentary: Allan Little, “Banking Crisis Killed My Father,” BBC News, Feb. 12, 2009; Roger Corke (producer), Lucy Hetherington (executive producer), and Fiona Stourton (executive producer), “The Madoff Hustle,” BBC 2, broadcast on “This World,” June 28, 2009.
243 “Dear Will, I will be brief”: Repex Ventures S.A. et al., v. Bernard L. Madoff, et al., case number 09-cv-00289 (RMB) in U.S. District Court, Southern District of New York; Declaration of Gregory B. Linkh, Exhibit A, Certification of Proposed Lead Plaintiff Pursuant to the Federal Securities Laws, by Willard Foxton, dated May 2, 2009, p. 2.
244 Shortly after 10:00 AM, Picard and Sheehan walked onto the bare stage: Notes of the author, who covered the meeting.
244 “There are a couple of ground rules”: Direct quotations are from a transcript of the hearing obtained by the author.
245 He would serve more than 230 subpoenas: These details are all drawn from the Trustee’s Reports to the court, other court filings, and reporting notes by the author, who covered these events.
247 a silver sedan pulled up outside the north entrance: This passage is based on observations and reporting notes from the author’s colleagues at the New York Times, William K. Rashbaum and Jack Healy, various video segments posted online, and a transcript of the hearing.
249 Two days later, hundreds of victims gathered: This passage is based on notes by the author, who covered the event, as well as a transcript of the hearing.
13. NET WINNERS AND NET LOSERS
254 David Friehling and his lawyer arrived quietly: William K. Rashbaum and Diana B. Henriques, “Accountant for Madoff Is Arrested and Charged with Securities Fraud,” New York Times, Mar. 19, 2009.
256 Picard had the bank records: Diana B. Henriques, “Court Denies Madoff Aide’s Request for Bail,” New York Times, Oct. 28, 2009; and notes by the author from interviews with Picard.
256 generally known in bankruptcy court as “fraudulent conveyances”: New York State’s Uniform Fraudulent Conveyance Act involves different standards of proof for nullifying these transfers from those stated in the federal bankruptcy code, but the term fraudulent conveyance is typically used to describe withdrawals made in both the two-year and the six-year windows for recovery.
256 But many investors were not familiar with the legalese, and they were outraged: Many victims were in frequent communication with the author about their anger over the form letter sent out by Picard; midway through the claims process, the letter was revised to sound somewhat less accusatory.
257 by the end of June he would file eight of them: All of the figures that follow are drawn from the individual lawsuits filed by Picard, which are enumerated as “Associated Cases” under the main SIPC bankruptcy case against Madoff’s firm.
257 for the return of $395 million: “Trustee’s First Interim Report for the Period December 11, 2008, to June 30, 2009,” Main Madoff Liquidation (hereafter Trustee’s First Report), p. 34.
257 Chais had been honoured in absentia: Brad A. Greenberg, “Stanley Chais Targeted in Madoff Suit,” Jewish Journal, May 6, 2009.
257 He claimed that the brokerage firm had knowingly served as the sales force: Picard v. Cohmad First Amended Complaint, p. 3.
257 He sought another $3.5 billion from the Fairfield Sentry funds: Trustee’s First Report, p. 38.
257 raised to $7.2 billion a few months later: “Trustee’s Second Interim Report for the Period Ending October 31, 2009,” Main Madoff Liquidation, pp. 60–61.
258 as Madoff himself suspected, that Jeffry Picower was shrewd enough: First BLM Interview.
258 Nevertheless, many small investors said they were terrified: Again, this was a common complaint by investors in e-mails and phone conversations with the author, and on victim blogs.
258 The increasing hostility saddened him and frustrated his colleague David Sheehan: Interviews with Picard and Sheehan, and confidential interviews with others involved in the broad effort to respond to Madoff claimants.
259 Picard’s team eventually would speed up the claims-paying process: Diana B. Henriques, “It’s Thankless, but He Decides Madoff Claims,” New York Times, May 28, 2009; Diana B. Henriques, “Trustee’s Total of Madoff Losses Nears $3 Billion,” New York Times, July 1, 2009.
260 the only court-tested way to calculate Ponzi scheme losses: It is notable that the K&L Gates law firm memo on the Bayou case’s significance for Madoff investors (Missal et al., “Madoff Dissolution”) was published within days of Madoff’s arrest. Similarly, the receiver in a separate Ponzi scheme, SEC v. Joseph S. Forte et al., acknowledged in a letter on Dec. 2, 2009, to the federal judge in Philadelphia handling that case that “a receiver’s right to recover ‘net winnings’—the amount by which withdrawals exceed investments—from investors in a Ponzi scheme is well settled” (emphasis added).
260 She was a Bryn Mawr graduate: These details are drawn from the biography posted on the Phillips Nizer Web site prior to Chaitman’s departure to join another firm, Becker & Poliakoff.
260 a tireless and fiercely tenacious advocate for her clients: On several occasions, opposing lawyers asked unsuccessfully that she be sanctioned by the court for what they considered obstruction of court procedure. Once, she was disciplined by bank regulators for her allegedly overzealous defence of a shuttered bank’s owners. See Office of the Comptroller of the Currency, Quarterly Journal 24, no. 1 (March 2005): 69.
260 “safe and conservative”: Letter from Helen Davis Chaitman to SEC commissioner Mary Schapiro, dated Apr. 2, 2009, p. 2.
261 two separate visits to the appellate court: The two Second Circuit appellate decisions in the New Times case are published at 371 F.3d 68 (2004) (hereafter cited as New Times I) and 463 F.3d 125, 130 (2006) (hereafter cited as New Times II).
261 “Treating . . . fictitious paper profits”: New Times II.
261 or, indeed, crystal clear about anything: The arguments summarized here were made in hundreds of court filings by Chaitman and Picard in the Madoff bankruptcy case; to simplify the citations, the arguments from both camps are laid out in the ruling in the dispute by bankruptcy judge Burton R. Lifland, “Memorandum Decision Granting Trustee’s Motion for an Order (1) Upholding Trustee’s Determination
Denying Customer Claims for Amounts Listed on Last Customer Statement; (2) Affirming Trustee’s Determination of Net Equity; and (3) Expunging Objections to Determinations Relating to Net Equity,” dated Mar. 10, 2010, in the Main Madoff Liquidation.
261 “there is very little case law on point”: The case is Focht v. Athens (In re: Old Naples Securities, Inc.), 311 B.R. 607 (Middle District, Fla., 2002); the quotation is at pp. 616–17.
262 nor did it flatly require the trustee to honour customers’ final account statements: The statute obliged the trustee to consider final account statements only in determining whether customers had claims for cash, which were limited to a $100,000 advance, or claims for securities, which would be eligible for a $500,000 advance. SIPC had already ruled that the Madoff victims were entitled to be treated as customers with claims for securities, not cash.
263 the Massachusetts School of Law in Andover: The law school had state permission to award law degrees but was not accredited by the American Bar Association.
263 “will have to continue living on welfare or dumpster diving”: The quotation is from Velvel’s blog, hereafter known as www.velvelonnationalaffairs.blogspot.com.
265 were generally considered fair: See, for example, the editorial “Mr. Feinberg and the Gulf Settlement,” New York Times, Aug. 29, 2010.
265 a similar approach was taken, with the same special master appointed: Campbell Robertson and John Schwartz, “Rethinking the Process for BP Spill Claims,” New York Times, Sept. 15, 2010. The program was officially called the Gulf Coast Claims Facility, and it went into operation in June 2010 under an agreement between British Petroleum and the Obama administration.
265 the concept was still generally viewed as a faster route to recovery: “Mr. Feinberg and the Gulf Settlement.”
267 Lax & Neville filed a class-action suit against Picard: Mary Albanese et al. v. Irving H. Picard, filed as Adversary Proceeding No. 09-01265 (BRL), in the Main Madoff Liquidation on June 5, 2009, and amended on June 23, 2009.
267 “I am a human face on this tragedy”: Statement of Allan Goldstein, “Assessing the Madoff Ponzi [sic] and the Need for Regulatory Reform,” before the House Committee on Financial Services, Jan. 5, 2009, p. 1.
268 “I was willing to forgo outsized gains”: Ibid., p. 2.
268 “I sit before you today a broken man”: Ibid., p. 3.
268 “We are not trust funds, hedge funds or banks”: Ibid.
268 a similar complaint by Helen Chaitman: Diane and Roger Peskin and Maureen Ebel v. Irving H. Picard, filed as Adversary Proceeding No. 09-01272, in the Main Madoff Liquidation.
14. THE SINS OF THE FATHER
270 They came to ask Bernie Madoff: Kotz Report, Exhibit 104.
271 several former top executives at Merrill Lynch and Morgan Stanley: A hedge fund run by a former head of Merrill Lynch’s brokerage unit, John “Launny” Steffens, had a stake in Madoff through Ezra Merkin’s Ascot Partners, and Madoff’s direct investors included the family of Frank A. Petito, a former chairman of Morgan Stanley & Co.
272 “I could see how you might see them as false”: Confidential interviews with people familiar with the Kotz-Madoff session.
273 “We seek neither mercy nor sympathy”: The letter is filed as Document 84 in the files of Madoff Criminal Complaint.
274 a fax machine came to life: This passage is based on court records filed in the government’s civil forfeiture agreement with Ruth Madoff.
275 On June 29, spectators squeezed elbow to elbow: This account is based on the author’s notes and observations during the sentencing and a transcript of the hearing.
280 The fur coat stayed: Confidential interviews with people familiar with the U.S. Marshals’ asset-recovery efforts in the Madoff case.
280 So did her used golf shoes: An inventory of seized property is attached as Exhibit A to Document 121 in the docket for Madoff Criminal Complaint.
281 there was no evidence that Ruth had been involved: The Law Blog, “Ruth the Truth? Feds Find No Evidence on Bernie’s Wife,” WSJ.com, July 1, 2009, 3:36 PM EST; also Amir Efrati, “Evidence to Charge Ruth Madoff Lacking,” Wall Street Journal, July 2, 2009.
284 investigators had found no evidence linking the sons to Madoff’s Ponzi scheme: Alex Berenson and Diana B. Henriques, “Inquiry Finds No Signs Family Aided Madoff,” New York Times, Dec. 16, 2008.
284 grew leery of including them on playdates: Margolick, “Madoff Chronicles, Part III.”
284 Catherine Hooper, an accomplished woman whose background as a fly-fishing guide: Ibid.
284 Andrew exchanged punches with the trader: Ibid.
285 “came out of the experience with a shaved head”: Roger Madoff, Leukemia for Chickens, p. 132.
285 enjoying each day because “life is short”: Ibid.
285 to change her own and their children’s last names to “Morgan”: Jose Martinez with Alison Gendar, “Take Off My ‘Madoff’; Daughter-in-Law Begs Court to Let Her and Small Kids Change Name from Hated Label,” New York Daily News, Feb. 25, 2010.
287 “perceived as the succubus to Bernie’s incubus”: Professor Richard A. Shweder, a cultural anthropologist at the University of Chicago, quoted in Lynnley Browning, “The Loneliest Woman in New York,” New York Times, June 12, 2009.
287 Many lifelong friends shunned her: Browning, “Loneliest Woman.”
288 demanded the return of $44.8 million: In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Ruth Madoff, filed as Adversary Proceeding No. 09-01391 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 3.
288 Her lawyer, Peter Chavkin, was outraged and said so: Public statement from Peter A. Chavkin, released by his law firm, Mintz Levin, July 29, 2009.
288 “had Bernie on a short leash”: Sheryl Weinstein, Madoff’s Other Secret: Love, Money, Bernie, and Me (New York: St. Martin’s Press, 2009), pp. 43, 47, 53.
289 “stands as a powerful reminder”: Diana B. Henriques and Stephanie Strom, “Woman Tells of Affair with Madoff in New Book,” New York Times, Aug. 13, 2009.
289 Ruth Madoff had changed her hair colour: Initially reported by Anna Schecter and Asa Eslocker, “Ruth Madoff: Summer in the City with No Apologies, Red Dye Job,” ABC News: Brian Ross Investigates, July 16, 2010. A video posted on the Brian Ross Investigates Web site included telescopic camera footage of her at lunch at a sidewalk restaurant.
15. THE WHEELS OF JUSTICE
292 signing authority for one of the firm’s bank accounts until about 1985: Diana B. Henriques, “Judge Freezes Madoff Brother’s Assets,” New York Times, Mar. 25, 2009.
293 he was sued by Andrew Ross Samuels: Andrew Ross Samuels v. Peter B. Madoff, Verified Petition-Complaint, Index No. 09-5534, Supreme Court of the State of New York, County of Nassau, Mar. 16, 2009.
293 the subject of a criminal investigation: Letter to the Honorable Madeline Cox Arleo, U.S.M.J., from Charles T. Spada of Lankler, Siffert & Wohl, dated Jan. 26, 2010, filed as Document 40 in Lautenberg v. Madoff. 294 In September 2009 the presiding federal judge: Opinion by U.S. district judge Stanley R. Chesler in Lautenberg v. Madoff, U.S. District Court for the District of New Jersey, Sept. 9, 2009.
294 “his many years of close association with his brother”: Opinion by U.S. district judge Stanley R. Chesler in Lautenberg v. Madoff, U.S. District Court for the District of New Jersey, Nov. 18, 2010, pp. 6–7.
294 Irving Picard filed a clawback lawsuit: Picard v. Madoff Family.
294 “Simply put, if the family members had been doing their jobs”: Ibid., p. 2.
294 “has not taken on the burden of proving criminal complicity”: Picard v. Madoff Family, Trustee’s Memorandum of Law in Opposition to Defendants’ Motions to Dismiss, May 21, 2010, p. 1.
295 “the trustee’s concession is significant”: Picard v. Madoff Family, “Defendant Peter B. Madoff’s Reply Memorandum of Law in Further Support of His Motion to D
ismiss the Complaint,” June 21, 2010, p. 1.
297 At 2:45 PM on Tuesday, August 11, 2009: This passage is based primarily on the author’s observations and notes, and on a transcript of the hearing in which one of the quotes cited here is slightly garbled.
299 Kohn was questioned privately in a Viennese court: Confidential interviews. A letter filed by Kohn’s lawyers in a private lawsuit also confirmed that a member of their firm had represented her in several matters, including “a criminal investigation conducted by the Vienna Public Prosecutor’s office.” See Letter to the Honorable Richard M. Berman, United States District Court for the Southern District of New York, from Price O. Gielen, of Neuberger, Quinn, Gielen, Rubin & Gibber, dated Nov. 2, 2010, and filed as Document 146 in In re: Herald, Primeo, and Thema Fund Secs., Case No. 09-cv-00289 (RMB), p. 3. Her lawyers acknowledged the investigation was pending as of publication, but said no charges were likely to be filed against Kohn, who denied any role in the Madoff fraud.
Bernie Madoff, The Wizard of Lies Page 52