10
No sooner was Margaret Barbera at work than Irwin Margolies sat her down and explained exactly what he wanted. She had no qualms. She had done it for others and been well rewarded, and now she would do it for him, doctor his books and records expertly and gain additional rewards.
But Margolies had a problem, as he explained to Barbera. Some of the phony invoices he had sent on to Maguire were about to come due for payment. Did she have any ideas how to handle that? She did, indeed. Why not, she suggested, just send Maguire a Candor check for the amount?
It was a potential solution, one worth trying. Of course, according to the factoring agreement, the checks to Maguire were supposed to come from Candor’s customers, not Candor itself. Would Maguire notice the discrepancy? Margolies wrote out the check, Madeleine Margolies signed it, and then it was sent to the Maguire post office lock box. Margolies waited anxiously to see whether anybody at Maguire would notice, whether anybody would call and say, “Mr. Margolies, there’s been a mistake; this isn’t the way it’s supposed to be done under our contract; we’re not supposed to get the checks from you; your customers are supposed to pay us directly; please make sure it doesn’t happen again.” But nobody complained. Perhaps nobody at Maguire noticed. Or perhaps somebody did notice but decided to ignore what might, after all, just be a minor peccadillo. After all, Maguire was delighted to have gained entrée into a new factoring market, and it was anxious not to do anything that might get in the way of expansion there. Whatever, it was precisely what Margolies had hoped and hardly dared expect, and what Barbera had predicted.
The door was wide open now, and Margolies strode boldly and confidently through it. Since its inception, Candor Diamond’s sales pattern had been essentially flat, hovering at about $500,000 annually. Suddenly it was as though a rocket had been attached to its tail and ignited. The company became, according to the invoices it filed with Maguire, a lot more successful than anybody could have dreamed possible, its sales soaring into the stratosphere at a pace anybody who gave it some thought might have considered neither possible nor logical. But apparently nobody thought very hard about it, if they thought about it at all.
Aided and abetted by Barbera and her fertile imagination, Margolies took off in several directions. Behind it was an adaptation of the scheme hatched and brought to a certain perfection in the 1920s by Charles Ponzi in Boston: Pay the investor back with his own money, only make sure he keeps on investing at an ever-increasing rate so that the debt never catches up with the income. If it’s done right and with panache, it will be a long time before the investor catches wise that all he’s getting back is his own money from earlier, smaller investments.
On more occasions than not, Margolies simply ignored the stricture to paste the Maguire sticker to his invoices and bills, telling the customers that the sales were factored and that payments should be made not to Candor but directly to the Maguire post office lock box. So the bills—the legitimate ones, at least—continued to go out as always and the customers continued to pay Candor, and then Candor paid Maguire. Only once did anyone at Maguire notice that Margolies was violating the rules and raise a howl. In November 1980, Peter O’Neill, the Maguire officer handling the Candor account, came across one of those Candor checks sent in to pay for an invoice that had been assigned to the factor. O’Neill immediately called Margolies and demanded an explanation. Margolies, with his salesman’s winning ways, calmed O’Neill. What had happened, he explained, was that the customer hadn’t followed directions and had sent his check to Candor. Rather than go to the bother of sending the check back and making the customer write and dispatch a new one, Margolies simply had deposited the check in the Candor account and written his own to Maguire. O’Neill was appeased. But he warned Margolies not to let it happen again. If it did, Maguire might consider that grounds for ending the factoring agreement. Margolies was not at all concerned. Too many checks had already slipped past Maguire for him to think that O’Neill’s catching this one had been anything but an accident that was unlikely to happen often, if ever again. Margolies just ignored O’Neill’s warning and continued to do as he had been doing, only more so.
If he could get away with continuing to collect as always from his legitimate customers and writing his own checks to the factor, then he had a clear road into the Maguire treasury to stage a raid on a massive scale. Like a magician pulling rabbits out of a hat, Margolies seemingly pulled names out of directories. Some were the names of retail stores with which Candor had never done any business, or had done no business in a long time, or had done business only on a minimal scale. Onto invoices went their names, showing that they were now making ever-increasing purchases from Candor. Off to Maguire went the invoices. Into Candor’s bank account went 85% of the sales figure listed on the invoice.
That was one way. There were others. Candor sent off invoices to Maguire showing that it had made large sales of jewelry to such firms as Paramount Gems, Palazzo D’Oro, and others. The only problem was that they weren’t retailers. They were suppliers to Candor of diamonds, gold, and other materials and so, of course, were not in the market for Candor’s goods.
Candor sent off invoices to Maguire showing that it had sold and shipped a large quantity of jewelry to a company called M & M Merchandising. What it didn’t tell Maguire was that M & M Merchandising just happened to be a shell company owned by Madeleine Margolies’s parents, Herman and Molly Malen, and that among the officers of M & M were Irwin and Madeleine Margolies.
In October 1980 it appeared that Candor had scored a real coup. It dispatched to Maguire invoices amounting to $250,000 for the purported sale and shipment of jewelry to Venture Stores. As ever compliant, Maguire deposited $212,500 into Candor’s account, representing 85 percent of the sale. What Margolies neglected to tell Maguire was that the shipment was on consignment, not a true sale, and, for obvious reasons, since no money changes hands and no bills are rendered on consignments until the sale is made, consignments were specifically excluded from the factoring agreement.
Three months later, as the payment from Venture Stores to the Maguire lock box was supposedly due, somebody at Maguire made a call and inquired when that payment might be expected. The people at Venture Stores were not a little surprised. For one thing, they had never been told by Margolies that his sales were factored and payments were to be made to Maguire. For another, as they now informed Maguire, there had been no true sale anyway, only a consignment. To prove their point, they displayed the invoice sent them by Margolies, showing the shipment had been on consignment. That, of course, was not the same invoice that had been sent to Maguire.
The factor immediately called Margolies and demanded an explanation. Margolies said he was shocked. He said he had supplied Maguire with the correct invoice showing the shipment had been a sale. Venture Stores must be mistaken.
We’ve seen a copy of the invoice in their possession, Maguire said. It shows a consignment, not a sale.
That doesn’t jibe with my invoices, Margolies declared. And he produced photocopies of the invoices in his possession. They showed that the merchandise had been shipped and sold to Venture Stores.
It was his word against that of Venture Stores, then. Margolies decided not to take a chance on which one Maguire would believe. He told his friend and attorney Henry Oestericher that his credibility and the continued success of the scheme were at stake. He ordered Oestericher to file a civil suit against Venture Stores, asserting that the chain had violated its purchase agreement with Candor, and he promptly notified Maguire that he was taking this action. If Maguire had been about to bring the factoring agreement to a sudden and decisive end as a result of the Venture Stores disclosure, this stopped them. If Margolies was taking this kind of action, then, Maguire officials reasoned, they must be dealing not with a crook but with honest Irwin Margolies, a man wronged by his customer. And so the agreement, and Margolies’s raid on the Maguire treasury, continued unabated.
And a raid it was.
By the end of 1980, according to the invoices sent to Maguire, which Maguire honored by depositing the required funds to Candor’s account, the jewelry company’s sales had more than doubled over the year before, reaching $1.2 million from about $500,000. Nobody at Maguire expressed surprise or suspicion. This was just the beginning. As the year turned into 1981, Candor’s sales, as reported to Maguire, began to grow almost geometrically month after month. In May 1980, for instance, as the factoring agreement was in its germinal stages, Candor reported sales to Maguire of $41,000; a year later, in May 1981, it claimed sales of $1.393 million. In July 1980, as Candor was in the initial stages of its sudden and phenomenal growth spurt, it told Maguire its sales had reached $87,000 that month. A year later, in July 1981, it claimed sales of more than $2.4 million. All told, between May 1980 and July 1981, a period of just fourteen months, Margolies sent Candor invoices to Maguire claiming sales of about $10 million, nearly $9 million in the first half of 1981 alone. In return, Candor and Margolies received about $8.5 million from Maguire, most of it in the spring and early summer of 1981.
How explain such a fantastic sales growth? Margolies explained it easily, telling Maguire’s Peter O’Neill one day that his company was booming at such a rate because the beautiful designs and high quality of the merchandise were creating great demand, and even more, because Margolies’s own brilliant salesmanship had won some very large accounts.
Did anyone doubt? Margolies was prepared to show that the shipments were pouring out of the office. In early November 1980, for instance, Peter O’Neill announced that he would like to come into the Candor office and spend a day matching purchase orders and delivery documents against the invoices Candor had submitted regarding certain very large sales to the Caldor chain. Margolies had to oblige him. According to Gaye Broffman, who was working as Madeleine Margolies’s assistant office manager at the time (a position she held for only a few months, between August and November 1980, when she departed with a certain distaste for what she had been witnessing), she had gone into the office on a Sunday to catch up on some paperwork. As she was getting ready to leave late in the afternoon, Irwin and Madeleine Margolies and Margaret Barbera stopped her. They asked her if she could stay on for a few more hours to do some essential work relating to O’Neill’s expected arrival the following morning. What essential work? It seemed, Margolies said, that the original documents relating to delivery of merchandise to Caldor had been misplaced during Candor’s recent move from one side of Forty-seventh Street to the other. What would have to be done was to prepare copies of Federal Express and Purolator delivery forms showing that the merchandise had been shipped from Candor to Caldor. Through the evening and into the morning, and when it became obvious that she couldn’t finish the job alone, with the help of a friend Barbera asked her to recruit, Broffman typed hundreds of such delivery forms and then, on Barbera’s orders, forged signatures of courier employees to every form. By the time O’Neill arrived, everything was in order.
Five months later, in April 1981, when Maguire officials announced that they wanted to make another inspection, the forgery party was repeated, this time by Irwin and Madeleine Margolies and their two teenage sons, along with Madeleine Margolies’s brother, Scott Malen, who was working as a Candor salesman, and Barbera.
When it came to repaying Maguire for its advances as they came due, Margolies showed equal ingenuity. The main method, of course, was the simple formula of writing Candor checks in payment for supposed sales. Margolies was certain that, despite the one occasion when O’Neill had voiced his displeasure at this violation of the contract, nobody at Maguire would notice that the checks were coming from Candor and not its customers, that in the main Maguire would be concerned only with getting what it was due when it was due and not about the source, and in keeping on the good side of a company that was becoming such a valuable client.
Even so, there were occasions when Margolies did call Maguire to explain why some checks had been drawn on Candor’s account and not sent directly by the customers. The customers, he explained, had mistakenly sent their checks to Candor, and Candor’s new and inexperienced bookkeeper (Barbera) had mistakenly deposited them in Candor’s account at Bank Leumi. To save time, Margolies said he had simply issued offsetting checks to Maguire.
On at least one occasion, he even offered documentary evidence to prove that this was exactly what had happened. Late in October 1980, as payments for a number of invoices were coming due, Margolies withdrew $60,000 in cash from Candor’s account at Bank Leumi. Immediately the cash was deposited into Madeleine Margolies’s personal checking account at Scarsdale National Bank. Just as promptly, Madeleine Margolies wrote thirty-four checks, totaling $60,000, on that account and deposited them in Candor’s Bank Leumi account, each check matching the purchase price on an invoice. Then she wrote thirty-four Candor checks to Maguire and noted on the checks the invoice number. And so Candor had the documentary evidence, in the form of the deposit slips, to show that the customers’ checks had been put into Candor’s account by mistake.
In all, during the fourteen months, Candor dispatched 177 of its checks, totaling about $3 million, to Maguire’s lock box in payment of advances.
But this was only one ploy. Margolies and his reliable aide, Barbera, developed others as well, to convince the people at Maguire that at least some of Candor’s customers were paying attention to the stickers on the invoices and remitting payments directly to the factor. One way was a check swap with officials of other firms with whom he was on friendly terms either socially or professionally. For reasons he hardly ever bothered to explain, he would approach a friend and say, “Let’s swap checks, I’ll give you my check for twenty thousand dollars, and you give me your check for twenty thousand dollars.” It was a fair exchange, and who knew what business reasons a man like Margolies might have for suggesting something like that? Few turned him down. He did it with Paramount Gems and Palazzo D’Oro and with the family-owned shell, M & M Merchandising. He even did it with a man named Harry Ingber, owner of Carat Diamond Corporation and the brother of Joseph Ingber, the man Margolies had bilked in the aborted joint venture, Monarch Designs. One day in the fall of 1980, Margolies approached Harry Ingber and suggested that they swap checks for $22,000. Ingber agreed. Margolies endorsed the check and then sent it along to the Maguire lock box. What Ingber didn’t know was that Margolies had sent Maguire an invoice three months earlier declaring that he had sold and shipped $22,000 worth of jewelry to Carat Diamond. That, in fact, was true in the case of all the check-swapping episodes. And so Maguire got checks for its full amount on the accounts of firms that Margolies supposedly had sold jewelry to. With that, Maguire became convinced the sales were genuine and, in these cases at least, Candor was following instructions.
With Candor’s phenomenal growth, there always was the danger that the tax men might one day appear at the door and want a close look at the books to see what such a growing and profitable company owed the United States and New York State. Margaret Barbera took care of that. She kept multiple sets of books. One was an honest one and it showed that, despite the impression that was being given to Maguire, Candor was what Candor always had been. But then there were the books that would be shown to Maguire’s auditors and tax people, should they ask. Here Barbera carefully listed every sale assigned to Maguire, in one the bogus sales, in another the real ones, in a third lumped together. Other books detailed the costs to Candor for the purchase of materials to make its jewelry; again the costs for the real jewelry, the costs for the bogus jewelry, and then combined costs. And lo and behold, in the books that were available to Maguire, to Candor’s auditors, and to the government, the cost of raw materials matched the income from sales, and hence there were no profits.
But profits there were, for when it came to the fictitious sales there were no raw-material costs, for there was no merchandise. What arrived from Maguire, as advances against these fictions, was pure profit. And after paying something—about $3 mi
llion—back to Maguire as accounts became due, Irwin and Madeleine Margolies had, by early July 1981, nearly $5.5 million to do with as they would.
11
Irwin and Madeleine Margolies had suddenly become very rich, beginning in the late summer and early fall of 1980. And they began to live as they had always dreamed of living, as the millionaires they now were. Like many of the nouveau riche, they could not resist the temptation to flaunt their new-found wealth, and they threw cash in every direction.
They gave themselves substantial raises from the business, of course. In the past, their combined incomes from Candor had never reached even $30,000 a year. Now each was earning about $40,000 a year. But that was only the beginning. They tapped the Candor bank account for another $85,000 in cash, for personal expenses, and they had Candor pick up all their credit-card charges. In fact, they used the Candor accounts as if they were their own personal ones, Candor checks and Candor cash flowing out to pay for everything they wanted.
And there was almost no limit to what they wanted. They wanted cars. Candor bought them cars, three Porsches for more than $150,000, and that was only the start. Madeleine Margolies wanted a smaller car, so Candor bought her a Mercury Capri for $12,000. That was in addition to an Audi 5000 and a Pontiac Firebird Trans Am. Even that wasn’t enough. They needed limousines and cars for special occasions, so they rented them when the time was right and filed the charges, $3,500 all told, with Candor.
The CBS Murders Page 6