When Bernie Madoff died in April, at 82, he was serving a 150-year sentence. His fraud topped $17.5bn. The investors who trusted him were many and varied. Many went bankrupt, many lost their homes, some were driven to suicide. At sentencing, judge Denny Chin called Madoff’s crimes “extraordinarily evil”. He was not mourned. One investor announced: “Death is too good for him.”
Madoff trafficked in carnage.
Mark Madoff, his oldest son, killed himself.
“Bernie,” he wrote, “now you know how you have destroyed the lives of your sons by your life of deceit.”
Andrew Madoff, the youngest son, died of cancer.
Mark’s suicide note concluded: “Fuck you.”
Now, Madoff Talks chronicles how the former head of the Nasdaq exchange pulled off his monumental crime.
Paperwork didn’t make sense. Returns were too good to be true. Bernard L Madoff Investment Securities (BLMIS) was a Ponzi scheme. But regulators ignored warnings. BLMIS produced 10% annually. If the stock market had not crashed in 2008, Madoff’s crimes would probably have gone undiscovered. His company went bust in 2001 but investors remained in the dark.
Time, however, catches up with most things.
This is also a New York story, a rise-and-fall drenched in ethnicity and class
In 2011, Eugene Soltes, a professor at Harvard Business School, conducted a series of brief interviews with Madoff. They later formed the core of a case study, a portion of which was released in audio. But Jim Campbell has a unique vantage point. A freelance finance reporter, he was Madoff’s pen pal for a decade.
Campbell’s first book is the product of hundreds of jailhouse emails and letters, interviews with Ruth Madoff, his widow, and those who worked with him. It promises to be the definitive Madoff biography.
Being near Madoff didn’t mean being close. He shared the truth as he saw it or as he wanted it remembered. Back in the day, Ruth Madoff was spending $57,000 a month. Right before things went belly up, she withdrew $10m from a brokerage account. Now, she needs approval from the Madoff Recovery Trust to shell out more than $100. Campbell concludes she was probably in the dark.
This is also a New York story, a rise-and-fall drenched in ethnicity and class. Madoff saw himself as a modern-day Shylock, persecuted more than prosecuted.
He attributed his plight to investor pressures generated by his “big four”: Stanley Chais, Norman Levy, Jeffry Picower and Carl Shapiro. Picower was a lawyer and accountant; Levy, chairman of a real estate company; Shapiro, a player in the textile industry; Chase, a manufacturer of children’s clothing.
They were drawn to Madoff by a tax avoidance strategy he deemed legal. It was downhill from there. Campbell traces the genesis of his scheme to 1992. Madoff felt compelled to deliver an ample return but grew to loathe Picower, the biggest player. His greed “knew no limits”, in Campbell’s telling.
Marc Mukasey, a lawyer for Frank DiPascali – a convicted Madoff lieutenant, now dead – makes clear Madoff picked people for his operation because of what they lacked. No degrees from Harvard and Wharton, relative lack of financial sophistication and lifestyles that grew dependent on Madoff.
Campbell echoes that assessment. Eleanor Squillari, Madoff’s secretary of 25 years, emerges a hero. Squillari was siloed away from Madoff’s crimes – despite sitting just feet away. After Madoff’s fall, she mounted a crusade to put things right.
“She made it her mission, to this day, to do whatever it took to help the victims and hold her revered former boss accountable,” Campbell writes.
Madoff Talks explains how “feeder funds”, ostensibly reputable hedge funds, served as conduits for money which went to BLMIS. Instead of conducting due diligence those funds turned “willfully blind”, according to Harry Markopolos, a forensic accountant and an early and ignored whistleblower.
Walter Noel’s Fairfield Greenwich Group was the largest domestic feeder. One former FGC banker, Charles Murphy, leaped to his death in 2017. He invested with Madoff.
Sonja Kohn’s Bank Medici, in Austria, was the largest international feeder. Squillari claims to have uncovered under-the-table payments to Kohn. Like Noel, she was never criminally charged.
In January 2009, Kohn denied wrongdoing and claimed to have been deceived. In 2017, the Dublin-based Thema International Fund, an investment conduit linked to Kohn’s Medici Bank, agreed to pay $687m to defrauded investors. Noel also said Madoff fooled him. Cumulatively, he and his funds have paid hundreds of millions in settlements and fines.
Squillari minces no words about J Ezra Merkin, his Gabriel Capital fund and its two Madoff-bound feeder funds, Ascot Fund Ltd and Ascot Partners.
“I hated him”, she says. “He was a big fat man with no personality … He screwed everybody because they trusted him.”
Blood can be thicker than water. In a New York Times op-ed, the writer Daphne Merkin, Ezra’s sister, attempted to shift blame: “What is lost amid the fury of some of those who handed their money over … is that theirs was a voluntary, nay, eager association.”
She added: “No one was holding a gun to anyone’s head, saying sign up with Mr Madoff or else.” For her, victims and casualties were not the same.
Related: Bernie Madoff obituary
In a final chapter titled Never Again, Campbell offers his prescription for avoiding another Madoff-like disaster. He recommends better due diligence and greater caution – which are both highly unlikely in the absence of legal sanctions or a transformation of human nature.
More practically, he calls for structural changes at the Securities and Exchange Commission, greater investor protection by the Securities Investor Protection Corporation, and criminalization of the wilful failure of feeder funds to conduct due diligence.
When carrots fail, sticks may work. One thing is certain, Madoff set a new bar and others will follow. A quick look at the Department of Justice website tells us fraud is never-ending. The past six months have seen cases against about as many Ponzi-schemes. A better mousetrap waits to be built. An even bigger payday waits to be secured.
Madoff Talks is published in the US by McGraw-Hill Education