Everyone knows where Bernard Madoff is this weekend. As snow falls on
Manhattan, the man behind what may turn out to be the financial crime of the
century is under house arrest in his splendid $7m (£4.7m) Upper East Side
apartment. Electronically tagged, his every movement is known to the
authorities. The rest of the Madoff affair is a widening mystery.
Just how did this pillar of Wall Street, Jewish society and philanthropy burn
– by his own reckoning and admission – $50 billion of investors’ money? And
as the shockwaves spread, hitting investors, banks and charities across the
world, anger is growing about how he got away with it for so long.
American regulators are now focusing their investigations on the 17th floor of
the curvaceous Lipstick Building on 53rd Street and Third Avenue. It was
here that Madoff ran his secretive money-management operations. Two floors
above was Madoff’s legitimate business, a broker dealer run by his two sons,
Mark and Andrew. The sons, who claim they had no knowledge of the alleged
scam, handed over their father to the authorities 10 days ago after he
confessed his business was “just one big lie”.
The calibre of the people taken in by that lie is testament to Madoff’s skill.
Among his victims are Hollywood players Jeffrey Katzenberg and Steven
Spielberg, banks including HSBC and Royal Bank of Scotland and Nicola
Horlick, the investment manager known as “Superwoman”. Even Eliot Spitzer,
scourge of Wall Street when he was New York’s attorney-general, is believed
to have been taken in. Experts fear the New York property market could be
hit by the fallout; many of its big players had relied on Madoff. Charities
have been closed. According to The Jerusalem Post, Jewish philanthropic
groups might have lost as much as $1.5 billion.
The scandal has also claimed another victim: American financial regulation.
The regulators’ failure to stop Madoff, despite warning signs, was “deeply
troubling”, said Christopher Cox, chairman of the Securities and Exchange
Commission (SEC). Credible and specific allegations regarding Madoff’s
financial wrongdoing had been brought to the attention of SEC staff as early
as 1999, he said, but had failed to rouse the watchdog into action.
President-elect Barack Obama takes up office in January and is promising
change. Announcing the appointment of Cox’s replacement, Mary Shapiro, last
week Obama said the regulators had been “asleep at the switch”. “I think the
American people right now are feeling frustrated that there is not a lot of
adult supervision out there,” he said. IN Palm Beach they are calling it
Hurricane Bernie. A magnet for millionaires, the tiny island off the coast
of Florida is accustomed to natural disaster. Hurricane season comes once a
year, but the financial catastrophe has battered its community on an
unprecedented scale. Outside Manhattan, Palm Beach was Madoff’s favoured
hunting ground, a place where the rich begged to invest with the wizard of
Wall Street whose golf handicap was as steady as his promised returns.
The regular flow of money was a boon to cash-rich pensioners. They invested
their capital and lived off the interest. Madoff’s funds became known as
“the Jewish bond”. Little did they know their savings were not being
invested but instead were paid out to keep up his fictitious returns and
lure in new victims. His technique was to appear exclusive. If Madoff took
your money it was a sign that you had made it socially. His trump card was
to use family ties to worm his way into the affections, and the bank
accounts, of his victims.
Perhaps nobody in Palm Beach knew Madoff as well as Carl Shapiro, 95, and his
wife Ruth, 91. Shapiro was the man who started Madoff’s career 40 years ago.
Now he is believed to be his biggest individual victim with $400m of his own
money and $145m from his charitable foundation in the Madoff funds.
When Shapiro, a clothing entrepreneur, first met Madoff the fraudster was just
22 years old. “A friend asked me to meet him, maybe throw him a little
business. I had plenty of irons in the fire, so I declined. But my friend
insisted,” said Shapiro.
Shapiro gave Madoff a cheque for $100,000 and “he did very well with it – that
was the beginning”. The pair became neighbours and remained friends for the
next 40 years as Madoff made millions, rose to chairman of the Nasdaq stock
exchange and become one of the most respected financiers of his generation.
The friendship ended this month when Shapiro’s son-in-law Robert Jaffe called
to tell him to turn on the television set. There was the man who had
recently sat at his family table to celebrate Shapiro’s 95th birthday. The
man on the short-list of guests to every family birthday, anniversary, bar
mitzvah, wedding and graduation. Now, he was being led from his New York
office in handcuffs, accused of conning the world to the tune of $50
billion. The revelation was “a knife in the heart”, said Shapiro.
Only last month the textile magnate had sent Madoff more millions to invest.
Ruth, Shapiro’s wife of 69 years, said: “He seemed a little anxious this
time. He kept calling saying ‘I didn’t get it; it hasn’t come yet, are you
sure you sent it?’”
The scandal has been hard on the Shapiros in more ways than one. Jaffe, who
insists he was unaware of any wrongdoing, was a business partner of Madoff’s
and many victims blame him for their bad fortune. According to one report
last week, he nearly got his “clock cleaned” by one at a party at
Mar-a-Lago, Donald Trump’s Palm Beach hotspot.
Ruth Shapiro said they were not the biggest victims. “I’ll never believe this
– what he did to people. Some are completely wiped out. They have nothing
left. Nothing.”
Not all were as wealthy as the Shapiros. Bette Greenfield, 71 and grandmother
of two, was counting on the income from a $400,000 trust set up with Madoff
by her late accountant father. Thanks to her Madoff investments, Greenfield
was receiving $2,000 every quarter to supplement social-security income of
$1,400 a month. “It seems I’ve just lost my retirement savings in the blink
of an eye, thanks to Bernie Madoff,” she said.
“We had always believed our family trust would be a lasting legacy from my
father that would be passed down to our children and grandchildren. We are
happy our father doesn’t know anything about this.”
Palm Beach town councillor Susan Markin, 55, met Madoff at a couple of
cocktail parties in the resort four years ago. “He was very highly regarded
and that’s why this whole thing is so shocking. Everybody liked him and
trusted him and he socialised with people and went to their family events.
It’s amazing how he could look people in the eye and have dinner with them
and all the while he was [allegedly] stealing their money. He has ruined
people’s lives.
“I don’t think there is a person who invested with Madoff who will trust
anyone again to invest their money.”
Joyce Greenberg, a philanthropist and retired financial adviser in Houston,
Texas, first heard of Madoff in the late 1960s. Her late father set up
college funds for his grandchildren with Madoff and Greenberg was made
custodian of the children’s account.
At the time, she believes, Madoff was running a legitimate business. A retired
stockbroker and a sophisticated investor, she said all the documents she
received from Madoff during the 1970s and 1980s were “absolutely the correct
documents for any legitimate, honourable brokerage account in the United
States. There was absolutely nothing to arouse any suspicion,” she said.
And Madoff delivered financially, too. He did so well with the college-fund
account that she and her husband flew to New York to talk about managing
some of their own money. She remembers a “very unimpressive man. He’s not a
show-off in any way, very low-key”. Nothing seemed suspicious.
After Greenberg’s husband died in 1995 she went back to work as a stockbroker.
Her new employer gave her permission to keep the Madoff account but asked
her to obtain a copy of every buy and sell confirmation and a monthly
statement. “Theywanted to be sure that what Bernie did didn’t conflict with
what they did,” said Greenberg.
Madoff was furious. He called and said she had to resign or he would close the
account – “he gave me one week”. She decided to keep the job. One week later
he wired back all her money. But the Greenbergs were not to escape Madoff’s
scam. Her daughter kept the account with Madoff that had been opened in 1971
and in 1999, when Greenberg retired, she called Madoff and asked him if he
would reopen the account. He said yes.
The first she heard of Madoff’s collapse was when her daughter called to say
Madoff had been arrested. Greenberg’s family, including her stepmother, two
stepbrothers, sister-in-law, and her daughter have lost millions, she said.
If she saw Madoff in the street Greenberg said: “I’d say, ‘Bernie, how could
you do this to people you knew personally and whose birthday parties you
went to?’ He was at my stepmother’s 95th birthday party five years ago. I
don’t know why he did it. Nobody knows. The big question is what he did with
the money. You asked if I would get any of the money back? Not unless they
find gold bars belonging to Bernie Madoff under Lake Geneva.”
INVESTIGATORS poring over Madoff’s books last week found thousands of clients
whose accounts were detailed in seven binders. The holdings of these clients
were with “clearing banks”, according to the documents. So far the SEC has
been unable to identify any such banks. It appears that Madoff had at least
two sets of books and there may possibly be no true record of where all the
money has gone.
“We are concerned that many, or possibly all, of these positions do not
exist,” the SEC wrote in an initial report.
So far Madoff has said he acted alone, a story financial experts find hard to
swallow. “Are you telling me that nobody at this firm had the slightest idea
what was going on? Money comes in, money goes out and nobody saw anything?”
said Jim Cox, law professor at Duke University.
He said he found it “highly unlikely” that one man could pull off a $50
billion fraud. “If we were talking about $100,000, yes, but $50 billion, no.
He’s a talented person but he doesn’t have the talent to do that,” said Cox.
Madoff’s family are all likely to come under scrutiny. This was very much a
family business. His wife Ruth entertained clients at their three luxury
homes and at the six golf clubs of which they were members.
New York investigators are also keen to find out exactly how much Madoff’s
sons knew. Mark, 44, and Andrew, 42, have worked at the firm since their
twenties. They have not been allowed to see or speak to their father since
they brought in the authorities after his confession. A lawyer for the
brothers has stated they had no knowledge of any alleged fraud before their
father’s shocking revelation at a family meeting. The sons refused to put up
bail.
Madoff’s brother Peter was the chief compliance officer. Shana Madoff, his
niece, was the firm’s compliance attorney. Embarrassingly for the
regulators, Shana is married to a former SEC officer, Eric Swanson. Swanson
was the agency’s assistant director in the office of compliance inspections
and examinations.
Before the authorities moved in, Madoff’s website had this to say about his
company: The owner’s name is on the door.
“In an era of faceless organisations owned by other equally faceless
organisations, Bernard L Madoff Investment Securities harks back to an
earlier era in the financial world: The owner’s name is on the door. Clients
know that Bernard Madoff has a personal interest in maintaining the
unblemished record of value, fair-dealing, and high ethical standards that
has always been the firm’s hall-mark.”
The statement has now gone – destroyed with the trust and fortunes that his
victims invested with the wizard of Wall St.
