Madoff with the Money (5 page)

Then came an overwhelming shocker. With as much as an estimated $65 billion missing, shell-shocked Madoff investors who now had no idea what had been done with their money learned that the stocks and Treasury bills listed in such detail on their account statements had never actually been traded—and Bernie's incredible deception had been going on for at least 13 years. The bombshell was dropped in late February 2009 by Irving Picard. The
New York Times
observed that the revelation “demolishes the theory that Mr. Madoff was an honest man driven into fraud by the relentless market strain of recent years.”

Speculation that there would be a federal grand jury investigation, more admissions of guilt, the naming of co-conspirators, and especially a plea bargain deal in exchange for naming names ended on March 12, 2009, just three months after Bernie's arrest, when he pleaded guilty in open court to a cornucopia of felony charges—securities fraud, investment adviser fraud, mail fraud, wire fraud, money laundering, international money laundering to promote specified unlawful activity, international money laundering to conceal and disguise the proceeds of specified unlawful activity, making false statements, perjury, making a false filing with the SEC, and theft from an employee benefit plan.

Wearing a $7,000 custom-tailored Savile Row suit—under which was a bulletproof vest to protect him from furious investors—Bernie pleaded guilty to the biggest swindle in history. As he stood before Manhattan Federal Judge Denny Chin, he stated in a low voice:

He further admitted that he “never invested” the money entrusted to him by thousands of investors. “Instead, those funds were deposited in a bank account at Chase Manhattan Bank. When clients wished to receive the profits they believed they had earned with me or to redeem their principal, I used the money in the Chase Manhattan bank account that belonged to them or other clients.”

He said he believed his classic, but monstrous, Ponzi operation “would end shortly, and I would be able to extricate myself and my clients from the scheme. However, this proved impossible, and as the years went by I realized that my arrest and this day would inevitably come.”

But perhaps the most shocking statement of all was his claim that he had acted alone, that he had pulled one of the biggest frauds of all time just by himself.

The judge immediately ordered that Bernie be locked in the Metropolitan Correctional Center near the courthouse to await formal sentencing. Rather than his spectacular penthouse, he would now live in an eight-by-eight-foot maximum security cell, as Prisoner No. 61727-054.

All told, he faced a maximum sentence of a century and a half in prison—at the age of 70.

Bernie Madoff, who used to boast that he was “the most powerful man on Wall Street,” was destined to die behind bars.

Outside the courthouse, victims of his scheme cheered as he was driven off to his new home under tight security.

“Bernie Madoff in Slammer at Last,” screamed a headline in the
New York Daily News.

His first full day in jail was Friday the 13th of March.

In a lead editorial that day, the
Wall Street Journal
observed: “In a world that seems able to argue about any subject, the Madoff saga isn't open to argument. . . . The condemnation raining upon his head is universal.”

Still, with Bernie's guilty plea on record and the swindler behind bars, there were more questions than there were answers.

Nobel Peace Prize laureate Elie Wiesel, who had escaped Hitler's death camps only to be victimized again, and by a fellow Jew no less, to the tune of $15.2 million from his Elie Wiesel Foundation for Humanity, plus the entire life savings of Weisel and his wife Marion, thought he had an answer. He publicly termed Bernie a “psychopath,” adding, “It's too nice a term for him. . . . ‘Sociopath,' ‘psychopath,' it means there is a sickness, a pathology,” observed Wiesel. “This man knew what he was doing. I would simply call him thief, scoundrel, criminal.”

But the scorn leveled upon Bernie by a man of peace like Wiesel and thousands of others publicly and privately didn't answer the bigger questions:

How did Bernie Madoff become one of history's biggest, most brazen thieves, a financial titan who led a twisted, bizarre double life like some financial Dr. Jekyll and Mr. Hyde?

Where did he learn his values and ethics, or lack thereof, that fueled his twisted psyche?

Who aided and abetted him along the way?

Why did people trust him?

What made Bernie Madoff tick?

Here, now, is the true story of the Ponzi King, his rise and fall, from those who knew him best, or thought they did.

Bernie Madoff was a born operator who always seemed to know his way around the system—even when he was a young punk growing up in Queens.

In English class during his sophomore year at Far Rockaway High School, Bernie and his classmates were assigned to read a book and deliver an oral report. Bernie wasn't much of a student, and cared little about academics. Reading wasn't especially high on his list of things to do.

“Prior to the presentations,” recalls classmate Jay Portnoy, “Bernie looked at my book. He just opened it up and said, ‘Oh, yours looks boring.' I asked him why and he said, ‘It doesn't have any pictures.'”

Bernie essentially ignored the reading assignment, and even let a couple of his pals, like Portnoy and Bernie's best friend, popular and good-looking Elliott Olin, in on the fact that he wasn't going to spend his spare time reading. He felt it was easier to just fake his way through class. Beyond that, he wasn't considered by his pals to be the brightest light in the academic firmament.

“Bernie didn't take the assignment, or school, that seriously,” asserts Portnoy.

Even then Bernie was too busy thinking of ways to make money—an endeavor impressed upon him at home by his parents, Ralph and Sylvia.

“Money,” maintains a longtime family friend, “was the Madoffs' aphrodisiac.”

So Bernie figured he'd just deal spontaneously with the book report when the time came.

And it did, quite suddenly.

Bernie was one of the first in the class to be called upon by the teacher. Unshaken—and thoroughly unprepared—he strode confidently to the front of the room and successfully winged it.

“He gets up there and, looking quite serious, says, ‘The book I'm reporting on is called
Hunting and Fishing
by Peter Gunn,'” remembers Portnoy. “And Elliott was in the second or third row and blurted out, ‘Peter Gunn!?' followed by some stifled giggles.”

Peter Gunn was the name of a suave, sophisticated TV detective.

“Our first inclination was to laugh, and then we realized we didn't want to throw the guy in,” continues Portnoy. “If Bernie could carry it off, all the more power to him. We all kept quiet because we didn't want to blow his cover. No one wanted to see Bernie fry. For about 10 or 15 minutes Bernie just went through this whole story about
Hunting and Fishing
and pretty much was making the stuff up as he went along.

“He stretched it out smoothly and talked about a subject very few of us knew anything about, being from Queens. He acted as if he knew about hunting and fishing, which I'm sure the teacher knew nothing about. When Bernie was finished, she asked to see the book. Bernie said he didn't have it. He told her, ‘I had to return it to the library.'We all had to stifle a laugh.”

In hindsight, Portnoy thought it was possible that the teacher “saw through” Bernie's deception because she was only a decade older than her students “and pretty sharp. But, nobody could really get mad at Bernie. His put-on persona carried him through.”

Describing the incident more than a half-century later—and after Bernie was in the headlines—Portnoy believed the book report affair, and other similar incidents that he witnessed during their school days, said much about his one-time chum who became the despised and infamous fraudster.

Bernard Lawrence Madoff was born in Brooklyn, New York, on April 29, 1938, just as the Great Depression that had ravaged the country was ending and as the flames of war were being fanned by Hitler in Europe. Bernie, as he would always be called, was the middle child of Ralph Z. and Sylvia “Susie” Muntner Madoff. Sondra, nicknamed “Sonnie,” was the first of Ralph and Sylvia's brood, born in 1934, and Peter, considered the brightest of the three, was the last to arrive in 1945.

Bernie's family roots go back to Eastern Europe—Poland, Romania, and Austria. They came to the United States in the early twentieth century, part of the great wave of immigration of Jews from the ghettos and shtetls who landed on Ellis Island—the tired, poor, huddled masses seeking a new kind of life in America. Bernie wasn't introspective and not one to say much about where he came from. However, he once acknowledged that his grandparents, with whom he claimed he had lived for a time as a child, had settled in a “poor and run-down” Lower East Side neighborhood. The master mythmaker also asserted in a magazine article, whether true or not, that “I fought my way out of there. I had to scrape and battle and work really hard.”

His younger brother, Peter, who was a trustee of the Lower East Side Tenement Museum, which promotes the experience of immigrant life, was quoted on its web site as saying, “My grandparents ran a Turkish bath in the area that served as a focal point for many new immigrants of different nationalities.”

In the early 1940s, the Madoffs moved from a cramped tenement apartment to a modest three-bedroom, one-and-a-half-bath, brick colonial-style home on a postage-stamp-sized plot of grass that was typical of the houses in the quiet, tree-lined, close-knit, predominately Jewish and Italian, middle-class community of Laurelton, Queens. Laurelton was a neighborhood where kids could bicycle and play stickball in the streets, and where their parents didn't have to lock the doors at night.

Compared to the other couples who had settled in Laurelton around the same time, Ralph and Sylvia were older and more mysterious, or so they seemed to Bernie's childhood friends.

Bernie's father, Ralph, told some people he was a plumber, and he certainly fit the stereotype. He was a tough sort of guy, who reminded those who knew him of another Ralph—Ralph Kramden, the blustery New York bus driver played by Jackie Gleason on the popular golden age of television sitcom,
The Honeymooners
. Like the Kramdens' dreary Brooklyn apartment, the Madoff home in Laurelton was poorly furnished and depressing. And like Kramden, the bus driver, Madoff, the plumber, was always looking for a big score—a scheme that would make him lots of money.

“Ralph Madoff was not all sweetness and light. You got the feeling you didn't want to cross him,” asserts Joe Kavanau, who became part of Bernie's life during their late teens when Kavanau and his girlfriend and future wife, Jane Silverstein, began double-dating with Bernie and his future wife and Jane's close friend, Ruthie Alpern.

Continues Kavanau:

Kavanau, who then lived a few miles from Laurelton in Jamaica, Queens, and whose family was in the real estate business, says Bernie back then was far different from his father in looks and demeanor.

“Bernie was just the opposite of Ralph,” Kavanau points out.“Bernie was pretty smooth, and he was much nicer looking than his father.” When Joe married Jane in December 1960 at the Laurelton Jewish Center, Bernie was given the honor of being best man. Photos of him famously—or infamously—grace the Kavanaus' wedding album.

Jay Portnoy also saw Ralph Madoff as a tough guy. For a time, Bernie's father aggressively coached an unofficial football team formed by Bernie and his friends in the fall and winter of 1955-1956, their senior year at Far Rockaway High. The team was called the Long Island Spartans—with Bernie playing defensive end and quarterback. The playing field, located near the Aqueduct Racetrack, was on the grassy strip between the heavily traveled and polluted Belt Parkway and Conduit Boulevard.