The Madoff Chronicles: Inside the Secret World of Bernie and Ruth (14 page)

Other members of the Madoff family had their own problems to worry about as they faced the likelihood of financial ruin and the possibility of criminal prosecution.

As the chief compliance officer, Madoff’s brother, Peter, had attested to the firm’s legitimacy to the SEC for years. But his significant role in the business did not mean that he enjoyed the best of relationships with his older brother. The firm was in Bernie’s name; it was not Madoff Brothers Securities, and Bernie had never considered making his younger brother his full partner.

Family friends say Bernie could be cruel to Peter at times. Bernie and Peter and their families did not vacation together or even spend major Jewish holidays together. After the death of his son, Roger, in 2006, Peter became very religious and would go the Park Avenue Synagogue every morning before heading to the office. According to a family friend, Peter’s wife kept a kosher kitchen, while Bernie used to boast in Peter’s presence that his own favorite food was “pork sausage.”

Even so, Peter’s role in filling out the SEC documents and forms—regardless of whether he knew about the Ponzi scheme under way on the seventeenth floor—left him in the sights of the FBI and the SEC, as well as the teams of lawyers circling on behalf of cheated customers. “His brother was either involved or is going to have to proffer a defense that he was stupidest man in America,” said Brad Friedman of the Milberg firm, which represents Madoff victims.

Peter was a major beneficiary of his brother’s largesse. In December 2007 Bernie loaned him $9 million around the time Peter bought his daughter an expensive weekend home in the Hamptons. The loan was repayable to Bernie personally, even though the money came from the same account at JPMorgan Chase where investors’ funds were deposited. The bankruptcy trustee found no “records of any interest or principal ever being paid” to the firm on this loan. In 2008, Bernie used money from the investors’ account to buy Peter a $237,600 rare 1964 vintage Aston Martin. He had it delivered to Peter’s home in Palm Beach. “That was his baby,” recalled Eleanor Squillari. “He was in a terrible place after the death of his son, and this was helping him get out of it.” The car was later seized by trustees handling the bankruptcy of Madoff’s London office.

But Peter had much more to worry about than the loss of his gem of a sports car. His wife, Marion, and daughter, Shana, both had their own issues with the Madoff family business. The three of them each had one of the firm’s corporate platinum American Express cards, which they used for a variety of what appear to be personal charges. Peter used the card to fly his wife and himself to Tel Aviv and Milan in September 2008. Marion charged expensive meals at New York restaurants. Shana and her husband used the card to fly to Cancún, Mexico. Potentially more troubling was Marion’s no-show job at the Madoff firm. The yearly payment to her of $163,500 for no apparent work was seen by some investigators as part of a family conspiracy to defraud investors.

And of even more concern was the role Shana played as the firm’s compliance lawyer. She dealt directly with the SEC in filing a variety of regulatory statements required of financial firms. Investigators say large numbers of the SEC compliance documents filed by the Madoff firm over the years “contain outright misstatements of facts.”

Although Shana’s responsibilities as a compliance lawyer mainly involved the legitimate trading operation on the nineteenth floor, she was also involved in preparing Bernie’s 2007 investment adviser licensing application to the SEC, according to investigators and people with knowledge of the situation. The application was full of lies, and one of the counts Madoff pleaded guilty to involved the false statements on the form.

Asked on the application to provide the number of clients to whom Madoff provided investment advisory services, someone checked the box “eleven to twenty-five.” A truthful answer would have been more than 4,900.

Madoff signed the form, and even if his niece only included information she was told by others, investigators say she might still face SEC civil action or even criminal prosecution.

Michael Wolk, a lawyer for Shana and her husband, Eric Swanson, said, “It would be inappropriate for us to comment beyond reiterating that Ms. Swanson had no knowledge of Mr. Madoff’s wrongdoing.” She later told people that the first she knew about the scam was when her father told her Uncle Bernie had just been arrested on December 11.

Because she has two young children, Shana’s friends worry about who would take care of the little ones if she went to prison. “I’m scared for her,” said Eleanor. “She was a lawyer and she was an adult. Everybody who is going to be held accountable for what they did in this, they all have families. People made the wrong choices. They’re gonna be made examples out of. It is very unfortunate.”

Other than Bernie, of course, no one named Madoff received more attention and investigative scrutiny than Ruth. The bankruptcy trustee charged that she had lived a “life of splendor” with money “she knew, or should have known” belonged to her husband’s business and investors. The bank accounts scrutinized after Madoff’s arrest showed that in the last six years alone more than $44 million was transferred from the business directly into her accounts or to pay for her investments in other companies. “The Madoff Ponzi scheme massively enriched” Mrs. Madoff, the bankruptcy trustee charged, and filed court papers to recapture that amount. It was an effort to “make sure she had nothing left,” according to one investigator.

There continued to be great suspicion of how she could possibly “not have known” of her husband’s crime spree. She was by Bernie’s side from the very beginning when she kept the firm’s books.

People close to her say she was simply reconciling deposits and payments, without knowing the underlying scheme that was at the heart of the business that provided her with such a fine lifestyle.

Perhaps it was an exaggeration, but Ruth had boasted to old high school friends of her role in setting up the family business in the 1960s, and Bernie also spoke of Ruth’s business acumen. At an industry seminar, Madoff described the evolution of the firm’s computerized trading operation and Ruth’s help in making decisions on staff. “Actually it was my wife who said, ‘Why don’t you hire math people? Why don’t you go to MIT and hire math people, because everything you’re doing is related to algorithmic trading and they’re probably the best people,’” Madoff said. Based on that description, Ruth seemed to at least have a firm grasp on her husband’s legitimate trading floor.

Ruth also had a corporate platinum American Express card, which she used freely for her personal benefit. Investigators for the bankruptcy trustee found that she had charged more than $3.2 million for personal expenses since 2002.

She charged dinners, museum memberships, boat-docking fees, and charitable contributions. Lavish parties, private jet travel, expensive antiques, and an unlimited budget for clothing were all things she had become accustomed to. As long as Bernie’s decades-long crime spree had endured, her life had been one without any worry about money.

Beyond her role in keeping the books, investigators focused on Ruth’s actions in the months before her husband’s arrest. From accounts connected to her husband’s firm she twice made withdrawals, which together totaled $15.5 million. The last withdrawal, for $10 million, occurred on the morning Bernie set in motion his arrest with the “confession” to his sons. “I don’t think it’s unreasonable to surmise that it had to do with Madoff’s expected surrender,” said Massachusetts secretary of state William Galvin, whose investigators were the first to discover Ruth’s withdrawals and informed the FBI and SEC. “I think it raised sufficient questions for me that we referred this matter” to the FBI and the SEC, he said. A belief publicly unspoken by the investigators is that Ruth’s actions were an illegal effort to get money out and hide it before the firm collapsed. Even if she had been unaware of her husband’s Ponzi scheme over the years, investigators say the withdrawals and transfers create a serious legal problem for her now. “Whatever motivated her to claim these funds at the time she did,” said Galvin, her choice to do so “certainly makes it questionable as to what her motive was or what she might have known.”

Within days of Bernie’s arrest, every single member of the Madoff family who had worked at the family business had retained a personal top criminal defense lawyer. They would need them.

ON MARCH 12, MADOFF PLEADED GUILTY TO ELEVEN COUNTS
of fraud, money laundering, and perjury before U.S. District Court judge Denny Chin.

“For many years up until my arrest on December 11, 2008, I operated a Ponzi scheme,” began Madoff in front of the crowded New York courtroom. The room was full of journalists, federal agents, and his victims. Every seat was taken. There was another room on the first floor with a video feed playing on two large screens for the overflow crowd. Outside, dozens of cameras and satellite trucks were at full power. Madoff’s trip downtown from his penthouse apartment in the security company’s black SUV had been tracked by television station helicopters. Bernie Madoff was finally facing justice, with the sort of attention reserved for only the most celebrated American criminals.

From the beginning, there had been so much anger from Madoff’s cheated clients that his private security detail ordered him to wear a bulletproof vest when he left the apartment for his many court appearances.

“It wasn’t going to be the old couple that was going to come after Madoff, it was going to be the potential heir, the son of a victim who would come after him,” said Nick Casale, a former New York City police detective whose private investigative firm was hired to make sure Madoff met the terms of his court-approved house arrest and to make sure no one killed him before he went to court.

“You have people who are looking to make a name for themselves, and you have your normal emotionally disturbed person walking the streets of New York City,” explained Casale. “And there was some scuttlebutt about potential threats from South America and Eastern Europe.”

Madoff asked Casale, “Do you really think I need this?”

“Yes,” said Casale, helping the seventy-year-old man put on his vest. He saw no emotion in Madoff’s face.

Casale had spent hours in the Madoff penthouse apartment between the time Madoff was arrested and when he finally was sent to jail after pleading guilty. He gained a rare look inside the life that Bernie Madoff had lived after his arrest.

“He was somebody who had stepped back from his inner soul,” said Casale. “He was almost blank.” Before one court session, when it seemed entirely possible that the judge would order Madoff jailed instead of allowing him to head back to Ruth, he appeared completely indifferent.

“Do you want a moment to say good-bye to Ruth, a moment to be alone?” Casale asked him.

“No,” said Madoff, and then, Casale said, he “put on his coat, his jacket, and we left.” There were no good-bye hugs with Ruth, no tears, no emotion.

When the judge allowed him to go home that day, there was, similarly, no joy, no emotion. “The same face riding into court as returning back home,” said Casale, who said he had seen the same lack of emotion in serial killers.

“Not somebody who would commit a crime out of opportunity or passion.” It had all been carefully planned.

Even though he was in disgrace and faced spending the rest of his life in prison, Madoff did not appear to his guards to be a suicide risk and there was no effort to seal off the kitchen terrace on the twelfth floor of his luxury building on East 64th Street.

“I don’t believe that ever crossed his mind,” said Casale.

At one point, his sons Mark and Andy received an e-mail from their father that they thought sounded a lot like a suicide note. “Please take care of your mother after I am gone,” read the note, according to someone familiar with the event. Mark and Andy were not moved. They called their lawyers, who notified prosecutors that Bernie might be about to end it all. Madoff was amused at the fuss. He had just been preparing for his life in prison, he said. He had no plans and no reason to take his life.

“Antisocial personalities, because they are so narcissistic and self-centered, rarely kill themselves,” said former FBI agent and criminal profiler Brad Garrett. “It’s like ‘There’s nothing wrong with me, you’re the one that has a problem. The rest of the world has a problem, but not me.’”

In fact, Madoff’s security detail was more concerned about Ruth’s demeanor than Bernie’s. People around her after her husband’s arrest say she was stunned and not taking the news very well. She appeared to some to be drugged or drunk and extremely despondent. Antidepressant pills became part of her daily diet.

Life in the penthouse apartment during those three months between the December arrest and the March guilty plea was surprisingly banal, according to Casale, who was in and out of the apartment as part of his security duties. While he was there, he saw firsthand Madoff’s anal-retentive side. “Here I am with the fraudster of the century,” said Casale, “and he was acting like a housekeeper. He wanted to make sure everything was in place, prim and proper.”

When Casale’s men nicked the paint on the molding in his expansive closet, Madoff brought out the vacuum cleaner himself and tidied up. “Look, we’ll have somebody come up, one of the handymen and just touch it up,” offered Casale.

“No,” said Madoff, “I’ll take care of it.”

“It had to be his way, and, you know, he can do it better than they could,” recalled Casale. “People like that, who micromanage, it’s the minutiae, the little things in life that upset them. With the weight of the world on his shoulders, a little thing like that meant something to him.”

Otherwise, Casale said, Madoff seemed to accept his plight. Besides the fact that he wasn’t going to the office every day, Bernie and Ruth kept up a fairly normal routine as they perused the morning papers and talked about everything but the Ponzi scheme.

Downstairs, photographers and protestors were a daily presence. “We had people standing outside screaming at the apartment, carrying posters,” said Casale.

The Madoffs were barely moved. “They were united with each other,” said Casale. “They were together. It was almost like nothing outside the apartment was occurring. There was strength between the two of them, and there was love and compassion.”

Madoff asked Casale what to expect in prison. Casale described a harsh life, but Madoff seemed “indifferent.” He wasn’t even bothered that he would soon only have one orange jumpsuit to his name. “It’ll be like the time I spent at the Army Reserves at Fort Bragg,” he told his wife.

For the long-anticipated day of his guilty plea, Madoff wore his bulletproof vest over his usual dark suit, white shirt, and a black woven-knit tie. He might be going to prison, but he would do so looking like a French diplomat. Ruth did not accompany him to court, telling friends she was unable to bear the sight and that she feared being confronted by one of her husband’s victims.

“All rise,” said the bailiff as Judge Chin took the bench.

“Mr. Sorkin, your client is still prepared to plead guilty today as we discussed on Thursday?” the judge asked Madoff’s lawyer, Ike Sorkin.

“Yes, Your Honor.”

As Madoff stood, the judge asked him, “Mr. Madoff, do you understand that you are now under oath and that if you answer my questions falsely, your untrue answers may later be used against you in another prosecution for perjury or making false statements?”

“Yes, I do,” said Madoff, who, according to federal prosecutors, would proceed to lie to the judge. He had already been informed that federal sentencing guidelines called for him to serve 150 years, and the prospect of prosecution for perjury was an empty threat.

Madoff’s voice was dry, and the judge asked for some water for him.

The federal prosecutor, Marc Litt, read the indictment into the record. Having been conned earlier by Madoff’s false promise of full cooperation, Litt was eager to assert control. Madoff was not going to win this round.

“Mr. Madoff,” said the judge, “would you tell me what you did, please?”

“Your Honor,” began Madoff, reading word-for-word from the written statement crafted by his lawyers, “I am actually grateful for this first public opportunity to speak about my crimes, for which I am so deeply sorry and ashamed.

“As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal,” he continued. “When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come.”

Few of the many FBI agents, prosecutors, and investigators on the case believed a word Madoff said that day, “other than the word guilty,” claimed one investigator.

“I am painfully aware that I have deeply hurt many, many people,” Madoff continued, in a monotone voice, without apparent emotion, “including the members of my family, my closest friends, business associates, and the thousands of clients who gave me their money.”

“That’s what you’re supposed to say,” said former FBI agent Garrett. “You can’t walk in and say, ‘You know, I had a great time screwing these people and I’d really love to do it again,’ which is really probably what he’s thinking in his own mind, but you have to tell the court what you think they want to hear. What’s fascinating is that there really is no remorse. He said he hurt people, but it’s basically all about him.”

Madoff described his version of how the scheme worked, without referring to any family member or employee who might have helped him. He made a particular point in his statement of defending the part of the firm run by his brother and two sons as “legitimate, profitable, and successful in all respects.” Investigators say that, at the very least, money from the two sides of the business was commingled. Madoff was also well aware that he had made his brother and sons directors of the London office, which he used as a front for the illegal activity.

Madoff also made no mention of how he had used the hundreds of millions of dollars he had stolen to pay for the life of wealth and privilege he provided to Ruth, his brother, his sons, other family members, and employees who were part of his inner circle.

Then came a crucial detail. When did the scam begin?

“To the best of my recollection, my fraud began in the early 1990s,” said Madoff under oath. This was a statement that the government immediately contradicted when he was through.

“The government does not entirely agree with all of the defendant’s description of his conduct,” said prosecutor Litt. If there had been a trial, the government said it could have proved “the defendant operated a massive Ponzi scheme though his company, Bernard L. Madoff Investment Securities, beginning at least as early as the 1980s.”

Much rides on the determination of the start date of Madoff’s Ponzi scheme. By maintaining that it began in the early 1990s, Madoff and his lawyers are able to argue that properties bought prior to that date, including the New York apartment and the Montauk beach house, were bought with legitimately earned money. This assertion could also serve to help Madoff’s lawyer, Ike Sorkin, who in 1992 defended the four accountants who had been found by the SEC to have been illegally steering money to Madoff. Sorkin said he had no idea of the Ponzi scheme back then in 1992 and if the scam had not begun until after that SEC case, there could be absolutely no implication that Sorkin was aware of it at the time of the case.

Perhaps most astounding to the victims who had been invited to court to listen to Madoff’s guilty plea was his explanation for why he did it.

“While I never promised a specific rate of return to any client, I felt compelled to satisfy my clients’ expectations, at any cost,” Madoff said.

In Madoff’s version, it wasn’t his greed that led to a life of crime, but the greed of his clients. If only they hadn’t been so demanding. If only they hadn’t believed the recruiters and feeder funds who raised billions for Madoff by promising rates of return that Madoff was now trying to deny he had ever encouraged anyone to believe.

At heart, Madoff had about as much sympathy for the rest of his clients as he did for the French aristocrat banker who committed suicide. It was their fault, not his.

“That is a key component of antisocial personalities,” said former FBI agent Garrett. “‘I made those people a bunch of money, and they’re idiots anyway. They would have made crappy investments without me, me, the Big Bernie.’”

Several of his victims were in court and tried to approach him. One of them, George Nierenberg, demanded that Madoff look him in the eye. “He turned around and looked at me, but he didn’t look at the other victims,” said Nierenberg.

Another victim, Ronnie Sue Ambrosino, asked the judge to reject the plea. “I believe that you have the opportunity today to find out information as to where the money is and to find out who else may be involved in this crime. And if the plea is accepted without those two pieces of information, then I do object.”

Some of the agents and investigators in the courtroom quietly agreed. Madoff had refused to cooperate in government efforts to reconstruct his crime and track the money he was suspected of hiding overseas. Investigators believe there could be a billion dollars or more that Madoff had stashed in foreign bank accounts.

A third victim, Maureen Ebel, said a full criminal trial would show the world “that all crimes, all crimes, including crimes of greed, can be dissected, ruled upon, and punished.”

Judge Chin said the guilty plea accomplished the same purpose. He accepted Madoff’s plea and revoked his bail.

“Mr. Madoff has pled guilty; he is no longer entitled to the presumption of innocence. The exposure is great, 150 years in prison. In light of Mr. Madoff’s age, he has an incentive to flee, he has the means to flee, and thus he presents a risk of flight,” ruled the judge.

U.S. marshals moved forward to take Madoff to jail. Outside the courtroom he was put in handcuffs and walked through an underground tunnel that led from the federal courthouse to the Metropolitan Correctional Center, a federal prison that has housed some of the country’s most notorious criminals. Madoff was sent to cell block SHU, the special housing unit. Several other accused white-collar criminals were in the same section of the jail, but he was the king of them all.

Ike Sorkin called Ruth to tell her that Bernie would not be coming home this time. Or anytime soon. Ruth had known the odds were against him remaining free any longer, but Ike’s call was devastating. Her only comfort, she told family members, was that she was relieved to hear from Bernie’s lawyers that the prison “wasn’t as brutal” as she and Bernie had been initially warned.