The Wizard of Lies: Bernie Madoff and the Death of Trust (5 page)

There is no indictment. There is no hard evidence of a fraud—just the say-so of Madoff’s two sons. A precipitous arrest could derail the investigation. But if the FBI delays making an arrest, Madoff might flee, perhaps taking whatever money is left. Finally, it is decided that the FBI agents will pay a visit and politely ask if Madoff has anything to say about his sons’ story.

Leaving two other agents in the car, Cacioppi and Kang show their badges to the doorman and take the elevator to the penthouse, as the startled doorman calls ahead.

Madoff had been about to get dressed for work in his spacious closet on the floor below the duplex penthouse’s entrance. Alerted by the doorman, he climbs upstairs and opens the apartment door, wearing a light blue bathrobe over his pajamas. The agents step into the apartment’s entry hall, with its glowing carriage lamp and towering grandfather clock. Ruth, jolted by the doorman’s call, throws on some jeans and a polo shirt and joins them in the foyer.

Madoff is surprised, but he tells them, “I know why you’re here.”

Cacioppi says, “We’re here to find out if there’s an innocent explanation.”

“There is no innocent explanation,” Madoff answers.

Cacioppi asks if there is somewhere they can sit down and talk. Madoff leads the two agents to his study, where he gathered his wife and sons less than twenty-four hours earlier. He takes a chair and invites the agents to sit on the leather sofa across from him. Agent Kang silently takes notes as Cacioppi poses questions and Madoff answers them.

Speaking without visible emotion, Madoff confirms what he told his brother and sons: He has been operating a Ponzi scheme, paying returns to investors with “money that wasn’t there”—in reality, money taken from other investors. He is broke, insolvent. He knows it cannot go on. He expects to go to jail.

In the absence of a formal indictment, Cacioppi is not sure he will be making an arrest this morning. He steps into a nearby bathroom and calls his office on his cell phone, explaining what has happened. He is directed to bring Madoff in “on probable cause.”

Madoff excuses himself to get dressed, choosing expensive gray slacks, a soft navy blazer, and a crisp navy-striped white shirt, open at the neck. He has been briefed by the agents on the wardrobe restrictions that go with being arrested: no belt, no shoelaces, no tie, no jewelry.

During this time—perhaps as Madoff is dressing, perhaps earlier—Ruth calls the office and asks Squillari if Mark or Andrew has arrived yet. They haven’t. Squillari hears Ruth say to someone else, probably Bernie, “They’re not there.”

When Madoff is dressed, the agents get ready to take him downtown. He tells Ruth to try to reach Ike Sorkin, shrugs into his dark gray twill raincoat, and is handcuffed. He and the two agents ride down in the elevator, walk quickly through the small dark lobby, and step out into the rainy morning. Madoff is tucked into the rear passenger seat of the waiting car. Kang gets in behind the driver, and the car pulls away.

Cacioppi heads toward Rockefeller Center to meet Madoff’s sons at their lawyer’s office so he can craft the affidavit he will file with the court to start the process rolling.

Peter Madoff arrives at the office unusually early. When Squillari first notices him, he is meeting with some strangers in a small conference room on the eighteenth floor. The receptionist says they identified themselves only as “lawyers.” Then a brusque man in a trench coat arrives to join them, flashing a badge—perhaps an FBI agent, joining a team already there from the SEC and FINRA, the financial industry’s self-regulatory agency.

Adding it all up, and throwing in Ruth’s early call asking about her sons, Squillari first thinks that someone has been kidnapped. Or maybe it’s an extortion plot. Madoff still hasn’t shown up.

Frank DiPascali and his longtime colleague Annette Bongiorno come up separately from the seventeenth floor, each asking Peter what’s going on. Peter tells them: Bernie has been arrested for securities fraud. Each leaves, subdued, with no further questions, according to Squillari. Others think they see DiPascali weeping with a group of employees outside Sonny Cohn’s office, throwing up in the men’s room, and sharing a comforting hug with a colleague. Unseen by them, DiPascali also tries to delete sensitive information from the computers on the seventeenth floor.

Madoff is driven downtown to the FBI offices at 26 Federal Plaza, the forty-two-story office building that forms the western edge of Foley Square, the hub of the judicial and law enforcement machinery in Manhattan. Unable to find a parking space, the driver takes Madoff and Kang to an employee entrance next to a small playground. They hurry through the busy lobby to the line of bulletproof doors protecting the FBI’s separate set of elevators.

When they reach the FBI offices on the twenty-third floor, Madoff is taken to Room 2325, a small windowless space about the size of a suburban walk-in closet. It contains a table, two chairs, and a telephone. Madoff sits down, and Kang removes the handcuff from one of his wrists and clicks it around the arm of the chair. Madoff is allowed to use the telephone on the table to call his lawyer. He dials Ike Sorkin’s cell phone number.

Ruth hasn’t yet been able to reach Sorkin because he went to Washington on business the previous day and is taking advantage of a free morning to take his granddaughter to her nursery school class in the Maryland suburbs.

When his cell phone rings, he checks it, sees an unfamiliar Manhattan number, and answers.

“Ike, this is Bernie Madoff.” He quickly explains that he is handcuffed to a chair in the FBI offices; he’s under arrest.

“Bernie, don’t say another thing,” Sorkin hastily advises him, whispering as the children around him follow the teacher’s lead and mimic the sounds of various farm animals. He hurries out of the classroom, noticing the fading battery on his phone. He tells Madoff to put Kang on the phone and then firmly tells the agent not to question his client further until one of his partners gets there. Then he calls his longtime secretary Maria Moragne and asks her to track down his partner Daniel J. Horwitz.

Dan Horwitz, a boyish-looking man in his forties with horn-rimmed glasses and a thatch of brown hair, is at a political breakfast at his father-in-law’s Midtown law firm. Before going to work with Sorkin, he was one of “Morgy’s boys,” the aggressive assistant district attorneys trained by the near-legendary Manhattan district attorney Robert Morgenthau. Like Sorkin, Horwitz knows the criminal processing routine inside and out.

Maria reaches Horwitz on his cell phone. One of Ike’s clients has been arrested, she tells him—the room is noisy and he doesn’t catch the name. He steps into the hall and asks her to repeat it: Bernie Madoff. Horwitz has met Madoff a few times at charity events. Maria tells him that Ike says to call Peter Madoff and get back to the office immediately.

En route across Manhattan, Horwitz tries unsuccessfully to call Sorkin, whose cell phone battery has finally given out. When Horwitz reaches the office, he immediately calls William F. Johnson, the formidable chief of the Securities and Commodities Fraud Task Force at the U.S. Attorney’s Office in Manhattan. The unit is one of the premier white-collar crime teams in the country, and one of the oldest—established in 1960, long before Justice Department officials elsewhere recognized the need for special fraud prosecution skills. Horwitz has known Bill Johnson for years, and his call is put through quickly.

It is a brief conversation—the prosecutors still have nothing to go on but Madoff’s own words, spoken either to them or to his sons. But whatever information Bill Johnson can share with Horwitz surely isn’t encouraging: his client has made a lot of statements to the FBI, and those statements are obviously very damaging.

Horwitz learns that Madoff is still at the FBI office downtown, where he is now on the twenty-sixth floor being photographed and fingerprinted. The FBI agents expect to walk Madoff across Foley Square to the federal courthouse for processing by the U.S. Marshals fairly soon.

Rapidly rearranging his day, Horwitz enlists his young and accomplished colleague Nicole De Bello, a stately blonde who has been part of Sorkin’s team for six years. They head downtown to the new federal courthouse at 500 Pearl Street, towering behind the classic hexagonal state courthouse on the east side of Foley Square. At the security screening, they hand in their cell phones—courthouse orders. The rest of the day, they will rely on pay phones to navigate between Sorkin, en route from Washington; their own offices uptown; Ruth Madoff, back at the apartment; and a car service.

They hurry to the Pretrial Services office on the fifth floor, where Madoff is waiting. They need to learn as much as they can about the case against Madoff and get him released on bail.

Madoff is sitting alone in a small, windowless conference room. He quietly reports what has happened, how he wound up in that room.

They quiz him as politely as they can. What is the evidence against you? What did you say to your sons? What have you told the government? The interview continues through the lunch hour. One of them finds a pay phone and calls Ruth, asking her to meet them at the Pretrial Services office and explaining how to find it.

Ruth Madoff is already dressed: jeans, a white blouse, and a blazer. She has been ready since Bernie was taken away, although the intervening hours have probably been a blur. As she leaves the apartment, she grabs a small red paisley scarf and pulls on a dark olive quilted coat. She heads out into the rain.

Meanwhile, the Madoff offices are in turmoil. Battalions of accountants and investigators from the FBI, the SEC, and FINRA have arrived in force—the SEC alone has sent in more than a dozen people—while squadrons of other government lawyers have headed off to court for permission to seize control of the Madoff brokerage firm and put it into receivership.

Still, there is a legitimate business going on all around them, a trading desk where shaken employees are fielding calls and taking orders from some of the largest firms on Wall Street. Trades have to be wrapped up, trading has to stop, clearinghouses must be informed, bank accounts must be frozen. The legal complexities of the next twenty-four hours are staggering, even in retrospect.

Who in this chaotic office is innocent? Who can tell? The employees all seem dazed and distressed. Peter Madoff and his daughter, Shana, also a lawyer at the firm, struggle with questions and offer simple directions: those files are here, the computers are there, Bernie’s investment advisory business was downstairs, on the seventeenth floor.

Another of Ike Sorkin’s young colleagues, Mauro Wolfe, has been assigned to help Peter Madoff with the regulatory crisis engulfing the firm. At around eleven o’clock that morning, Sorkin’s secretary alerts Wolfe that someone named Andrew Calamari from the SEC has called. Wolfe, a former SEC lawyer, knows him well and promptly calls him back. Calamari puts him on a speakerphone.

“We want to give you a heads-up,” Calamari says, his voice tense and hard. Madoff Securities is a billion-dollar trading firm. There is a serious fraud going on. The SEC is going to seek a court order to take control of the firm and freeze all trades and financial transactions. The SEC lawyers are trying to line up a judge to conduct a hearing immediately via conference call—will Wolfe be available to handle it?