The Madoff Chronicles

  Copyright © October 2015 American Broadcasting Companies, Inc.

  All rights reserved. Published by Kingswell, an imprint of Disney Book Group. No part of this book may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher.

  For information address Kingswell,

  1101 Flower Street, Glendale, California 91201.

  Editorial Director: Wendy Lefkon

  Executive Editor: Laura Hopper

  ISBN 978-1-4847-8140-1

  Contents

  Title Page

  Copyright

  Dedication

  Acknowledgments

  Author’s Note

  Chapter One: The Arrest

  Chapter Two: The Early Days

  Chapter Three: House Arrest

  Chapter Four: The Office

  Chapter Five: The Lifestyle

  Chapter Six: The SEC

  Chapter Seven: Eleanor

  Chapter Eight: The Men Who Should Have Known

  Chapter Nine: The Victims

  Chapter Ten: The Family

  Chapter Eleven: Guilty

  Chapter Twelve: Life

  The Guilty Parties

  Appendix A: Bernie Madoff’s “Little Black Book”

  Appendix B: SEC Opening Investigation Document

  Appendix C: SEC Closing Investigation Document

  Appendix D: Madoff 2007 IRS Tax Return

  Notes

  About the Author

  For Lucinda and Colin

  ACKNOWLEDGMENTS

  Anyone who works in television news knows what a collaborative enterprise it is. The same is true of this book, my first.

  I will be forever indebted to Ellen Archer, Will Balliett, Katherine Tasheff, Brendan Duffy, and Kristin Kiser of Hyperion for asking me to take on this project and its exciting electronic versions, which combine the printed word with the power of the visual. They treated this rookie with great kindness. Thanks also to David Lott, Shubhani Sarkar, and Vincent Stanley at Hyperion as well as Laura Hopper at Kingswell.

  Ben Sherwood, James Goldston, David Westin, Kate O’Brian, and Kerry Smith, my bosses at ABC News, encouraged me throughout the process to expand the reach of our investigative unit and find new outlets for all we learned about the secret world of Bernie and Ruth. As always, I relied on the excellent advice and guidance of John Zucker and Betsy Schorr of ABC News, and my longtime friend Marty Lobel, even though they are lawyers.

  My partner in digging through all of the court documents, tracking down witnesses, and confirming every last detail was the exceptionally diligent and talented Kate McCarthy of ABC News. No detail was too insignificant and no challenge too great as we learned together the joy of being able to write more than a minute-and-a-half report for ABC World News with Charles Gibson.

  Since the night of Madoff’s arrest, Richard Esposito helped ABC News “own” the story in his then-role as the network’s senior investigative reporter. His connections and sources are without equal, and I will never forget how he gave up his seat in the jury box at Madoff’s sentencing so I could get a close look at the man who had ruined so many lives yet still seemed more concerned about his wrinkled suit and unruly shirt collars.

  Everyone at the ABC News investigative unit played an important role in our reporting on the Madoff scandal. Asa Eslocker, Joanna Jennings, Vic Walter, Nicholas Brennan, Yuliya Talanova, and Len Tepper spent many long days at work without complaint recording on video the life and times of Bernie and Ruth and their family and cohorts. Joel Stonington and Linsay Rousseau Burnett gladly accepted stakeout duty. Joe Rhee, Megan Chuchmach, Rehab el-Buri, Justin Rood, Ben Buchanan, and Maddy Sauer produced the broadcast and ABCNews.com reports that served as the basis for this book.

  Avni Patel and Angela Hill worked tirelessly to learn the stories of dozens of Madoff’s victims and yet treat each one with the individual respect that was due them.

  Anna Schechter’s reporting from Palm Beach, Florida, provided extraordinary texture for the account of how Madoff so cavalierly swindled his fellow golfing partners and country club members. The Madoff inner circle was not happy to see her in town, but even after one of them smashed her camera, Anna kept digging.

  Most important to me in reporting and writing this book is my longtime producer and friend Rhonda Schwartz, who now runs the ABC News investigative unit. Her tireless efforts and investigative coups are legendary in the television news business. Every chapter in this book is better because of her reporting. She rarely gets all the public credit she deserves for the award-winning investigative reports we have produced together for ABC News and NBC News, so it is a great pleasure to be able to thank her in print for so many years of partnership and excellence.

  Finally, I need to express my great admiration and appreciation for the many people who spoke to me and my colleagues at ABC News about Bernie Madoff. Former FBI agent Brad Garrett provided invaluable insight into the workings of the criminal mind. Many of the sources of this book cannot be thanked by name because of the sensitivity of their positions.

  Others took the risk, even when they were advised it was not in their best interest to talk with me. Madoff’s former secretary Eleanor Squillari, his former messenger “Little Rick,” and his onetime security guard and confidant Nick Casale each provided a rare insight into the secret world of Bernie and Ruth and the largest financial crime in Wall Street history.

  AUTHOR’S NOTE

  The effects of Bernard Madoff’s fraud were felt by thousands of people, and the news of his scheme’s collapse was witnessed by many millions more. Thoroughly investigating such an epic crime is a challenge, and my team and I were tireless in interviewing investigators, victims, and many others. Countless hours were spent poring over court transcripts, video interviews, and SEC documents.

  Authenticity is important to me, and I quoted directly from the original sources wherever possible. Some of this raw material is rough around the edges. In real life—unlike in the movies—villains aren’t always articulate, victims aren’t always able to muster eloquence in a moment of passion, and lawyers don’t always get their tenses right. But this is an inside look into the world of the Madoffs—“you knows,” “likes,” and expletives included. The quotations included here might be ungrammatical in places, but they’re true.

  CHAPTER

  ONE

  The Arrest

  “IKE, IT’S BERNIE.”

  The voice on the phone betrayed Bernard Madoff’s Queens upbringing but sounded surprisingly young for a seventy-year-old man. And surprisingly calm, given the circumstances.

  “I’m in the FBI office and I’m handcuffed to a chair,” Madoff told his lawyer as he broke the news of his arrest for what would soon emerge as the biggest fraud scheme in Wall Street history.

  Ira Lee Sorkin, a white-haired, veteran New York trial lawyer known as Ike, was visiting his granddaughter’s nursery school in suburban Washington, D.C., when his cell phone rang. It was the afternoon of December 11, 2008.

  A former prosecutor in the United States Attorney’s Office in Manhattan and onetime head of the New York office of the Securities and Exchange Commission, (SEC), Sorkin was one of the city’s premier criminal defense lawyers. He was as aggressive as they come and not easily caught off guard, but Madoff’s call stunned him.

  Madoff had called Sorkin ten days earlier and asked to meet with him about a “problem.” According to Sorkin, they had been scheduled to meet on Wednesday, December 10, but Madoff canceled the meeting, pushing it back to December 15.

  Instead of a day of legal strategy with his defense lawyer, Madoff had d
ecided to set in motion a plan that would involve him confessing to his two sons, Mark and Andrew, and then letting them “do the right thing” and turn him in to the FBI.

  He had asked his sons to give him a week to prepare, but events had moved much more quickly than he had planned. Two agents arrived at his Manhattan penthouse apartment at 133 E. 64th Street just before 8:30 a.m.—only twelve hours or so after his sons gave statements to federal prosecutors. Madoff, a meticulous, elegant dresser, was still in his pajamas, bathrobe, and slippers when special agents Ted Cacioppi and B. J. Kang of the FBI stepped off the elevator into apartment 12-A. They sat in his decorator-designed living room, and Cacioppi asked him if there was “an innocent explanation” for what his sons had described.

  “No,” said Madoff, who then calmly described what he called a “fifty-billion-dollar fraud” that he said he had carried out by himself, with no help from anyone else. The agents told Madoff to get dressed, put him in handcuffs, and took him downtown to FBI headquarters at 26 Federal Plaza, where he was allowed to call his lawyer.

  “Bernie, don’t say another thing,” Sorkin whispered to Madoff on the cell phone, trying not to disrupt the three-year-olds in the nursery school class, and unaware that his client, with no lawyer present, had already made a lengthy—if only partially truthful—confession to the FBI. From Sorkin’s point of view, this was a legal disaster. He would never have advised Madoff to turn himself in and offer up a confession.

  “If you have a client who robbed a bank, and there are video surveillance cameras and nine eyewitnesses, it might be a good idea to have your client turn himself in,” Sorkin said. That was not the case with Madoff.

  His monumental stock fraud had been carried out in great secrecy. Among the thousands of Madoff’s victims were prominent New York financial figures, a number of Hollywood celebrities, some of the country’s leading Jewish charities, and thousands of elderly retirees who had put their life savings in Madoff’s hands because of his seemingly long and perfect track record of success. In some circles, he was called the “Jewish Warren Buffett.”

  It would turn out to be the biggest financial crime in the history of Wall Street, far eclipsing the 1980s insider trading scandals involving junk bond financiers Michael Milken and Ivan Boesky. They were small-time operators compared to Madoff.

  At the time of his arrest, Madoff’s thousands of investors believed they had a total of $64.8 billion in accounts with him, even more than he had estimated to his lawyers and the FBI. The clients received monthly statements showing a series of trades in blue-chip stocks, and a reliable 12- to 20-percent rate of return, year after year, even in rough markets when everyone else was losing money.

  It was all a lie. There were no trades. There were no double-digit returns. The money that came in from new clients was used to pay the existing clients their fabulous profits. It was a classic Ponzi scheme that would have made its namesake, Charles Ponzi, proud.

  Ponzi was an Italian immigrant who became a multimillionaire in Boston running a scheme from 1919 to 1920 that took about $15 million (about $160 million in today’s value) from some forty thousand investors. Like Madoff, Ponzi promised impossibly high rates of return and had potential clients begging to invest. The scheme worked only as long as new money kept coming in so he could pay existing customers what he promised.

  Ponzi’s scheme collapsed in less than a year. Madoff’s scheme ran for decades, fooling both government regulators and financial experts.

  Until December 10, 2008, Madoff’s fraud was still unknown to both the victims and the government, and given those circumstances, Sorkin could have had an advantage in fashioning a defense. He could have controlled when and how to come forward to the FBI and Department of Justice prosecutors and reveal what had happened. He might have been able to come up with an explanation for the missing billions that would have minimized Madoff’s exposure to criminal prosecution.

  “Maybe you say it was the bad market, maybe you say he lost his marbles,” said one of the people briefed on the case. “Maybe you blame the evil government. You still need twelve people to vote to convict, and you really only need to persuade one to hold out. Maybe it takes a year or two, and then if you lose, you appeal, and the judge lets you stay in the apartment. That’s three or four more years not in prison—that’s a lot for someone his age.”

  But Madoff’s arrest and confession scuttled any hope for that plan. He had his own plan.

  “I’m running out of batteries. I’m going to call Dan. Don’t say a word,” Sorkin ordered Madoff as the lawyer used his remaining battery power in his cell phone to call his partner, Dan Horwitz, to get him down to the FBI office to stop his client from saying anything more.

  As he turned back to his granddaughter’s classroom, where the teacher was asking the students about the sounds made by barnyard animals, Sorkin was left to wonder why Madoff had turned himself in well before he had to, and without his lawyer’s knowledge or presence.

  Whatever it was that Sorkin might have been able to devise as a legal strategy, Madoff’s last-minute decision set in motion a plan designed to protect the inner circle of those who were complicit in the scheme and, more important, shield his sons, his brother, and his wife, Ruth, from any suspicion. By claiming he “acted alone,” Madoff saw himself as doing the “honorable thing” and taking all the blame.

  Others familiar with the case suspected Madoff had made this dramatic move for a darker reason. They speculated that Madoff feared some of his more unsavory clients from Bogotá and Moscow would be very unhappy to learn their money had disappeared and would not hesitate to express their displeasure. Sonja Kohn, a Vienna-based operative for Madoff who had brought in a number of wealthy European investors, was said by investigators to have gone into hiding “from very angry bears.” Being under arrest by the FBI was certainly better than being targeted by the Russian mob.

  Whatever his motives, people who were around Madoff in those few days after the arrest say he seemed quite pleased with himself. Even in the face of what would have been a devastating series of events for anyone, Madoff maintained the cool, aloof demeanor for which he was well known. He was still on his game.

  “The con artist is always going to go for the very last con because that is the nature of their antisocial personality,” said former FBI agent and veteran crime profiler Brad Garrett, now an ABC News consultant. Garrett, who profiled and cracked the cases of some of the country’s most elusive criminals during his career at the FBI, said Madoff is a classic case of the antisocial personality, someone completely self-absorbed, with no conscience. “‘What’s in it for me?’ they will ask. ‘Is it in my interest to tell you the truth, or to tell you enough of the truth to get you off my back?’”

  By confessing to such a grand scheme, Madoff had caught the FBI and prosecutors completely off guard.

  “Antisocial personalities are control freaks,” explained Garrett. “And in his mind, getting in front of the FBI was the best thing for him. I think he believed, ‘If I admit the shell of what we’ve been doing and I take all the blame, A, I won’t get a superlong sentence and B, no one else will be charged.’”

  Within days, Madoff came to believe his plan was working. Prosecutors, desperate for his help in unraveling the enormous scheme, had gone along with Sorkin’s request that Madoff not be locked up. They even made concessions when Madoff had trouble meeting the conditions of the $10 million bail imposed by a federal magistrate.

  Madoff and his wife, Ruth, easily met the financial conditions by posting their $7.5 million New York apartment and additional cash as collateral for the bond. The judge, however, had also required four “financially responsible persons” to cosign for Madoff. He could find only two: his wife and his brother, Peter. So the government compromised and allowed Madoff to stay free with only two cosigners as long as he stayed in the apartment, obeyed a 7 p.m. to 9 a.m. curfew, wore an electronic monitoring device on his ankle, and arranged for Ruth to surrender her passpor
t. He had already surrendered his.

  Many of Madoff’s former customers, his victims, were outraged. They were facing bankruptcy and foreclosure on their homes because of his crime, and he was allowed to await trial in one of the city’s finest apartment buildings, whose other residents included Matt Lauer, the cohost of the NBC News Today program.

  After decades of conning investors and SEC regulators, Madoff thought he had successfully conned federal prosecutors. He believed he could “sell” his version of events and manipulate the agents and prosecutors, who would need months to figure out what Madoff had been doing. He thought “he would be out of prison in time to watch the grandchildren grow up,” according to one person who heard what he said after his arrest.

  After all, Michael Milken had served only twenty-two months in prison for what, until December 11, had been considered one of the biggest Wall Street criminal schemes. Madoff seemed certain that “there will be a life after this.”

  Prosecutors later admitted to associates that they had been conned by Madoff. “We lost round one, but we don’t plan to lose any others,” one of the prosecutors said.

  As smug as Madoff might have been about his ability to deceive the FBI, having his sons turn him in was hardly his ideal scenario. Indeed, his decision to orchestrate his arrest came after a whirlwind three weeks during which he finally concluded that his life of privilege and wealth could not be saved.

  As the world’s financial system began to collapse in the fall of 2008, with Lehman Brothers and other long-established firms facing disaster, Madoff recognized that the same tsunami would be heading toward him.

  His Ponzi scheme had survived previous economic downturns because, in general, his investors, his “marks,” were convinced that Madoff represented a safe haven. Like most legitimate hedge funds, he put no restrictions on the ability of investors to withdraw their money at the end of each year. But given the steady 12- to 20-percent returns Madoff had been able to achieve with what were known as his “don’t ask” trading strategies, few investors wanted to pull their money out of their accounts with him.