The Madoff Chronicles Read online

  Madoff and Ruth, and Peter and his wife, Marion, attended and, according to employees present, gave no indication that in twelve hours everyone’s life would be changed, and not for the better.

  Ruth sat down next to one employee and asked what he was going to do for the holidays. “We’re going to Florida,” Ruth told the employee.

  The only thing that seemed strange to some employees was the absence of Madoff’s two sons. They did not attend the party. They were busy meeting with lawyers, prosecutors, and the FBI, arranging for their father’s arrest the next morning.

  CHAPTER

  TWO

  The Early Days

  EVEN AS HER HUSBAND SAT in jail in disgrace while he awaited his sentence, Ruth Madoff remained loyal to the man who had swept her away on a New York City beach more than fifty years earlier.

  She told one family member that there never had been and never would be another man in her life.

  Their love story continued as she dutifully visited Bernie on Mondays at a federal prison, enduring the social humiliation of her weekly visits and braving the endless barrage of questions from reporters seeking to find out what she knew about her husband’s systematically cheating investors out of an estimated $65 billion.

  “I’m not talking to you,” she indignantly told one reporter from ABC News as she tried to flag a cab outside the Metropolitan Correctional Center in Lower Manhattan after a visit. She could no longer afford the sleek black sedans and drivers that once took her wherever she ordered.

  Like Bonnie and Clyde, Bernie stole for a living and Ruth had enjoyed the ride. Historians are still divided on what role Bonnie Parker played in Clyde Barrow’s Depression-era bank robberies across the Midwest, but there was no doubt she loved him deeply.

  Like Bonnie, Ruth followed her man no matter where he went. And it had been a long and wondrous ride. The Madoffs enjoyed the kind of luxury and privilege that had been unimaginable to them as they grew up in a middle class, mostly Jewish neighborhood in Queens—the children of parents with their own shady connections.

  The two met as teenagers. Ruth remembers Bernie as handsome and suntanned, sitting in the lifeguard chair in his swimsuit at the Rockaway Beach where, according to the New York Department of Parks & Recreation, he worked three summers as a lifeguard.

  He was three years older than Ruth.

  At five foot one, Ruth was “a beautiful little blond girl,” said former classmate Diana Goldberg. Friends remember Ruth as vivacious and affable. Another classmate, Richard Cohen, a Washington Post columnist, recalled her as “really cute, an object of desire across a classroom or another.” Bernie was almost six feet tall and had a wiry, athletic physique. As a member of the high school swim team, the Mermen, he swam the butterfly or breaststroke on the medley team. According to his senior yearbook, Bernie was also one of the athletes who served as a locker room guard. The locker guards saw themselves as “tough guys” who would “play chicken” by slamming their fists into each other until one gave up because of the pain. Bernie told friends he thought it was a “dumb” game but endured the bruised knuckles because he could not let the “idiots” think he was chicken.

  Life for two teenagers in love in Laurelton, the section of Queens where they lived, resembled something out of Happy Days. After the movies on Friday nights at a theater known as “the Itch,” the Laurelton crowd would head to Raab’s ice-cream parlor to gossip and flirt. Once they got their driver’s licenses, Bernie and his friends would venture out to Peninsula Boulevard to go bowling at Falcaro’s. Bernie and his best friend, Elliott, formed a social club called the Ravens and wore sweaters emblazoned with a Raven patch, remembers Jay Portnoy, a childhood friend and fellow Ravens member.

  While technically in New York City, Laurelton was far from the gritty urban center. The tree-lined streets were a place of single-family houses, where Dad went to work in Manhattan and Mom stayed home. Life revolved around the children and school and temple, although neither Ruth nor Bernie was remembered as being very religious. The Madoffs lived in a two-story brick house with a small backyard at 139-54 228th Street. Bernie was a member of Boy Scout Troop 225, which met at the Jewish Center in Laurelton. As a scout, Madoff would regularly raise his right hand and take the oath “to help other people at all times; to keep myself physically strong, mentally awake, and morally straight.” He did manage to keep physically strong and mentally awake after he left the scouts, but not much else.

  Bernie’s parents, Sylvia and Ralph, had lived on Manhattan’s Lower East Side when he was born. After the birth of a second son, Peter, and then a daughter, Sondra, they sought the suburban dream and moved out to Laurelton. The Madoffs quickly made themselves at home in their new neighborhood.

  Bernie played on an intramural basketball team, where he was known for “stealing the ball,” said former classmate Michael Yessner. “No one could steal the ball like Bernie.”

  Ruth was considered very bright—much smarter than Bernie, who was, at best, a B+ student. “Definitely above average, but not of the genius caliber,” said Portnoy of Madoff. But Bernie was remembered as being cagey in school, able to use a glib tongue to get ahead.

  “He hadn’t read a book and he was called on in English class to give a book report,” remembers Portnoy from their sophomore year. “So Bernie got up there and just made it up while he went along. After Bernie’s presentation, the teacher looked a little suspicious. She asked Bernie to show the class the book, but Bernie said he had already returned it to the public library.”

  Madoff would be just as good at fudging fifty years later, in 2006, when the SEC began to investigate allegations he was running a Ponzi scheme. He talked his way out of trouble by creating a fictional set of books for the investigators, making it all up just as he had in his sophomore English class. Even though the investigators knew Madoff had somehow “mislead” (sic) them, they eventually closed the case, reporting they could not find “evidence of fraud.” His high school English teacher had done no better at exposing Bernie’s classroom scam.

  Bernie went off to college at the University of Alabama in the fall of 1956. One of Bernie’s friends said he claimed he had won a swimming scholarship at Alabama; however, school records show Alabama did not have a varsity swimming team until several years later and that there were “no swimming scholarships” at the time. While he was away at college, Ruth, still a junior in high school, remained loyal and wrote him long love letters.

  He wasn’t in Tuscaloosa long. He made an effort to fit in there by joining Sigma Alpha Mu, founded as “a fraternity of Jewish men,” but Alabama was an unlikely college choice for a city kid from New York. In the same year Madoff was there, the school’s first African-American student was accepted and then expelled three days later “for her own safety” after a student mob threatened violence.

  After only three months in Alabama, Madoff returned to New York and was back in the arms of Ruth. He enrolled at Hofstra College in January 1957, and other than a few months in training at Fort Bragg during his three years of service as a second lieutenant in the Army Reserves, Bernie and Ruth would be together, almost every day, for five decades, until he was put behind bars on March 12, 2009.

  She still found him sexy at age seventy.

  Despite the false start in Alabama, Madoff moved through Hofstra without a hitch, graduating in 1960 with a BA in political science. Madoff commuted from his home, about ten miles away, and he’s not remembered as having had much of a presence on campus. There’s no mention or photo of him in his graduating class yearbook. Years later, in 2004, Madoff’s presumed financial genius earned him a seat on the Hofstra board of trustees. He was still a member of the board on the day of his arrest. Fortunately for Hofstra, it has a strict policy of not doing business or placing its endowment with any member of its board of trustees.

  During college Bernie earned about $5,000 running a business with his brother, Peter, installing irrigation pipes for suburban homeowners who wanted perfect g
reen lawns. That was a lot of money in 1960, but Madoff’s intention was to pursue a career trading stocks. America was in a boom, and while there was money to be made servicing suburban lawns, Madoff knew he could make a lot more as an investment broker than as a landscaper. Peter told Bernie’s secretary, Eleanor Squillari, that Bernie ran the business and would use Peter “to go and collect bills, collect the monies, because Peter was cute and charming.”

  In early 1960, Madoff took the test that brokers are required to pass before being licensed to trade stocks and securities. Within a month of graduation, Madoff had passed the general securities representative test and had founded Bernard L. Madoff Investment Securities. He tried law school but dropped out after only a year at Brooklyn Law School. Madoff started by trading penny stocks in over-the-counter markets and that business would, over the decades, grow to become a huge and legitimate trading operation that dealt with large institutional customers and was well known on Wall Street.

  Less well known was Madoff’s investment advisory business, which served as the foundation of his Ponzi scheme. The corporate structure for Madoff’s life of crime had been established.

  His decision to join the financial industry may well have been influenced by his parents and Ruth’s parents.

  Ralph and Sylvia Madoff ran a suspect investment company out of their house under the names Gibraltar Securities and Second Gibraltar Corp. of Laurelton, New York. These businesses were registered in Sylvia’s name only. Some reports say Ralph had “tax problems” and didn’t want his name publicly attached.

  In 1963, the SEC moved to revoke the broker-dealer license of the Sylvia Madoff companies, for “alleged failure to file financial reports,” according to an SEC announcement from September 1963. Four months later, in January 1964, Sylvia Madoff withdrew her SEC registration and shut down the businesses, which had the effect of stopping a full investigation from being launched. The decision to close up shop may have been motivated by her instinct to protect her son—much in the same way Bernie himself sought to protect his inner circle when he saw the end coming.

  By the time his parents had come under suspicion at the SEC, Bernie Madoff’s securities trading operation was already up and running—and already crooked, according to what Madoff said to a person he confided in after his arrest. This person insisted on anonymity because of the sensitivity of the ongoing investigation, but Madoff said, “It began almost immediately and for the first few years, there were a lot of sleepless nights. But then I realized I could do it.” A scam from day one.

  This account is corroborated by an investigator, who was tasked to “reconstruct” Madoff’s fraud but not authorized to speak publicly. The investigator says the available evidence shows that the scam was well in place at least by 1964 or 1965, and “likely back to the beginning or near the beginning,” when Bernard L. Madoff Investment Securities first opened its doors.

  If true, this calls into question Madoff’s statement under oath when he pleaded guilty in March before U.S. District Court judge Denny Chin. “To the best of my recollection, my fraud began in the early 1990s,” Madoff told the court. It was the only key fact in his plea allocution prefaced with the “best of my recollection” hedge.

  Federal prosecutor Marc O. Litt immediately challenged Madoff. “The government does not entirely agree with all of the defendant’s description of his conduct,” said Litt to Judge Chin. “The defendant operated a massive Ponzi scheme through his company, Bernard L. Madoff Investment Securities, beginning at least as early as the 1980s.” Prosecutors are still trying to figure out precisely when it started, but it was certainly long before the date Madoff told the judge.

  This is a significant detail. If that statement was a lie, or if Madoff’s “recollection” was not at its “best” that day, and the scam did begin in the 1960s, it would also call into question the role of Ruth and many other Madoff family members and employees who were with Bernie in the early days. His brother, Peter, joined the family business in 1967. Ruth was there from the beginning.

  Ruth and Bernie were married in 1959 at the Laurelton Jewish Center, two years before she graduated college. Ruth breezed to a degree in psychology from Queens College in three years, eager to begin life with Bernie. Once she was finished with school, Ruth helped to keep the books at Bernie’s company. At that time, Bernard L. Madoff Investment Securities was still a shoestring operation. Peter was fond of telling the story of how Ruth and his brother first ran the business from a folding card table in their apartment.

  As important as Ruth was to business operations, Ruth’s father, Saul Alpern, was even more essential. Alpern was a New York accountant who began to steer money to Madoff’s company from customers he knew in Queens or met while playing bridge over hot water and lemon at summer resorts in the Catskills. Hundreds of frugal retirees ultimately lost their savings because of following Saul’s recommendation from decades earlier.

  “Our place was fertile territory,” recalled David Arenson, whose family ran the Sunny Oaks resort in the Catskills where Saul Alpern and his wife, Sara, would spend the summers. Having heard Saul’s account of his son-in-law’s ability to pick stocks and earn big returns year after year, the retirees were eager to get in. “The fund only required about five thousand dollars to get in, so it wasn’t like you had to be rich. And they were promising something like eighteen to twenty percent.”

  The investors were grateful to be included by Saul in the great opportunity that Bernie’s investment company represented. When Bernie and Ruth would visit Ruth’s parents at Sunny Oaks, it was all very cozy. “In Yiddish, they’d say it was haimish, which means down-home and folksy,” said Arenson. “There was an element of trust.”

  It was a family affair. Ruth kept the books, her father brought in the money, and Bernie pulled the strings, quickly becoming well known for his uncanny ability to make money even when others were suffering in down markets.

  Ruth loved her father and saw a lot of Bernie in him. “He really has such a great mind,” Jay Portnoy recalls Ruth saying of her father. “Don’t you think my father looks so brilliant?”

  As brilliant as his daughter thought he was, Saul Alpern’s dealings with Bernie would later lead to big trouble for his accounting firm, Alpern & Heller, which began recruiting clients for Madoff in 1962. By 1992 his firm had funneled $441 million into Madoff’s hands.

  Alpern’s accounting office was located in Manhattan, on East Fortieth Street between Fifth and Madison avenues. Among Alpern’s employees were two accountants named Frank Avellino and Michael Bienes, who would later become partners when Heller died. When Alpern retired in 1974, the company dropped his name and became Avellino & Bienes. Even after Alpern’s departure, the firm continued to feed millions of dollars to Madoff for investment. According to SEC documents and people who were involved at the time, many of Avellino & Bienes’s clients had no idea of Madoff’s role in the business. The accountants guaranteed rates of return between 13.5 and 20 percent, the same impossibly high rates of return that Madoff had offered throughout his career to investors who could be considered gullible or greedy or both.

  Frank Avellino and Michael Bienes made a fortune feeding money to Madoff. Bienes had homes in Fort Lauderdale, Florida, and London, where he was considered an American bon vivant and major contributor to the Royal Opera House. Avellino had homes in New York, Nantucket, and Palm Beach.

  In 1992 the SEC finally became suspicious and opened an investigation of Avellino & Bienes, but took no action against Madoff, even though investigators learned he was involved. At the time, he had already served two terms as chairman of the NASDAQ exchange. It would be the first of at least eight times the SEC and other federal regulators launched investigations of Madoff or his associates but failed to uncover his scheme.

  According to a person involved with the firm at the time, SEC investigators were looking into allegations that Avellino & Bienes were involved in a Ponzi scheme. The investigators discovered that Madoff was handlin
g the investments for Avellino & Bienes, but they did not or would not connect the dots that would have exposed Madoff’s role as the true master of the scheme. As proof that everything was legitimate, Madoff offered to return all of the money that had been invested by Avellino & Bienes. Investigators say that the records that would prove whether he did return the money are still being sought.

  In a civil enforcement complaint, the SEC said that between 1962 and 1992 Avellino & Bienes had guaranteed customers “interest rates ranging between 13.5% and 20%” by investing with “one broker-dealer” who was not named. The unnamed “broker-dealer,” of course, was Madoff. In 2009, investigators began going through SEC archives to determine just why Madoff’s name was not included.

  The SEC imposed $350,000 in fines against Avellino, Bienes, and their firm for failing to register as securities dealers, but no criminal action was taken against them. The lawyer representing Avellino and Bienes in 1992 was Ike Sorkin, the same lawyer who would represent Madoff sixteen years later. Asked whether he was suspicious of Madoff at the time, Sorkin said he could not talk about it. “We took the position that he returned all of the money,” said Sorkin.

  According to Madoff’s secretary, Eleanor, Avellino and Bienes continued to be in occasional contact with Madoff. She said Madoff ordered her to always refer to them as “A and B but never by their actual names” if they called.

  When Madoff’s scheme collapsed in 2008, Michael Bienes lost much of his fortune and was forced to give up his apartment in London and sell his home in Fort Lauderdale, according to his lawyer, Mark Raymond. There was “never any indication that this was a Ponzi scheme,” said Raymond. “If they had known,” he added, “Michael would not have lost millions and would not be millions in debt.” The lawyer said Bienes had very little contact with Madoff after 1992 and had not seen him in person since the funeral of Ruth’s father in 1999. With his money gone, Bienes moved to a small apartment in Fort Lauderdale.