The Madoff Chronicles Page 4

  A lawyer for Frank Avellino had no comment.

  A second set of accountants was also charged civilly by the SEC in 1992 with illegally funneling clients’ money to Madoff without being properly registered or licensed. They were Steven Mendelow and Edward Glantz, principals of Telfran Associates, who were also represented by Ike Sorkin.

  Mendelow and Glantz shared offices with the original Alpern firm on East Fortieth Street in the 1960s. They were not allowed to invest directly with Madoff but had to steer all of their customers’ money through Alpern, Avellino, and Bienes.

  Even after Mendelow and Glantz were cited and fined by the SEC, they continued as well to have ties to Madoff. Mendelow was already working for the accounting firm that handled some of Madoff’s government filings, and his private number was found in Madoff’s “little black book” of what his secretary said were his essential contacts.

  Glantz died in 2005, and Mendelow insisted he had met or spoken with Madoff only a half dozen times since being introduced to him in the early 1990s. He said he can remember Madoff calling him only once in the fifteen years they knew each other.

  The Wall Street Journal described the action against the four accountants in 1992 as a crackdown on “one of the largest-ever sales of unregistered securities.” Yet there was no mention of Madoff in the SEC documents, and he would continue to operate for sixteen more years—expanding the list of his victims and the breadth of his scheme every year.

  With Madoff left unscathed by the SEC investigation, there was no rush for investors to pull their money out in 1992. In fact, the elderly investors at Sunny Oaks, and others recruited by Ruth’s father, were told there was nothing to worry about and that they could deal directly with Madoff. The minimum investment was soon raised to $50,000. Every month, or every quarter, David Arenson recalls, he and others would receive impressive-looking statements that showed steady growth based on a series of trades involving blue-chip corporations. Of course, the trades never took place. It was all a lie.

  It was a lie that David Arenson feared could cost him his life. He was diagnosed in 2003 with chronic lymphocytic leukemia. “I’m going to need a bone marrow transplant. And the money that I had in Madoff, and that my family had in Madoff, would’ve gone a long way toward making that doable,” he said. Arenson died March 6, 2014.

  Arenson and the summer residents of Sunny Oaks were among the early Madoff “marks”—in the parlance of con men—and some of the least wealthy. Many of them had first put their money with him when Madoff was still building his scam, years before the steady stream of multimillionaires and mega-millionaires would trust Madoff with their wealth. By targeting retirees, Madoff established a client base unlikely to pull its money out. They were happy with the steady returns Madoff promised and delivered. When someone died, the account was usually rolled over to the children. As long as most of the “marks” didn’t want to cash out, the scam could roll right along.

  If anything, the fact that Madoff had been untouched by the SEC actions against Avellino & Bienes and Telfran Associates only served to authenticate and burnish his credentials.

  The 1992 article in the Wall Street Journal dismissed speculation that Madoff had done anything suspect.

  “Who was the broker with the Midas touch?” the article asked. “None other than Bernard L. Madoff—a highly successful and controversial figure on Wall Street, but until now not known as an ace money manger.”

  Interviewed by the Wall Street Journal, Madoff gave a long, technical description of his “Midas touch” strategy. He said he was able to hedge against the market’s ups and downs with futures and options and boasted of his “stock picking.” Sixteen years later, he would tell a federal judge that that same strategy was a fraud, just the false cover for his Ponzi scheme. But at the time the article was written, it was very reassuring for Madoff’s investors to read.

  “That further added to the luster that we were dealing with someone who knew what he was doing, and was legitimate,” recalled Arenson. “There certainly wasn’t any idea that anything was wrong.”

  A year later, in 1993, Madoff was elected to a third term as the chairman of NASDAQ.

  Overlooked by the SEC and lauded by the Wall Street Journal, Madoff enjoyed the golden life as an industry titan, untouched by regulators and courted by wealthy investors.

  While Ruth’s father had been the first of many who would feed millions of dollars into Madoff’s criminal enterprise, he was never publicly implicated in his son-in-law’s scheme. He did not become superrich, as many of the subsequent “feeders” to Madoff would. When Ruth’s mother, Sara, died in 1996, her will indicated she had about $2 million in three Madoff accounts, half of which ultimately went to her daughters, Ruth and Joan.

  When Ruth’s father, Saul, died three years later in December 1999, he left the two daughters only 992 shares of Pitney Bowes stock and $39,000. Thanks to Bernie’s “success,” Ruth was so well off at the time that she gave her sister all of the stock.

  After her husband’s arrest, Ruth’s lawyers tried to argue that she was entitled to keep at least $62 million in assets that she had “inherited” from her parents. Investigators quickly dug out the Alpern wills to dispute that contention.

  Despite speculation that Ruth may have had a role in her husband’s financial scam, the government found no evidence to support she was a knowing accomplice in the Ponzi scheme and she was not prosecuted.

  Former FBI agent Brad Garrett says such Bonnie-and-Clyde couples have their own dynamic. “Did Bernie ever really tell Ruth what was really going on? Maybe a little bit, but probably not to any great extent, because he didn’t need to. She probably didn’t care at the end of the day.

  “People with antisocial behavior like Bernie pick partners who are dips, people who are unaware, just want to live the life that somebody like Bernie has created,” said Garrett. “They’ll just deny what is going on around them.” The early years had been difficult as Madoff ironed out the kinks in his scheme and learned how to keep beyond the reach of federal regulators. But he learned that they were easier to fool than his high school English teacher. And fool them he did.

  When it finally all came tumbling down, only Ruth’s love was left.

  CHAPTER

  THREE

  House Arrest

  THE MAÎTRE D’ HEARD SCREAMS, THEN SOBBING.

  It was late afternoon on Thursday, December 11, and lunch in the main dining room of the Palm Beach Country Club came to an abrupt halt. Bridge games were abandoned, meals were forgotten.

  The news of Bernard Madoff’s arrest had begun to spread among his thousands of investors. There had not yet been any public announcement from the FBI, and the news had not yet hit the wires or cable TV, but whispered phone conversations that began from inside Madoff’s New York offices quickly spread the story to Wall Street, across the country, and around the world. The whispers turned to cries of disbelief and then to shouts of anger and then tears born of fear.

  The members of the Palm Beach Country Club were in a panic. Bernie and Ruth were prominent members of the club. It had been considered a sign of status to be “accepted” by Bernie as an investor. They had entrusted their fortunes to him and now he was under arrest for securities fraud.

  At Madoff’s office, the phone lines were jammed as investors tried to find out what had happened.

  Eleanor Squillari had come into the office around 7 a.m. that morning. She liked to be in early to get a jump on the day and organize her boss’s daily calendar. His schedule for this day appeared to be completely free.

  At 7:30, there was a strange phone call from Ruth about her sons, Mark and Andy. Eleanor says that Ruth asked her “if I saw the boys yet. And the hairs on my neck went up. She can call them on their portables, but she asked me.”

  Mark and Andy had not attended the previous evening’s office Christmas party, and that had also struck Eleanor as strange. She had no idea that Mark and Andy had gone to the FBI to turn in their fath
er.

  Now their mother seemed desperate to know where they were. Eleanor looked into the trading room on the nineteenth floor where Mark and Andy normally were stationed by 7:30 a.m. She told Ruth she didn’t see them.

  “And then I heard her say to who I think was Bernie, ‘They’re not there.’ I knew something was wrong,” Eleanor recalled.

  A short time later, Eleanor went down one flight to see her friend Jean, the receptionist on the eighteenth floor, the firm’s main entrance. The nineteenth floor was the location of Bernie’s office and the seventeenth floor that was the legitimate arm of the business. The seventeenth floor was the center of the Ponzi scheme in a room with highly restricted access.

  She saw Bernie’s brother, Peter, in the conference room with men she did not recognize. “What’s he doing here?” she wondered. “Because Peter never gets in that early.”

  Jean told her, “They’re lawyers.”

  “And then a man comes storming in,” Eleanor recalled. “He’s in a trench coat and he flashed his badge, typical FBI look.” It was Ted Cacioppi, the agent who would arrest Madoff half an hour later.

  “I went running to Peter, who never looked up. And one of the men just said, ‘We’re expecting him.’”

  Eleanor returned to the nineteenth floor. “I just sat at my desk, knowing something horrible was happening. I thought it was an extortion, I thought it was kidnapping.” As the morning went on, Annette Bongiorno called Eleanor “an unusual amount of times” looking to talk to Bernie. She was one of the people regarded by investigators as part of the inner circle that carried out the criminal scheme. She seemed desperate to find Madoff.

  Eleanor placed several calls to her boss on his cell phone, but there was no answer. She did not know that he was already in handcuffs, placed under arrest by the FBI.

  She finally found out what was happening when Peter’s secretary, Elaine, overheard her boss talking.

  “Peter’s telling people that Bernie was arrested for securities fraud,” Elaine reported.

  “I was like, no, it can’t be, it just can’t be. What are you talking about?” Eleanor said.

  Peter looked like a defeated man. “Peter did not seem surprised,” Eleanor recalled. “The shoulders slumping, he just looked beat. I saw Peter at his worst after this happened and he was just a basket case.”

  Peter had seemed fragile to people in his office since the death of his son, Roger, from leukemia in 2006. Now his brother was under arrest, and he was left in charge to explain the situation, even while he must have been pondering his own fate. Peter was the firm’s compliance officer, and his daughter, Shana, was a compliance lawyer for the firm. Their job was to make sure that all business conducted at the family firm was legitimate. Many firms prohibit the family members of top executives from serving as compliance officers because of possible conflicts of interest, but not Madoff. Peter spent hours in his office that day sobbing, with his head in his hands.

  Annette arrived on the nineteenth floor, still looking for Bernie after all her phone calls.

  “I told her to go see Peter,” Eleanor remembered. After a brief conversation with Peter, Annette “made a beeline for the elevator, never looked at me. I never spoke to her again. She just left. That was it.”

  For Eleanor, Annette’s reaction spoke volumes. “How do you not be in shock and say, ‘What the hell is going on?’ I’d known her for twenty-five years. How do you just walk right past me and leave?” It was a reaction that would make sense if you’re afraid you might be the next one to be arrested.

  Then Madoff’s other right-hand person on the seventeenth floor, Frank DiPascali, arrived outside the executive offices. Madoff had apparently spent much of the previous afternoon on the seventeenth floor with DiPascali, in one of two rooms marked DO NOT ENTER and DO NOT CLEAN.

  DiPascali’s reaction to the news was different, but just as strange as Annette’s, according to Eleanor. “His hands were shaking and he walked up to Peter. He goes, ‘Uh, so what’s going on?’ And Peter said, ‘Bernie was arrested for securities fraud.’ And he went, ‘Oh, yeah?’ and turned around and left. Just nothing seemed right. But then, nothing was right.”

  DiPascali returned to the seventeenth floor, the operational headquarters of the scheme, where the documents and incriminating files were kept. The phones were already ringing off the hook, but he ordered that “no one answer,” according to a former employee. Later he and Annette prepared a “script” for seventeenth-floor employees to use in dealing with worried clients. Soon, most other employees left, and for the remainder of the day of the arrest, and early on the next day, Friday, DiPascali would be free to do whatever he wanted on the seventeenth floor. According to a former employee, the FBI had sealed off the premises and shut down the computers by Friday morning and all employees “were herded to the eighteenth floor.”

  As the day went on, the volume of phone calls from distraught clients overwhelmed Eleanor, Elaine, and others trying to help. “And we were all taking turns because you would get sick after fifteen minutes,” Eleanor remembered.

  As they called in, seeking reassurance that the news was wrong, that their money was safe, Eleanor did not know what to say. She still believed there had been some “paperwork mistake” and that everything would be sorted out. She couldn’t reach Madoff and finally decided to ask DiPascali. He was by himself on the seventeenth floor talking on his cell phone.

  “Frank, what are we gonna do? What am I supposed to be telling people?” she asked.

  He looked at her for a moment and then said, “Tell them nobody’s available,” and went back to his cell phone conversation.

  Calls were coming in from around the world. One of the first calls was from Jeff Tucker, whose investment firm, Fairfield Greenwich, had steered billions of dollars of its clients’ money to Madoff. On the day of the arrest, Fairfield Greenwich clients thought they had $7.2 billion invested with Madoff.

  Some friends called to support Madoff. James Davin of Davin Capital Corp. sent a fax addressed to Ruth and Bernie. “If there is anything we can do to be of help, it will be done.” It was signed, “Jim and Tina.”

  By early evening, the initial, sketchy reports about the arrest were beginning to show up. The Wall Street Journal published its first report about Madoff’s arrest at 4:25 p.m.

  At Elaine’s, the legendary Manhattan restaurant and club, then ABC News reporter Rich Esposito stared at his BlackBerry. There was little that happened in the criminal world that wasn’t known to Esposito and the other reporters, cops, private investigators, and defense lawyers who were part of the regular crowd. There was no talk yet about the Madoff case and the owner, Elaine Kaufman, who knew almost anyone worth knowing in the city, had never even heard of Madoff. Nor had Esposito, a veteran police beat reporter, until a cryptic message from the FBI came through on his BlackBerry announcing Madoff’s arrest in a $50 billion investment scam.

  “Must be a typo,” said one of Esposito’s colleagues. “Maybe they forgot the decimal point. Must be $5 billion, couldn’t be $50 billion.”

  Esposito sent a message back to get the real figure.

  No, the reply came, $50 billion was correct. The man under arrest had given the FBI the number himself. And he was the former chairman of the NASDAQ exchange.

  “If all that’s true,” said Esposito, “it would be the biggest financial scam ever. Ever.”

  It was well into the evening, but Esposito and reporters all over New York were beginning to scramble.

  Later that Thursday night, ninety-five-year-old Carl Shapiro was at home in Palm Beach, in his luxury condominium next to The Breakers hotel, when his son-in-law, Robert Jaffe, called and told him to turn on CNN. Shapiro had just given Madoff $250 million in cash for what was to be a “nice, short-term investment” to help Bernie through the financial crisis.

  The news about Madoff from Anderson Cooper was not reassuring. He was speaking over “Just In” news footage of Carl’s old friend Bernie coming out o
f the federal courthouse in New York City in a driving rain.

  “Some late news, very strange and troubling news out of Wall Street tonight. Former NASDAQ stock exchange chairman, Bernard Madoff, out on a ten-million-dollar bond tonight; there he is. He was charged today with securities fraud,” said Cooper.

  It got worse.

  “The federal complaint accusing him of conning clients in his investment firm out of billions of dollars; what’s more, the complaint alleges that yesterday Mr. Madoff told senior employees that the company was, quote, all just one big lie. And, quote, basically, a giant Ponzi scheme. No immediate comment from him or his attorneys.”

  By Friday morning, it was clear that Bernie Madoff was under arrest for a lot more than some vague “securities fraud” or paperwork problem. This was no “failure to file SEC reports” or “failure to register.”

  There were no more calls and faxes in support of Madoff at his office. It was getting ugly, and Eleanor Squillari was now starting to have doubts about her boss of twenty years.

  She was in early again from her home on Staten Island, and the first call came from Ruth Madoff. Ruth said she urgently needed the PIN number of her husband’s cell phone so she could divert the phone bills from the office to the apartment. The company would not change the billing address without the PIN number. Eleanor immediately knew that Ruth and Bernie were up to something.

  “Bernie lived by his phone. He always had to have his phone,” she recalled. In fact, even when he was in the office, he would use the cell phone for the most sensitive calls. Now he wanted to make sure the bill and the records of who he had been talking to over the last month came to him at his apartment.

  “I didn’t know the PIN number, and the person who did know the PIN had just lost their entire fortune,” Eleanor noted. She couldn’t bring herself to call the employee, Amy Joel, for the PIN number even though Ruth was pushing hard. “And Ruth called again, and again, and she was very insistent about getting the PIN number. This was a big deal for her.”