The Madoff Chronicles: Inside the Secret World of Bernie and Ruth (11 page)

WALTER NOEL APPEARED TO HAVE IT ALL. AS A RESULT, HE
was despised by many in his hometown of Greenwich, Connecticut.

Status and wealth are closely tracked in this elite New York suburb. His envious neighbors found the courtly seventy-nine-year-old “affable enough,” with his gentle Tennessee accent and manners. But given his seemingly ordinary grasp of finances and the market, they could not understand how he had been able to achieve a level of wealth that was remarkable even by Greenwich standards. “I had lunch with him several times and he just wasn’t that smart,” said one prominent hedge fund owner whose own earnings and track record could not match Noel’s. What the hedge fund owner did not know was that Noel had been able to achieve record investment returns and become very rich because he was one of Bernie Madoff’s “feeders.” Since 1989, he had made hundreds of millions of dollars in huge commissions on the money that, for the most part, he simply sent from his clients to Madoff’s secretive operation.

The “mechanics” who had produced the phony statements and created the fictitious trades on the seventeenth floor of Madoff’s New York offices were an essential ingredient of the scheme, but their work wouldn’t have amounted to much without the “money men” like Noel. These were the men who trolled the country clubs and the suburbs and the exclusive resorts, recruiting wealthy clients for Madoff. There were dozens of them, but none more important than Noel and his firm, Fairfield Greenwich, whose clients comprised the single biggest account in Madoff’s empire. When Madoff was arrested, Noel’s clients thought they had $7.2 billion invested with Madoff. In fact, they had nothing.

Noel’s lifestyle and social prominence had grown in tandem with Madoff’s scam. He and his Brazilian-born wife, Monica, had a huge mansion on Greenwich’s prestigious Round Hill Road. They owned an oceanfront estate on Long Island, in Southampton. For those nights when the black-tie charity balls went too late, there was a New York apartment on Park Avenue. The crown jewel in the Noel empire, however, was a hilltop villa on the privately owned Caribbean island of Mustique.

According to a profile of the Noels that appeared in
Town & Country
, their villa had its own name, Yemanjá, the Brazilian goddess of the sea. His Round Hill neighbors in Greenwich who thought they were so much smarter had a serious case of envy as they flipped through the glossy pages of the magazine and read about the great Walter Noel and his island retreat.

His wife “shopped uptown Manhattan” for fabrics and “downtown at an African importer” for wooden stools and benches. Monica was “indefatigable, she scoped out the furniture market in High Point, North Carolina, and the designer showrooms in Dania, Florida, for bamboo side tables, dining chairs, and ceramics.” Top name architects, designers, and landscapers were flown in as Monica created “just the insouciant, global primitive style she was after.” Tommy Hilfiger said the Noels had “the best view on the island.”

A photo spread with the
Town & Country
piece showed handsome Walter embracing the statuesque Monica, both smiling broadly. Most important, their five grown daughters loved the Mustique house and the way it was decorated. The women, all slim and beautiful enough to be fashion models, were pictured at Yemanjá, seated on large cushions covered with yards of that expensive uptown fabric. They were so proud that their parents were hip. “I mean, our houses in New York and Greenwich are very nice,” daughter Marisa told
Town & Country
, “but they’re polite—it wasn’t the sexy chic feeling this place needed.”

The
Town & Country
article was published in May 2005, just six months before Fairfield Greenwich would play a key role in what the SEC called “Madoff’s shell game” to deceive federal regulators about his scam. Its chief risk officer had been coached by Madoff about how to best answer questions posed by SEC investigators. Fairfield Greenwich is now being sued by the Madoff bankruptcy trustee and virtually every client it had for failing to do the sort of extensive background checks and “due diligence” on Madoff that it promised it would do. Law firms are lining up to tear apart Noel’s empire and distribute the proceeds to the victims. The FBI and the SEC may recommend criminal charges to accompany the civil action. The downfall of Bernie Madoff meant the downfall of Walter Noel and the dozens of other prominent “money men” or “feeders” who, wittingly or not, kept the Ponzi scheme going. The lawsuits allege that they “knew or should have known.” They have all claimed they were unaware of the scam.

In addition to Noel, the feeders included a long list of supposedly savvy individuals, including Ezra Merkin of New York and Stanley Chais of Los Angeles. Merkin was a longtime friend of Madoff and served on the Board of Trustees of Yeshiva University with him. Merkin began investing clients’ money with Madoff in 1995 through his Ascot, Gabriel Capital, and Ariel funds. He had only four months of negative returns out of one hundred months through 2008.

“Returns this good could not be reproduced by other skilled hedge fund managers,” alleged the bankruptcy trustee overseeing Madoff’s business. New York attorney general Andrew Cuomo charged that “Merkin betrayed hundreds of investors who entrusted him with their savings by recklessly feeding their funds into the largest Ponzi scheme in history, while falsely claiming he actively managed their funds.”

Merkin took the position that he “had performed extensive due diligence,” and if Madoff had been able to fool federal regulators, how could anyone blame Merkin for being fooled, too? But the New York attorney general said Merkin had been warned again and again that Madoff was a fraud, but he would nevertheless eventually steer more than $2 billion to Madoff. Much of it came from Jewish charities and schools, including Yeshiva University. They lost a large part of their endowment because of what the attorney general called “Merkin’s deceit, recklessness.” Merkin’s lawyers promised a vigorous defense in court.

Similar allegations were made against Stanley Chais and the investment funds he represented. In a court filing, the bankruptcy trustee said, “Despite having clear indications that Madoff was conducting a fraud, Chais persisted” and collected “over $250 million in fees for his purported ‘services.’” Chais’s clients, who included a number of movie industry figures, thought they had $900 million in assets when the Madoff scam was exposed. They had, in fact, nothing.

Chais’s attorneys claim he was “blindsided and victimized” by Madoff. “Mr. Chais and his family have lost virtually everything—an impossible result were he involved in the underlying fraud,” Chais’s lawyers Eugene Licker and Amanda Merkur said.

Over the years, Madoff’s savvy investors became convinced that he had his own foolproof system, which some thought might not be completely aboveboard, but which could, bottom line, keep those big returns coming. They believed that if Madoff got caught, it would be his problem—not theirs.

Their greed led them to miss some very obvious warning signs.

“It was a great con. The best cons are when you keep the pigeons happy, right? And the pigeons were happy because they were getting good returns,” said investment adviser Suzanne Murphy.

Walter Noel was a very happy pigeon for a long time. He was introduced to Madoff in 1989 by the father-in-law of his partner, Jeffrey Tucker. Noel and Tucker started by giving Madoff $1.5 million to invest from an investment fund they had created. They called it a “test” investment. Six months later they sent Madoff another million dollars, then four million, then hundreds of millions. Not only were his steady year-to-year returns of 12 to 20 percent thrilling the clients of Fairfield Greenwich, Noel and his partner Tucker were getting rich.

Unlike almost any other hedge fund in the history of Wall Street, Madoff did not charge Noel and Tucker’s firm anything to invest all that money. As a result, they could pocket all of the standard hedge fund fees. This amounted to 1 or 2 percent of the total money invested and 20 percent of any profit, “one and twenty” or “two and twenty” in the parlance of Wall Street. All theirs. They did not have to share with Bernie.

“If you’re Walter Noel, you ask the question, why is Bernie Madoff letting me make all this money?” said Suzanne Murphy. “It just doesn’t make sense. They were not making the trades, they were not making any investment decisions. All they were doing was collecting the money.”

Noel and Tucker’s firm earned $100 million a year for doing virtually nothing. Ninety-nine percent of the money in their Sentry Fund was invested with Madoff. It was an amazing deal. Over the years, Madoff left hundreds of millions of dollars on the table for Noel and Tucker to scoop up for themselves. The homes in Greenwich, Southampton, Manhattan, and Mustique were easily affordable, along with the private jets and all the other trappings of a successful hedge fund operator.

It was the same arrangement Madoff had with all of his other feeder funds. He claimed he made his money by charging 4 cents for every share of stock he traded on their behalf and $1 for each option contract. This was a complete lie, as no shares were ever traded, or option contracts purchased.

It’s not known if Walter Noel ever questioned why Madoff was forgoing so much profit, but he clearly believed he had found the golden goose in Bernie. To expand his empire and bring in even larger profits, Noel enlisted the help of his gorgeous daughters, or at least their husbands. Four of his five sons-in-law joined him in the business, setting up offices in Europe and South America to recruit new investors whose money could be steered to Madoff, so Fairfield Greenwich could collect their extravagant fees. According to Massachusetts secretary of state William Galvin, one of Noel’s sons-in-law and his partner, Andres Piedrahita, a Colombian who operated out of Madrid, earned more than $45 million in 2008 alone.

Noel and Tucker and the sons-in-law told their clients they deserved their large fees because they could guarantee access to Madoff and make sure it was a safe investment that no one had to worry about. According to Galvin, they completely disregarded their duties. “Its flagrant and recurring misrepresentations to its investors rises to the level of fraud,” he charged.

In a stack of documents and e-mails recording Fairfield Greenwich’s behavior, none is more damning than the glossy brochure sent to its clients to describe the company’s “due diligence.” The brochure said that the fund may “reject an otherwise appealing manager” if it detected an “operational risk” including “misrepresentation of valuations and outright fraud.” Fairfield Greenwich claimed it “verifies assets under management for all funds directly” and “provides independent, third party confirmation of assets.” In other words, the fund knew Bernie Madoff had traded all of those stocks he claimed to have traded, because it had independent confirmation.

The statement was not even close to true, according to investigators. Fairfield Greenwich agreed to let Madoff be both the custodian of the stocks and the broker that executed the trade. Their verification consisted of checking Madoff’s brokerage records against Madoff’s asset holding records. Of course, since both were created by the same team, they always matched perfectly. There was no independent third party. This was Ponzi Scheme Protection 101. A few Fairfield Greenwich executives had toured Madoff’s offices, but no one had ever seen the seventeenth floor, where all of the trades were supposedly being directed. The only person other than Madoff whom the Fairfield Greenwich executives had met or could name was Frank DiPascali, Madoff’s seventeenth-floor crew boss. He met them upstairs, away from the secret rooms. DiPascali wore a suit and a tie on those days, according to former employees, apparently aware of the importance of making a good impression on the firm’s single biggest sucker.

Fairfield Greenwich’s faith in Madoff was largely based on what can best be described as a magic show that Madoff and DiPascali put on for them in 2001. Madoff had asked Tucker to visit the offices after a critical article about Madoff appeared in the finance magazine
Barron’s
, titled “Don’t Ask, Don’t Tell.” The magician, Madoff, and his assistant, DiPascali, set out to prove
Barron’s
was wrong. They were not frauds. They had all the stocks they said they had. Tucker was instructed to open a journal that Madoff said had all of the stocks held by Madoff Securities. Tucker was asked “Pick any two stocks.” Pick a card, pick any card. Tucker picked AOL/Time Warner and in the journal he saw the number of shares in that company that Madoff held on behalf of Fairfield Greenwich. Now, with a wave of his wand, Madoff had Frank activate a computer screen that Tucker was told was from the Depository Trust Company, a major Wall Street clearinghouse that holds stocks for customers. The magician’s assistant scrolled through the pages until he got to AOL/Time Warner and Fairfield Greenwich. Presto! Abracadabra! The number on the screen and the number in the Madoff ledger matched perfectly. The trick worked on Tucker. He was convinced. There was no need to pick a second stock.

“I knew of my own that the position I saw for us was roughly what we had because I was somewhat familiar with our size, you know, in shares,” Tucker later said. “That was basically the meeting.” The magic show was over, and Tucker drove back to Greenwich, relieved and unaware that he had been fooled by the Amazing Madoff’s command performances. Madoff had created phony ledgers and, with DiPascali’s help, a bogus computer page for the Depository Trust Company, the DTC. Asked later by investigators how he knew it was the DTC screen he had been looking at, Tucker said, “It had a logo. It had a DTC logo.”

Had he ever seen a DTC screen before? “No.”

“And because he was telling you that—because Madoff told you that—”

“Yeah, of course.”

“Have you ever seen a DTC screen since then?”

“No.”

“And did you get a printout of the DTC screen?”

“No.”

“Did you repeat that review with any other equity or option or was it just the AOL shares?”