The Wizard of Lies: Bernie Madoff and the Death of Trust (45 page)

Much remained a mystery about Bernie Madoff’s crime, even after he pleaded guilty in March 2009. But one thing, it seemed, that everybody knew was true was this: his wife and sons were guilty, too.

From the first weeks after his arrest, unidentified “former prosecutors” and “criminal lawyers who have followed the case” and “legal sources” were repeatedly quoted in various media outlets asserting that Ruth, Mark, and Andrew Madoff were under investigation and would soon be indicted. Glossy magazine articles would speculate carefully; garish Internet blogs would accuse recklessly; television commentators would wink and nod knowingly. All that fierce, smug certainty about their guilt—unsupported by any cited facts—effectively drove Madoff’s immediate family into exile.

In an era of hypermedia, with cell phone paparazzi and self-defined Internet commentators constantly on the alert for ways to attract attention, it is worth noting that these attacks on the Madoff family were a sharp departure from the typical public reaction to cases of white-collar crime, going back more than a century.

Of course, such criminals—confidence men, embezzlers, crooked politicians, fraudsters of all kinds—were attacked savagely by the press and the public when their crimes came to light. But their wives and children were almost never included in those attacks; rather, they were almost always ignored or, at the very least, quickly left alone. There were a few exceptions where criminal charges were actually filed against a close relative, who was then pulled to the whipping post of public attention. In general, however, even the wives and children of executed murderers were left to rebuild their lives in relative obscurity, unless they sought the spotlight themselves.

The treatment over the years of organized-crime defendants is instructive. Despite widespread fascination with the murderous escapades of so-called “Mafia dons” and crime-family “capos,” it was extremely rare for any attention to fall on the elderly Mrs. Mafia Don or the capos’ children—even though a realist might have wondered how much they knew about why their husband or father had asked all his closest buddies to wear guns and sleep on mattresses in the garage. On rare occasions, a mobster’s relatives actively courted publicity. (The Gotti family comes to mind.) But those who didn’t were routinely ignored by the media and certainly were never publicly and repeatedly accused of complicity in their husbands’ or fathers’ crimes.

Yet the public outcry against Ruth Madoff and her sons began almost from the instant of Madoff’s arrest and did not cease. By the time he pleaded guilty, it was deafening.

From the beginning, however, there were facts in the Madoff case that just didn’t seem to be consistent with the family’s guilt.

First, there was the fact that none of them fled the country. Perhaps Bernie Madoff, seventy years old at the time of his confession, felt too old and tired to live as a wealthy fugitive; and perhaps Ruth, even if she were guilty and faced arrest and a lifelong imprisonment, would not leave without him. But his two sons, if they were guilty, had the opportunity, the means, and the motive to flee. The end was clearly in sight weeks in advance, there was still a princely sum in the bank, and they and their families were young and relatively portable. Surely Madoff, before turning himself in, would have handed his sons the keys to the company jet and enough cash to let them live comfortably beyond the reach of the law for the rest of their lives. After all, if they were his accomplices, their only other option would have been to stay and go to prison.

And yet Madoff did not flee—and neither did his wife or sons.

Then, there was his confession. Some hostile theorists immediately argued that Madoff and his guilty sons staged his confession so they could turn him in and thereby deflect suspicion from themselves. But this would have been a worthless gesture unless they all could have been absolutely sure that no incriminating evidence would surface later and none of their other low-level accomplices would finger the sons in a bid for leniency—assumptions that were not remotely realistic if the sons were actually guilty. Moreover, if Madoff truly believed anyone could be insulated from suspicion simply by turning him in, wouldn’t he have arranged for that to be Ruth?

Logic aside, assumptions about the family’s guilt began to run up against the fact that, as the Madoff investigation progressed, the predicted arrests of his wife and sons simply did not happen.

It is true that the legal bar for proving that Ruth, Mark, or Andrew Madoff shared Bernie Madoff’s guilt was high. To tie them to the Ponzi scheme, prosecutors had to do more than prove that they had somehow suspected the fraud, or had stumbled across it, and looked away. It is almost never a federal offense to fail to report a crime one merely observes. Instead, prosecutors would have had to prove that they knowingly helped plan the fraud, carry it out, or cover it up.

Yet for two years into the investigation, with other suspected accomplices quietly trying to negotiate deals with prosecutors and earn a little mercy from the courts, neither the government nor those accomplices made any public (or artfully leaked) accusations against Ruth, Mark, or Andrew. Indeed, the family members were never even formally notified by prosecutors, as would be required, that they were the subject or the target of a criminal investigation.

Of course, all those accumulating details do not mean that prosecutors will not act against Madoff’s family at some point in the future; new evidence could surface, even years from now. And, apart from the fraud, the family remains vulnerable to federal tax charges arising from their casual use of company cash, credit cards, and low-cost loans. But what those accumulating details
do
mean is that there was insufficient evidence to support even a formal notification that they were the subjects of a criminal investigation during the months and years when they were being repeatedly accused in public of being Bernie Madoff’s accomplices.

Another fact, visible very early in the case, suggests that the prosecutors did not believe that Madoff’s sons, at least, knew anything about the crime before their father’s confession: Mark and Andrew Madoff continued to be represented by the same lawyer, Martin Flumenbaum.

Typically, no two suspects in a criminal investigation can be represented by the same attorney, for reasons so obvious that most people don’t even need to reflect on them. What if Suspects A and B are sharing a lawyer when Suspect A decides to cut a deal and testify against Suspect B? Who will help him negotiate with the prosecutors—the same lawyer who also is honor-bound to look out for Suspect B’s best interests? Definitely not.

It would have been unethical for Flumenbaum to represent both brothers if he had known they were under criminal investigation and might best be served by turning on each other and seeking a deal with prosecutors. Even if the two brothers had sworn a guilty allegiance to each other behind some cover story, it would have been irregular for prosecutors to permit Flumenbaum to represent both sons if a criminal case were secretly in the works against either or both of them.

Yet Flumenbaum remained on duty, alone. Experienced defense lawyers understood the implications; the public, by and large, did not.

As early as December 16, 2008, the
New York Times
reported that investigators had found no evidence linking the sons to Madoff’s Ponzi scheme—except as victims and as witnesses to their father’s confession. Nevertheless, Mark and Andrew Madoff were vilified on the Internet, insulted in public, sued in court, accused in books and magazine articles, and pursued by photographers wherever they went.

The brothers had grown up in the shadow of an autocratic, controlling father whom the whole family considered a genius and to whom their mother constantly deferred. Despite the difficulties his personality created in their relationship, they apparently loved and admired him. At the same moment their father’s crime had destroyed that relationship, it had shoved both of them from lives of near anonymity into a blistering media spotlight, where nothing could be protected as private.

Andrew Madoff’s seventeen-year marriage to his wife, Deborah, had already broken apart, and they had been separated for more than a year. The divorce papers were filed on the same day as his father’s arrest, a coincidence that provided tabloid fodder for days. There were news reports—untrue, his friends would later insist—that some parents of his two young children’s friends grew leery of including them on playdates, allegedly worried that their own children might get caught in any ugly verbal cross fire from angry victims. At the time of the arrest, Andrew was living with his fiancée, Catherine Hooper, an accomplished woman whose background as a fly-fishing guide was promptly dissected down to the bone on the gossip circuit.

One of Andrew’s early expeditions out of their apartment after his father’s arrest was to pick up a take-out meal. It ended in a sidewalk scuffle with an angry former Madoff trader, who recognized him, accused him loudly of being a criminal, and shouted crude sexual insults at Hooper. At that, Andrew exchanged punches with the trader and drove away in fury. Later, when he calmed down, he turned himself in to the police. No charges were filed.

Andrew’s battle with cancer, which had begun with the discovery of a swollen lymph node in his neck in March 2003, seemed to mark a break with his former life at the firm. At thirty-seven, he had lymphoma, tentatively diagnosed as a rare and almost always fatal form called mantle cell lymphoma, although a firm diagnosis would prove elusive. He underwent six weeks of treatment and “came out of the experience with a shaved head, a newfound interest in yoga and an outward soulfulness I hadn’t seen before,” his younger cousin Roger noted in a posthumously published memoir about his own losing battle with cancer. After his diagnosis and treatment, Andrew took more vacation time, spent more time with his two children, embraced his lifelong piano study, and talked openly about the importance of enjoying each day because “life is short.”

Mark Madoff’s life also became a fishbowl. All of tabloid New York knew that he and his second wife, Stephanie, had a new baby in February 2009, Mark’s fourth child and their second child together. Everyone in the Madoff blogosphere knew that neither Ruth nor Bernie had seen their new grandson because Mark, like Andrew, had avoided any contact with his parents since the day of the confession. In months to come, everyone with a television set or computer would know that Mark’s wife petitioned the court to change her own and their children’s last names to “Morgan,” to avoid the stigma and danger of the Madoff name—a name her husband could not shed so easily.

Most people who knew the family thought that Bernie felt closer to Mark, who was warmer and less cerebral than Andrew, although each son always got a hug and kiss from his father whenever Madoff returned to the trading floor after an extended vacation. One longtime friend recalled going to dinner with Ruth and Bernie one evening in 1999, when Mark’s first marriage was splintering apart after nearly a decade. “Bernie spent 90 percent of the dinner outside talking with Mark, sort of holding his hand,” this friend remembered. Also, Mark was more likely than Andrew to join their father in glad-handing the crowd at securities industry events and the annual employee parties at Christmas and on the beach at Montauk.

Whatever their personal dramas, though, both sons had official titles at the Madoff firm, titles that gave them legal responsibilities as licensed Wall Street professionals. So both of them were sitting ducks for civil litigation by the SEC, which could accuse them of a failure to adequately supervise the business, especially after the firm began to receive such steady infusions of capital from their father’s secret fraud. But as late as the fall of 2010 federal regulators had not made even that anticipated accusation against the Madoff sons.

To be sure, the regulators who might make that accusation had failed to detect Madoff’s devious strategies, too. This was the curious paradox in the public’s certainty about the family’s guilt: no one seriously disputed that Madoff had successfully and repeatedly hidden his crime from regulators, foreign accounting firms, hedge fund due-diligence teams, and his savviest professional investors. Why was it so implausible that he had hidden it from his wife, who had no official role at the firm, and from his sons, who worked in a separate part of the business and learned only as much about his private, closely held investment management business as Madoff chose to tell them?

Even so, there was nothing to prevent regulators from accusing the Madoff sons of failing to supervise their father’s business.

There would be a certain irony if they were held responsible for what happened in the bowels of their father’s brokerage firm, because their father had never even made them his partners. They were simply at-will employees, albeit extremely well-paid ones. Their father was the sole owner of Bernard L. Madoff Investment Securities; nobody disputes that he had always been almost obsessively in charge.

With their father’s confession and arrest, any of their assets that had not been consumed in their father’s crime were certain to be claimed for his victims—on the grounds that everything they got from the firm over most, if not all, of their years of employment had been their father’s ill-gotten gains. The business they expected to inherit had been destroyed, along with the personal and professional reputations on which they might have built new careers. Half the world thought they were criminals, and the other half thought they were too naïve or lazy to discover that their father was one.

Although neither the SEC nor the U.S. attorney filed any court cases against Mark or Andrew in the first two years after their father’s arrest, almost everyone else did. It increasingly began to seem that personal bankruptcy would be the only way they would be able to preserve any assets at all for their families. Whatever their skills or experience, it would be a brave employer indeed who openly offered a job on Wall Street to one of Bernie Madoff’s sons.