The Wizard of Lies: Bernie Madoff and the Death of Trust (50 page)

Early December brought a lawsuit seeking $6.4 billion in recovered fees and damages from JPMorgan Chase, the primary bank used by Madoff during his decades-long fraud. The case was filed under seal, but Sheehan said publicly that it would show that the bank had been “willfully blind” in its dealings with Madoff and had ignored its own executives’ “clear, documented suspicions” about him over the years. The lawsuit would remain sealed until early February, when its detailed documentation of the bank’s growing doubts about Madoff would become public. The formidable bank said the accusations were preposterous and vowed to fight them in court.

Three days later, on Sunday evening, December 5, Sheehan’s team filed a massive lawsuit seeking $9 billion from HSBC, the global bank based in London, and dozens of hedge funds and individual defendants it had dealt with during the Madoff years. The allegations were familiar—that people at the bank had suspected Madoff but looked the other way to preserve the fees he generated for them. These allegations, too, were stoutly denied.

On Tuesday, December 7, two more high-profile cases were filed—both under seal. One was against Tremont Group Holdings, Madoff’s second-largest feeder fund complex after Fairfield Greenwich. The other was against a host of companies and partnerships affiliated with the Wilpon family, the owners of the New York Mets baseball team. This time, Sheehan offered no details—but he did disclose that the trustee’s lawyers were “currently engaged in good-faith negotiations” with lawyers for the Wilpons, aimed at settling the case out of court. By the end of January 2011, the
New York Times
would have uncovered some key details about the sealed lawsuit. On the day Fred Wilpon disclosed that the New York Mets were seeking new investors, the
Times
would report that the trustee was suing the Wilpons for hundreds of millions of dollars.

There was a case against the directors of Madoff’s bankrupt British affiliate, filed under seal in London. There was a claim for $1 billion against seven major banks that had sold derivatives linked to Madoff feeder funds. There were multimillion-dollar lawsuits against smaller but notable hedge fund managers in Manhattan, Europe, and the Caribbean, including the pension specialist Sandra Manzke and her Maxam Fund Group in Connecticut. And there were nearly nine hundred lawsuits against individual Madoff investors and their family partnerships and trust funds—the cases the “net winners” in the vast fraud had expected for almost two years.

By now, the trustee’s sprint toward the December 11 deadline for filing clawback suits had become a fixture in the hourly headlines on Internet news sites. Given the ambient exhaustion and the possibility of something breaking down or going astray in the complex process, Picard and Sheehan agreed that it would be foolish to risk a last-minute glitch in the electronic filing system at the federal courthouse, so they established midnight Friday, December 10, as their internal deadline. At least that would give them a cushion of time if something went wrong.

Each half of this legal odd couple stayed in character. While Sheehan was busily and publicly filing new lawsuits, Picard was negotiating behind closed doors to settle old ones.

On Monday, December 6, he landed a $500 million settlement with Union Bancaire Privée, the elite family-run Swiss bank that had set up its own feeder fund to invest with Madoff. The next day, he and the U.S. government announced a sweeping settlement with Carl Shapiro and his family in Palm Beach, including the former Cohmad executive Robert Jaffe, Shapiro’s son-in-law. Although Picard had named Jaffe in his lawsuit against Cohmad, the trustee had not sued Shapiro, and neither he nor the government accused Shapiro of any wrongdoing in connection with the settlement. The deal added $624 million to the pool of cash for Madoff victims. A few days later, the trustee announced smaller settlements with some important charities, including Hadassah. The settlements almost doubled the amount of cash Picard had raised; it now approached $2.5 billion.

But all the earlier lawsuits and settlements were eclipsed by a case filed on Friday evening, December 10. In an ambitious 161-page complaint, Sheehan’s team sued the Austrian banker Sonja Kohn, members of her family, her flagship firm Bank Medici, her major European banking partners, and a battalion of trusts, partnerships, shell companies, and individuals—more than three dozen defendants in all. Those defendants who chose to comment denied the allegations. Uniquely among the lawsuits filed on Picard’s behalf, this case asserted civil racketeering charges against the defendants, claiming that Kohn had knowingly helped steer $9 billion into Madoff’s hands, introducing him to new sources of cash for his Ponzi scheme in exchange for tens of millions of dollars in secret fees.

The lawsuit sought nearly $20 billion in recovered cash and damages. But since the court could order the losing defendants in a racketeering case to pay triple damages, the Kohn case had the potential to produce up to $60 billion for Madoff’s victims. Lawyers for Kohn promptly denied that she had ever known, or even suspected, that Madoff was operating a Ponzi scheme and said that she and her family would vigorously contest the trustee’s claims in court.

Later that night, just hours before midnight, the last big case was filed—a case rooted in the first days of Madoff’s fame as a market wizard. Its primary defendants were Frank Avellino and Michael Bienes, the two accountants whose lives had intersected in the accounting firm run by Madoff’s father-in-law. Picard now sought $900 million from them, their wives, and a host of family partnerships and trust funds. The lawsuit accused the two accountants of knowingly pocketing millions of stolen dollars that Madoff had paid as their reward for bringing investors back to him after the SEC shut down the Avellino & Bienes operation in 1992. Their lawyers did not comment but prepared to battle the accusations in court.

One tiny flake in the blizzard of litigation that week was a case seeking money from various trust accounts set up for the benefit of Bernie Madoff’s grandchildren, the children of his sons, Mark and Andrew.

The lawsuit had not been unexpected, a person close to Mark Madoff said later. It came as the renewed publicity about the December 11 litigation deadline and the approach of the scandal’s second anniversary were shoving the Madoff sons back into the spotlight.

It was not a place where Mark Madoff had ever felt comfortable.

By this time he was a defendant in at least nine federal lawsuits, including several others filed by Picard—who had publicly characterized him as negligent, derelict, and incompetent. Picard’s scorn hadn’t hurt as much as the enforced silence of those former Wall Street colleagues who might have publicly defended him, a friend said. Others recalled that Mark had always been sensitive to criticism and inclined to brood over his grievances, to visibly fret over problems. “That’s why I never believed he knew about the fraud,” one family friend and former business associate said. “He was always a nervous wreck. He could never have stood it—keeping a secret like that would have torn him apart.”

Neither he nor his brother, Andrew, had spoken to their parents since the day of their father’s arrest. Still, Mark’s estrangement from his gilded past seemed to cut deeper than his brother’s. Within a short time, Andrew was unfazed by the inevitable raised eyebrows of waiters looking at his credit card and airport security guards examining his driver’s license; yes, he would shrug, he was
that
Andrew Madoff. He told friends he had never met anything but courteous sympathy. But Mark did not seem willing to risk the ill will of strangers; he had agreed with his wife’s decision to change her own and their children’s last name from Madoff to Morgan.

“He had always been so proud of his name and being the guy who was Bernie Madoff’s son,” another friend recalled. “And then afterwards all anyone ever saw in him was that he was Bernie Madoff’s son.”

By the autumn of 2010, however, it seemed to friends that he had gotten his bearings at last. Accepting that he could not openly work on Wall Street, he was maintaining a network of friends in the financial industry. One of them provided free desk space when he needed it, and many were happy to see him at lunch to talk about the business. Picard held his purse strings—his assets were frozen, and his spending was subject to the trustee’s supervision—but he was looking for new ways to support his family.

His primary focus was a new business, an online real estate newsletter called Sonar Report, which he hoped would be the first in a fleet of specialty online financial publications. Each day he would rise at 4:00
AM
to scour the Internet for relevant news items, assemble the newsletter, and, at around 9:00
AM
, send it out electronically. It was a smart and useful service, and some of its regular readers were willing to sign up for paid subscriptions. But most of his readers had no idea there was a Madoff involved—he felt he had to purge his name from the newsletter’s pages and incorporation records.

The issue for Friday, December 10, was sent out a few minutes past 9:00
AM
, as usual. Mark’s wife, Stephanie, and their four-year-old daughter were in Florida with his mother-in-law, visiting Disney World, leaving him to care for their twenty-two-month-old son and the family dog, an engaging Labradoodle named Grouper. As the day went on, Mark talked with friends and kept scheduled appointments. He seemed fine—or, at least, no more upset than usual about the fresh media attention focused on him that week. He nodded graciously when an employee at the garage that housed his family cars thanked him for his annual Christmas tip. He walked the dog for about ten minutes that evening, his doorman later said, and returned to the apartment for the night.

Awake at 4:00
AM
, as usual, on Saturday—the second anniversary of his father’s arrest—he sent a series of e-mails. One went to his lawyer, Marty Flumenbaum: “Nobody wants to believe the truth. Please take care of my family.” He wrote his wife, telling her, “I love you,” and urging her to “please send someone” to take care of their son.

When Stephanie saw the notes several hours later, she called her step-father in New York and asked him to go to the apartment immediately. He arrived to find Mark’s body hanging from a black dog leash attached to a metal beam in the living room ceiling.

It clearly was suicide—an autopsy would later confirm it, but evidence at the scene was proof that Mark had been determined to end his life. Police found a snapped vacuum cleaner cord suspended from the same metal beam, and a discarded noose fashioned from that cord was on a table nearby. Mark’s son and the family pet were found in another room in the apartment—“unharmed,” in the vocabulary of police reports.

A person who had remained close to Mark since childhood said he believed that the approaching anniversary, and the attendant surge in speculation about Mark’s guilt or innocence, had “reopened the wounds. It must have just been more than he could bear.”

Mark Madoff’s suicide, at age forty-six, was another blow for a shattered family. Ruth was heartbroken, her lawyer said. Bernie wept at the news, his lawyer said later. Neither could attend a funeral—even if they had been welcome, the fierce media clamor made it impossible to hold one. Mark’s cousin Shana and uncle Peter would have been welcome, but their lawyers still advised against any contact. Mark’s wife and brother arranged a private cremation and a quiet gathering with their families and a few friends; Ruth was not included.

Still standing in the rubble was Andrew Madoff, a cancer survivor at age forty-four who seemed to be less haunted by the past than his brother had been. Just a few weeks before his brother’s death, Andrew and his fiancée, Catherine Hooper, had gathered friends for a Thanksgiving dinner at their apartment on the Upper East Side of Manhattan. Music had always been part of his life, and he spent more time at the piano, working with his longtime instructor. Hooper had launched a new business advising families on strategies for dealing with disastrous disruptions in their lives. As she described it, she and Andrew were determined to deal wisely with the disastrous disruption called the Madoff scandal. “When all of this happened, we decided that we weren’t going to sit around all of the time with our laptops on our laps reading blogs,” Hooper later told a reporter. “We were not going to sit around talking about how horrible this is.”

Perhaps it all came down to the habits of mind revealed in that first searing confrontation two years earlier. When Bernie Madoff confessed, as he recalled in one prison interview, Andrew wept and gave his father a last embrace, but Mark’s almost inarticulate anger burned white hot from that moment on. While Andrew’s lawyers dealt with lawsuits and weighed settlement negotiations with Picard, Andrew seemed to get on with his life—still willing to be a Madoff, but not willing to be defined by his father’s crime.