The Wizard of Lies: Bernie Madoff and the Death of Trust (63 page)

“many investors use Sentry like a checking account”:
Galvin Fairfield Greenwich
Complaint, Exhibit No. FAI 00005367, e-mail from Charles Murphy dated Friday, Apr. 25, 2008, at 12:37 pm.

“I don’t know why I agreed to see you”: This passage is based on interviews with the retired businessman and his accountant, supported by records maintained by the businessman’s secretary and BLM appointment calendar.

it has five bedrooms and baths: The online real estate listing by Killen Real Estate described and provided photographs of the home, at 51 Wanoma Way, when it was put on the market for $7. 5 million after Madoff’s arrest.

the financial consultant in Boulder, Colorado: The passage is based on
Picard v. Fair
field Sentry
Amended Complaint, pp. 133–36 and Exhibits 76 and 77.

Bernie Madoff is meeting with four visitors from Florida: Details of the visit and its aftermath are contained in
MorseLife Foundation Inc. v. Merrill Lynch, Pierce, Fenner & Smith, Inc
., filed in the Circuit Court of the Fifteenth Judicial Circuit in and for Palm Beach County, Florida, on July 16, 2009; and Kathleen Chapman, “Merrill Lynch Negligent on Madoff, Lawsuit States,”
Palm Beach Post
, July 28, 2009. The firm denied the allegations. The case was subsequently moved from state court to the U.S. District Court for the Southern District of Florida, where Merrill Lynch Bank & Trust Company was substituted for Merrill Lynch as the defendant. In an opinion dated July 21, 2010, the court ruled that the dispute had to be submitted to arbitration, as required in the foundation’s contracts with the Merrill Lynch entities. The federal case was stayed pending the outcome of the arbitration process.

one client is pulling $74. 5 million out of the Sentry fund:
Galvin Fairfield Greenwich
Complaint, Exhibit 27.

“there are certain aspects of BLM’s operations that remain unclear”: Ibid., Exhibit 19.

“the biggest single counterparty exposure risk we have at FGG”: Ibid., Exhibit 28.

the Madoffs’ small stucco town house: Details about the town house are from Alan Katz, “Madoff’s Three-Bedroom Riviera Retreat Belied Ponzi Scheme Role,” Bloomberg news service, Jan. 8, 2009. The rest of the passage is based on confidential interviews.

a reassuring “Dear Investor” letter:
Galvin Fairfield Greenwich
Complaint, Exhibit 49, p. 1.

“looking to do an orderly exit tomorrow”: Ibid., Exhibit 13, p. 1.

DiPascali has not confirmed his “orderly exit”:
Galvin Fairfield Greenwich
Complaint, p. 89, paragraph 254 reports that the chief risk officer and another partner at the firm both acknowledged in sworn testimony that the investor letter was not accurate.

Madoff will not reach the safe harbor of Treasury bills until Friday: Ibid., Exhibit 49, pp. 2–16.

The account statements are all lies: Regulators in Massachusetts summed it up this way: “Investors experienced a double falsehood: Madoff was sending fake records to Fairfield that Fairfield claims it did not detect and Fairfield misrepresented what those records said to customers.”
Galvin Fairfield Greenwich
Complaint, p. 89, paragraph 255.

“not providing risk capital to anyone”: Ibid., Exhibit 33.

all records of his dealings with Kohn be destroyed:
Picard v. Kohn
, p. 8.

More than a half-billion dollars in cash is about to pour out:
Picard v. Herald Fund
, p. 11.

a modern seven-story boutique building on East Seventy-fourth Street: The new building, called LUX 74, was also home to Ken Starr, a Ponzi schemer to the stars who pleaded guilty in September 2010.

The one thing he has no intention of doing:
Madoff Criminal Information
, p. 22.

Tucker, Noel, and McKeefry file into Madoff’s offices: The passage is based on details in
Galvin Fairfield Greenwich
Complaint, Report on “BLM Operational Due Diligence” visit on Oct. 2, 2008, included as Exhibit 35.

Stanley Chais is in town from Los Angeles: BLM appointment calendar; First BLM Interview.

in June he wrote investors in his partnerships:
SEC Chais
Complaint, p. 12.

Madoff privately wonders if Chais suspects his fraud: First BLM Interview.

the amounts he has wired recently to the Kingate Euro fund:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Kingate Global Fund et al.
, Second Amended Complaint in Adversary Proceeding No. 09-01161 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 13.

The day gets off to a bad start for Amit Vijayvergiya: This passage is based on e-mails filed as Exhibit 30,
Galvin Fairfield Greenwich
Complaint.

JPMorganChase is revving up to pull $250 million: Claudio Gatti and Diana B. Henriques, “JPMorgan Exited Madoff-Linked Funds Last Fall,”
New York Times
, Jan. 28, 2009. A bank spokeswoman acknowledged that the bank “became concerned about the lack of transparency to some questions we posed as part of our review.” A source close to the bank recalled being told at the time that the bank’s “due-diligence people had too many doubts” about the performance of the underlying funds, which were operated by Fairfield Greenwich Group. “They felt the consistency of its performance wasn’t any longer credible” given the downturn in the overall market, the source said.

J. Ezra Merkin’s office in the black granite tower at 450 Park Avenue: Details in this passage are drawn from
New York University v. Ariel Fund Ltd., Gabriel Capital Corp., J. Ezra Merkin et al.
, Supreme Court of the State of New York, County of New York, filed Dec. 24, 2008, and from Attachment B in that lawsuit, the Affidavit of Maurice Maertens.

For some reason, Ezra Merkin does not say: His failure to do so would be cited among the complaints in the civil fraud case filed against him in 2009 by the New York State attorney general, Andrew M. Cuomo. The case was pending in state court in February 2011. Lawyers for Merkin, who denied that he had any knowledge of the Ponzi scheme, also denied in court filings that he had misled his investors or misrepresented the way his hedge funds operated, as Cuomo asserted.

“which is so consistently and significantly ahead of its peers”: These details are drawn from copies of these documents posted online by Benjamin Masse-Stamberger, author of “The Madoff Affair: The Secret Report Accusing JPMorgan,”
L’Express
, Oct. 7, 2010. (The documents themselves were posted in English, although the article was published in French.)

“I can see the price you want”: These quotations are based on a certified translation of the conversation provided to the author.

“we are simple people from Switzerland”: The Swiss banker quoted in the conversation was identified in the
L’Express
account as Laurent Mathyson-Gerst, a director of Aurélia Finance, an investment firm in Geneva. He and the four other directors of the firm were named in criminal charges related to their alleged mismanagement of client assets invested with Madoff. As of publication, that case was pending, and the directors had denied any wrongdoing. No separate actions had been filed citing this recorded conversation. See Silke Koltrowitz and Emma Thomasson, “Swiss Judge Allows Charges in Madoff Losses Case,” Reuters, April 24, 2009.

a worried businessman in Dubai arrives for a meeting: Details of this meeting are drawn from
Jitendra Bhatia et al. v. Standard Chartered International, et al.
, originally Case No. 1:09-cv-02410 (LTS) in U.S. District Court for the Southern District of New York; the case was consolidated with
Anwar et al. v. Fairfield Greenwich Limited, et al.
, Master File No. 09-cv-0118 (VM), also for the Southern District of New York, pp. 5, 7–8, 10–12.

a staggering $850 million:
Picard v. Fairfield Sentry
, Exhibit 2.

Madoff is sure he can forestall disaster: First BLM Interview; e-mail from BLM, Feb. 20, 2011.

Increasingly, he is inclined to say no: Ibid.

It is Thanksgiving Day: This passage is based on cited news accounts, comments by the chairman of Grupo Santander (the bank’s holding company), confidential notes and interviews, and lawsuits filed against the bank.

He is surprised that Madoff scheduled it on the holiday: Confirmed by a bank spokesman, based on comments by the bank chairman at the company’s annual meeting, February 2009.

Echenique Gordillo is here at the request of the CEO of the holding company: Ibid.

Optimal’s analysts have written memos citing weaknesses:
In re: Santander–Optimal Securities Litigation
(hereafter
Santander Litigation
), Consolidated Amended Class Action Complaint, Case No. 09-cv-20125 (PCH), U.S. District Court, Southern District of Florida.

always managed to persuade themselves that Madoff was still safe: See Jonathan Clark, “Madoff Securities,” Optimal Investment Securities, an internal report dated July 2006, and a memo “To: Manuel Echeverria, From: Karine Courvoisier, Re: Meetings with Bernard Madoff and lawyers in New York—September 18–19, 2002,” p. 4, both filed as exhibits in
Santander Litigation
.

the mood becomes tense, maybe even threatening: Terrence Owen Jones, a former Optimal executive, told plaintiffs’ lawyers in the
Santander Litigation
(at p. 116) that the reason for the meeting was that Optimal was withdrawing $400 million from Madoff, but he did not indicate when Madoff was told about the planned redemption. According to the bank, the redemption request was not made until Echenique Gordillo returned to Madrid, although
El Confidencial
, a Spanish publication, reported that Echenique Gordillo delivered the news, prompting Madoff’s angry response. (Charles Penty, “Santander Sought to Withdraw Madoff Funds,
El Confidencial
Says,” Bloomberg news service, Dec. 24, 2008.) But in a subsequent report, the
Financial Times
said that “what happened at the meeting is disputed,” with one “banker with knowledge of the meeting” saying it was a “routine” inspection. (Joanna Chung, Victor Mallet, and Brooke Masters, “Santander Praised Madoff Weeks Before His Arrest for Alleged Fraud,”
Financial Times
/
FT.com
, Jan. 23, 2009.) The bank confirmed to the author that the meeting was scheduled because its chairman was concerned about the Madoff investment, and the visit was not routine, so the
El Confidencial
account seems more likely to have captured the mood of the meeting, if not all the details.

Bernie Madoff sits down for a talk with Frank DiPascali: These details are drawn from
DiPascali Criminal Information
, p. 19.

Madoff is tired of the relentless struggle: First BLM Interview.

He wants to use this money: Prosecutors, in criminal charges against DiPascali’s colleague JoAnn “Jodi” Crupi, will assert later that she and DiPascali persuaded Madoff to make these payments. In any case, he either initiated the request or approved it and described it to his sons as his own idea.

He returns from his street corner meeting and starts following orders:
DiPascali Criminal Information
, p. 20.

Frank DiPascali leaves his spacious hilltop home:
U.S.A. v. Daniel Bonventre, Annette Bongiorno, JoAnn Crupi a/k/a/ “Jodi,” Jerome O’Hara and George Perez
(hereafter
Second Superseding Bonventre Indictment),
filed on Nov. 18, 2010, as S2-10-cr-228 (LTS), U.S. District Court, Southern District of New York, pp. 41, 69. This indictment added Bongiorno and Crupi to the indictment pending against Bonventre, Perez, and O’Hara.

Crupi tells him she plans on “sticking to my story”: Ibid., p. 69.

11. Waking Up In The Rubble

closed their doors almost immediately: The Robert C. Lappin Foundation also closed immediately, but later reopened with new funding. The Picower Foundation was to be reendowed after Jeffry Picower’s widow reached an out-of-court settlement with the bankruptcy trustee.

At one breakfast panel, held at the “21” Club in Manhattan: The author’s notes from covering the event.

The Institute for Jewish Research in Manhattan organized an evening panel discussion: The author’s notes from covering the event.

“perfect storm for the anti-Semites”: Anti-Defamation League press release, Dec. 19, 2008.

Roughly a thousand Madoff accounts: SIPC-Garrett Letter, p. 10. Not all of those accounts would file claims. Of the 846 approved claims of less than $500,000, the fictional balances totaled $1. 6 billion; the total out-of-pocket cash those victims lost, under the net equity method, was $176. 5 million.

not “How much did you lose?” but “How much do you have left?”: This passage was drafted by the author early in 2010, but the distinction was phrased in similar terms in the eloquent essay by Stephanie Halio, “How Our Lives Have Changed,” in
The Club No One Wanted to Join: Madoff Victims in Their Own Words
, ed. Erin Arvedlund, comp. Alexandra Roth (Andover, Mass.: Doukathsan Press, 2010), p. 121.

few people in Washington considered SIPC as “insurance” against wall-to-wall fraud inside a brokerage house: See several GAO reports on SIPC, including General Accounting Office, “Securities Investor Protection: A Regulatory Framework Has Minimized SIPC’s Losses,” September 1992.

the GAO was still critical of how SIPC handled its public relations duties: See Letter to the Honorable John D. Dingell, Ranking Minority Member, Committee on Energy and Commerce, House of Representatives, et al., from Orice M. Williams, Acting GAO Director for Financial Markets and Community Investment, GAO, dated July 9, 2004, pp. 5–7.

the GAO warned that SIPC was not really prepared: General Accounting Office, “Securities Investor Protection,” p. 3.

SIPC liquidated 109 firms: These figures are all drawn from the relevant SIPC annual reports, available online at its Web site,
www.sipc.org
.