Examining Bernie Madoff, 'The Wizard Of Lies'

Bernie Madoff leaving U.S. District Court in Manhattan after a bail hearing in New York, Monday, Jan. 5, 2009. The former executive chairman of NASDAQ was sentenced to 150 years in prison in 2009 for his role in a massive Ponzi scheme. i i

hide captionBernie Madoff leaving U.S. District Court in Manhattan after a bail hearing in New York, Monday, Jan. 5, 2009. The former executive chairman of NASDAQ was sentenced to 150 years in prison in 2009 for his role in a massive Ponzi scheme.

Kathy Willens/AP Photo
Bernie Madoff leaving U.S. District Court in Manhattan after a bail hearing in New York, Monday, Jan. 5, 2009. The former executive chairman of NASDAQ was sentenced to 150 years in prison in 2009 for his role in a massive Ponzi scheme.

Bernie Madoff leaving U.S. District Court in Manhattan after a bail hearing in New York, Monday, Jan. 5, 2009. The former executive chairman of NASDAQ was sentenced to 150 years in prison in 2009 for his role in a massive Ponzi scheme.

Kathy Willens/AP Photo

The first journalist to interview Bernie Madoff after the money manager was sentenced to 150 years in prison says she was struck that Madoff hadn't fundamentally changed.

Even behind bars, says New York Times financial writer Diana Henriques, Madoff was a "fluent liar."

"The magic of his personality is how easy it is to believe him — almost how much you want to believe him," she tells Fresh Air's Terry Gross. "For example, he assured me in that first interview — and in emails subsequently that we exchanged — that he wasn't going to talk to other writers. ... Of course, it wasn't true, he was talking to others. It was all a lie."

Henriques, who led the Times' coverage of the Madoff scandal, is the author of The Wizard of Lies: Bernie Madoff and the Death of Trust. Her book describes how Madoff created the biggest Ponzi scheme in history, contrasting his downfall with the prominent role he played in shaping the modern markets.

The Wizard of Lies by Diana Henriques
The Wizard of Lies: Bernie Madoff and the Death of Trust
By Diana B. Henriques
Hardcover, 448 pages
Times Books
List Price: $30

Read An Excerpt

Henriques was not duped by Madoff financially, but she did know him in the 1990s on Wall Street as one of the key figures reshaping the American stock market through automation and computerization. In late 2008, when news of his massive Ponzi scheme broke, Henriques — like many people who knew Madoff — was understandably shocked.

"I was stunned," she says. "Here was a man who seemed to have built a legitimate business with a legitimate reputation that had made him both very wealthy and very admired, respected and trusted. The notion that for so many years, behind the scenes, there was this dark parallel universe of this fraud was really staggering to me."

Visiting Madoff

In February, Henriques traveled to the prison where Madoff is serving a 150-year sentence to conduct a two-hour interview. It was her second interview with Madoff, who maintained that his wife and two sons knew nothing about the Ponzi scheme.

"In many ways," she wrote in the Times, "Madoff seemed unchanged. He spoke with great intensity and fluency about his dealings with various banks and hedge funds, pointing to their 'willful blindness' and their failure to examine discrepancies between his regulatory filings and other information available to them."

But Madoff, she says, reached that opinion somewhat late.

"He did not make that statement in my first visit with him," she says. "In my first visit, I asked him directly, 'Who else knew?' The only person, he conceded, might have suspected was this large private investor, Jeffery Picower, who drowned in his swimming pool [several] months after Madoff was arrested. But he did not identify anyone else as likely having known."

Diana Henriques is the author of The White Sharks of Wall Street and Fidelity's World. She is a senior financial writer for The New York Times. i i

hide captionDiana Henriques is the author of The White Sharks of Wall Street and Fidelity's World. She is a senior financial writer for The New York Times.

Frank Conrad/Times Books
Diana Henriques is the author of The White Sharks of Wall Street and Fidelity's World. She is a senior financial writer for The New York Times.

Diana Henriques is the author of The White Sharks of Wall Street and Fidelity's World. She is a senior financial writer for The New York Times.

Frank Conrad/Times Books

In her second interview with Madoff, she says, he raised the idea that banks and hedge funds had to have known what he was up to.

"But the banks, of course, insist that he fooled them just as effectively as he fooled everybody else," she says. "And those are going to be epic lawsuits. ... Let me say this, though: Did they suspect that he was cutting corners, maybe bending the rules a little bit? Probably. But remember the times. Everybody was, as we now know. This was a time of very shabby behavior on Wall Street as we look back on it now. So if Bernie wasn't scrupulously crossing every t and dotting every i, that would not have looked that unusual to the Wall Street of that day [and] it would not have automatically suggested to suspicious bankers that he was running a Ponzi scheme."


Interview Highlights

On his personality

"He inspired trust in a very unusual way. He really was not like any Ponzi schemer I've ever met before, and unfortunately I've met more than a few over the years. Most of them are kind of swashbuckling characters — you know, the bon vivant, the most charming guy in the room. He would never be the most charming person in the room. He would make you feel like you were the most charming person in the room."

On interviewing him the first time

"He made me feel like I was the most interesting reporter he had ever met and certainly the best — the most proficient, the most professional. It was quite amazing to see the Madoff act up close and in person."

On creating a Ponzi scheme

"You have to remember this: Bernie Madoff helped write the rule book. He knew what it was to be a regulated entity. He ran a regulated broker dealer, a wholesale trading house. So he knew what regulators would look for. And when it came to his Ponzi scheme, he made sure that what they would be looking for was there. So the deceptions were all designed with a regulator or an auditor in mind because he knew what that experience was like."

On the difference between Madoff's Ponzi scheme and the traditional Ponzi scheme

"The traditional Ponzi scheme exploited investors' greed. Madoff didn't do that. A Madoff scheme is different. It exploits not investors' greed but investors' fear — their fear of volatility, their fear of losing what they have. In fact, through many of the years of Madoff's fraud, investors could have made a lot more money even in some of the very prominent mutual funds. ... But they were willing to give up those greater returns in exchange for the consistency of Madoff's returns. He made them feel safe. They all thought they were taking a conservative step."

On how Madoff knew his time was up

"Money was flowing out, in part, because he had left himself so vulnerable by accepting very liquid accounts. Other hedge fund managers around the world were being faced with demands from their investors who wanted their money back. Some of their money was locked up in [not] liquid investments or stocks that had suddenly taken a nosedive, but if you had money with Madoff, you thought, 'That's pretty liquid money. That's almost like my money market fund.' So that was the first money [people and hedge funds investing in many places] started to tap to repay their investors, and it became this deadly game of dominos falling, where they would take money out to pay their investors and that would require their feeder fund to take money out of Madoff — and Madoff kept paying those redemptions, but he could see far more money was flowing out than was flowing in. He told me that by about Thanksgiving of 2008, he was pretty sure he just wasn't going to keep this going."

Excerpt: 'The Wizard Of Lies'

The Wizard of Lies by Diana Henriques
The Wizard of Lies: Bernie Madoff and the Death of Trust
By Diana B. Henriques
Hardcover, 448 pages
Times Books
List Price: $30

An Earthquake on Wall Street

Monday, December 8, 2008

He is ready to stop now, ready to just let his vast fraud tumble down around him.

Despite his confident posturing and his apparent imperviousness to the increasing market turmoil, his investors are deserting him. The Spanish banking executives who visited him on Thanksgiving Day still want to withdraw their money. So do the Italians running the Kingate funds in London, and the managers of the fund in Gibraltar and the Dutch-run fund in the Caymans, and even Sonja Kohn in Vienna, one of his biggest boosters. That's more than $1.5 billion right there, from just a handful of feeder funds. Then there's the continued hemorrhaging at Fairfield Greenwich Group — $980 million through November and now another $580 million for December.

If he writes a check for the December redemptions, it will bounce.

There's no way he can borrow enough money to cover those withdrawals. Banks aren't lending to anyone now, certainly not to a midlevel wholesale outfit like his. His brokerage firm may still seem impressive to his trusting investors, but to nervous bankers and harried regulators today, Bernard L. Madoff Investment Securities is definitely not "too big to fail."

Last week he called a defense lawyer, Ike Sorkin. There's probably not much that even a formidable attorney like Sorkin can do for him at this point, but he's going to need a lawyer. He made an appointment for 11:30 am on Friday, December 12. He's still unsure of what to do first and when to do what, but a Friday appointment should give him enough time to sort things out.

In his nineteenth-floor office on this cold, blustery Monday, Bernie Madoff starts going through the motions. Around him, the setting is incongruously serene: black lacquer furnishings against silvery carpets and darker gray walls, a graceful staircase in the center. His firm occupies the eighteenth and nineteenth floors of the Lipstick Building, a distinctive oval tower on Third Avenue at East Fifty-third Street. Around the curving walls of windows on each floor, slabs of glass hang from the ceiling to form bright offices and conference rooms. Hidden behind locked doors on the seventeenth floor is a bland set of cluttered offices that Madoff also rents, connected to the rest of the firm only by the building's main elevators and fire escapes. It is down there, far from Madoff's light-filled office, that his fraud is invisibly but inexorably falling apart.

A little before lunch, he talks on the phone with Jeffrey Tucker at Fairfield Greenwich. They've known each other for almost twenty years.

Madoff's controlled frustration sounds fierce over the phone lines. What the hell is this, $1.2 billion in withdrawals in just over a month? Hadn't the executives at Fairfield Greenwich been promising since June that they would "defend" against these redemptions? They're even taking money from their own insider funds! Some defense.

He threatens: Fairfield Greenwich has to replace the redemptions already piling up for December 31, or he will close its accounts. He will kill the goose supplying all those golden eggs for Tucker and his wife, for his younger partners, and for the extended family of Tucker's cofounder Walter Noel Jr.

He bluffs: "My traders are tired of dealing with these hedge funds," he says. Plenty of institutions could replace that money, and have been offering to do so for years. But he has "remained loyal" to Fairfield Greenwich, he reminds Tucker.

As calm as a losing litigator, Tucker assures Madoff that he and Noel are working on a brand-new fund, the Greenwich Emerald fund, that will be a little riskier but will produce better returns. It will sell easily, when the markets settle down.

Madoff scoffs at the notion that Tucker and Noel will ever raise the $500 million they hope for — even though the partners are putting millions of dollars of their own money into it already. They'd better focus on hanging on to the money they are losing right now, Madoff says, or he is going to cut them off.

A shaken Jeffrey Tucker writes an e-mail to his partners a few minutes later. "Just got off the phone with a very angry Bernie," he tells them, repeating the threats. "I think he is sincere."

He isn't. The Fairfield Sentry fund will shut down before December 31, but it won't be because Tucker and his partners aren't "defending" against their redemptions. It will be because they have stifled their skepticism for twenty years, determined to believe that their golden nest eggs were safe with Madoff.

Sometime today, people down on the seventeenth floor who work for Madoff's right-hand man, Frank DiPascali, will get the paperwork done so that Stanley Chais, one of Madoff's backers since the 1970s, can withdraw $35 million from one of his accounts. Chais has been loyal to Madoff a lot longer than the Fairfield Greenwich guys.

Around 4:00 pm, friends and clients start to arrive for a meeting of the board of the Gift of Life Bone Marrow Foundation, which helps find bone marrow matches for adults with leukemia. Bernie and his wife, Ruth, support the group because their nephew Roger succumbed to the disease and their son Andrew had a related illness, a form of lymphoma. In ones and twos, the board members show up, climbing the oval stairway from the reception area on the eighteenth floor, where the firm's administrative staff is housed.

At the head of the stairs, they turn right and head for the big glass-walled conference room between Madoff's office and his brother Peter's office. Ruth Madoff arrives and joins them. Eleanor Squillari, Bernie's secretary, has arranged some soft drinks, bottled water, and snacks on the credenza near one of the doors.

Jay Feinberg, the foundation's executive director and a leukemia survivor himself, sits down at one end of the long stone table with a few of his staff members and his elderly father, a board member. Bernie is at the other end, with Ruth on his right. There are people here who were woven into every decade of Madoff's life — Ed Blumenfeld, his buddy and the co-owner of his new jet; Fred Wilpon, an owner of the New York Mets baseball team and a friend since their kids were growing up together in Roslyn, Long Island; Maurice "Sonny" Cohn, his partner in Cohmad Securities since the mid-1980s, a friend who has shared so many jokes with him over the years and now shares his office space.

Ezra Merkin, the financier and conduit to so many Jewish charities, arrives and settles his bulk into the square black leather chair next to Ruth. The elegant stockbroker Bob Jaffe, the son-in-law of Madoff's longtime Palm Beach investor Carl Shapiro and a broker with Cohmad, sits nearby. A few other board members or volunteers find seats at the table. There is a little trouble with the phone, but finally they manage to link in Norman Braman, the genial former owner of the Philadelphia Eagles football team, who presumably is in Florida.

At this moment, most of the people around this table are Madoff's friends, his admirers, his clients. In a few days they, and thousands like them, will become his victims. Their wealth will be diminished and their reputations questioned. Their lives will become a nightmare merry-goround of lawyers, litigation, depositions, bankruptcy claims, and courtroom battles. They will all profoundly regret that they ever trusted the genial silver-haired man seated at the head of the table.

With Ruth taking notes, Madoff turns to the agenda — fund-raising efforts and plans for the big annual dinner in the spring. A fund-raising committee is needed. "Who will take this on?" Madoff asks. Fred Wilpon agrees to do so. The rest of the discussion is routine, except that some members recall Feinberg passing around copies of the foundation's conflict-of-interest policy and getting a signed copy from each member for the file.

By six o'clock, they are done. Madoff escorts his wife and friends through the private nineteenth-floor exit. They head out into the winter night.

Tuesday, December 9, 2008

Things are starting to slip. Madoff has planned to meet with the son of his friend J. Ira Harris, one of the wise lions of Wall Street and now a genial philanthropist in Palm Beach, but the visit is canceled.

Instead, Madoff sits down with his older son, Mark, and explains that, despite the recent meltdown in the market, he's had a very strong year with his private investment advisory business. He's cleared several hundred million dollars, and he wants to distribute bonuses to some employees a little earlier than usual. Not in February — now, this week. He tells Mark to draw up a list of the trading desk employees who should get checks.

Troubled, Mark consults his brother, Andrew. The two men have seen their father tense up a little more every day as the market crisis has wrung them all out. Just a little liquidity strain on the hedge fund side, he told them last month. But he is clearly more than just worried; they've never seen him like this. And now he wants to pay out millions in early bonuses — it doesn't make sense. Shouldn't he be conserving cash, with things as rocky as they are? He should wait to see how things look in two months, when bonus season arrives. But Bernie Madoff is an autocrat — he is in charge, and he brooks no opposition. Still, the brothers decide they must talk with their father on Wednesday about their concerns.

After the markets close and the firm starts to empty out, Madoff walks across the oval area where the secretaries sit and enters Peter's office. Peter has aged and pulled inward in the two years since his only son died. He still carries Roger's photo in his wallet, one taken after leukemia had already left its stamp on his once-handsome face. For decades before that bereavement, Peter had been Bernie's right hand, his confidant, the technological guru of the firm, the "kid brother."

If Peter has not previously known about his brother's crime — his lawyers will insist later that he did not — he is going to learn about it now. Bernie takes a deep breath and asks his brother if he had "a moment to talk." Peter nods, and Bernie closes the door.

"I have to tell you what's going on," he says.

People speak glibly about "life-changing" moments. Some truly qualify. You propose marriage and are accepted. You hear "You're hired" or "You're fired," and your future shifts instantly. The doctor says "malignant," and everything is different. But anyone who has ever lived through it will tell you: It is profoundly shattering to learn, in one instant, that everything you thought was true about a loved one is actually a lie. The world rocks on its axis; when it is finally steady again, you are in a strange place that resembles but is totally unlike the place you were in just a moment earlier.

So if this is the moment Peter Madoff learns of his brother's crime, it seems unlikely that he immediately contemplates the ruin of his career and his family's fortune, or worries about the chain saw of civil lawsuits and criminal investigations that will chew through the years ahead. Those thoughts will surely come. But if this news has hit him from out of the blue, it is far more likely that his mind just stops and tries to rewind an entire lifetime in a split second, to get back to something real and true.

Peter is a lawyer and the firm's chief compliance officer — they've always been too casual about job titles here, and now it matters. He listens as Bernie explains that he's going to distribute the bonuses and send redemption checks to those closest to him — to make whatever amends he can before he turns himself in. He needs just a few days more, he says. He's already made a date with Ike Sorkin for Friday.

Perhaps still waiting for the world to stop rocking, Peter blurts out, "You've got to tell your sons."

Mark and Andrew had both talked with their uncle Peter about how worried they were about their father, who had grown increasingly preoccupied in recent weeks. They kept asking, "Is Dad all right?" They are frightened, Peter says. Again, he tells Bernie, "You have to tell them."

He would, he would. He just couldn't decide when.

Excerpted from The Wizard Of Lies by Diana B. Henriques. Copyright 2011 by Diana B. Henriques. Published in 2011 by Times Books, an imprint of Henry Holt and Company. All rights reserved. This work is protected under copyright laws and reproduction is strictly prohibited. Permission to reproduce the material in any manner or medium must be secured from the Publisher.

Books Featured In This Story

The Wizard of Lies
The Wizard of Lies

Bernie Madoff and the Death of Trust

by Diana B. Henriques

Hardcover, 419 pages | purchase

close

Purchase Featured Books

  • The Wizard of Lies
  • Bernie Madoff and the Death of Trust
  • Diana B. Henriques

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and Terms of Use. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: