Client Learns Madoff Returns Worthless

Investors were left holding a $50 billion bag this week when money manager Bernard Madoff admitted to what could be the largest Ponzi scheme ever. Barbara Flood lost a great deal of money in the fraud case.

Copyright © 2008 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

JACKI LYDEN, host:

Another financial calamity came to light this week, one that left investors with $50 billion worth of nothing. It's the biggest Ponzi scheme fraud in financial history. The man behind it, Wall Street money manager Bernard Madoff. He's a former chairman of the NASDAQ Stock Exchange, and he was arrested Thursday after confessing that his investment fund was, to use his words, one big lie.

His clients woke up yesterday morning to massive losses - hedgefunds, big universities, social climbers from Park Avenue to Palm Beach, and at least one former model. That's Barbara Flood. She's a stylist and designer in Manhattan, and she won't say exactly how much she's lost. The problem, she says, isn't just the money.

Ms. BARBARA FLOOD (Stylist and Designer, New York City): The thing for me about Madoff is the shock of people who knew him, and they were so friendly with him, as I was, could turn around and do something like this. I'm still quite stunned about the whole thing.

LYDEN: About what seems like a betrayal.

Ms. FLOOD: Absolutely. I mean, I dress a lot of people, and I style for people, and his wife was one of the people who I worked with and his brother's wife, also. So I knew them. I knew them very well.

And my uncle brought me to see him, and I didn't have the kind of money that people had to invest, and my uncle said, I think you should be with this man because this man never loses, you know, any money. So I said, OK.

And we started slowly and sure enough, he didn't lose any money, I thought, up until a few days ago, when I came home to three phone calls, you know, from my lawyer, from my accountant, from somebody in Palm Beach.

LYDEN: Investing with him was prestigious, wasn't it? I mean, didn't one have to be invited?

Ms. FLOOD: Yes. Why? I don't know. But it was the best thing in New York City was to try to get into Bernie Madoff. And to make enough money that you could get to go into Bernie Madoff because he only took people, this was not me because he did it as a friend, but he only took people that had a million dollars. And everybody wanted to be there because nobody thought that they would ever lose any money.

LYDEN: What did your statements show? How did it work? Did you make money all along?

Ms. FLOOD: You made money all along. The statement was a series of stocks that went up or down. And so, there were about 50 stocks, and you'd get a statement once a month. You could never talk directly to Bernie Madoff. He was not available, even to friends - I mean even to me, he was not available. And you'd get a statement, and you couldn't read the statement. And nobody could understand what the statement said.

But after trying to figure out apples and oranges, you know, my accountant would say, well, the thing is, he's always making money. And always making money sounded very good to all of us, especially at a time when you're trying to grow your little puske, you know. I was trying to grow my modeling money into something better, so when I finished modeling and started to do other things, it would really help.

On paper, I grew it. Now, I'm not sure. But if I asked for $10,000 or $15,000, I would get it within three days, you know. So did he actually invest in stocks? Could he possibly have done this on his own without that entire staff knowing about it? These are all questions that I'm sure all of us are asking today. And will we ever get an answer? I don't know.

LYDEN: Is everyone phoning everyone else? Are you phoning other friends?

Ms. FLOOD: Yes. I mean, we're phoning other friends, and I have some other relatives through that same family connection who put a little bit of money in. But they, in fact, put money in, and they lost everything. Nobody, even though we thought it was strange, nobody ever really sat down and said, wait a minute, this doesn't make any sense until now. The bottom question is, will any of us ever see our money again?

LYDEN: Barbara Flood is one of the thousands of victims who've lost money in the Bernard Madoff investment scandal, and she joins us from New York. Thank you very much for being with us, Barbara.

Ms. FLOOD: Oh, thank you so much, Jacki.

Copyright © 2008 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Hedge Fund Maven Madoff Falls Hard

You probably have to go back to the Enron scandal to find someone who has fallen as fast and as far as Bernie Madoff.

Until this week he was one of the lions of Wall Street, someone who managed one of the most successful hedge funds around.

But on Thursday, FBI agents swept into his apartment in New York and arrested him. They say his hedge fund was little more than a Ponzi scheme and that he appears to have lost tens of billions of dollars of his investors' money.

People who put their money into hedge funds often do so because of the personalities behind them.

George Soros, Steven Cohen and Julian Robertson are seen as superstars of money management — people who prosper even when the market is down — and investors tend to run after them like groupies.

Madoff, 70, was very much in the pantheon. Sandy Gross runs an executive search firm called Pinetum Partners, and Madoff was one of her early clients.

"People always held him in the highest regard," Gross recalled. "People would always say he only knew how to make money. 'That Bernie Madoff, he has done a great job — he makes money and he's a great guy.' "

His reputation stemmed in large part from his long tenure on Wall Street. He operated a trading firm that bore his name. He had been chairman of the Nasdaq stock market, and reporters frequently went to him for his expertise on the markets.

Last year he spoke in a panel discussion in New York about the future of Wall Street. He told the audience that firms like his are very well-regulated by the federal government.

"In today's regulatory environment, it's virtually impossible to violate rules," he noted. "This is something the public really doesn't understand. If you read something in the newspaper and you see somebody violated a rule, you think, 'Well, they're always doing this,' but it's impossible for a violation to go undetected."

As it turned out, Madoff was right.

What brought him down was a hedge fund that he ran separately from his trading firm. Madoff was said to exert almost total control over the fund, and it was famous for providing unusually high returns.

Barron's once questioned how Madoff could do so well even in bad times. Madoff declined to answer. The information was proprietary, he said.

Thursday, authorities asserted that Madoff's fund was a big Ponzi scheme, which took money from new investors to pay fat returns to old ones.

Madoff's sons worked at the firm, and The Wall Street Journal reported that they were the ones who turned him in.

According to the criminal complaint, Madoff acknowledged Thursday that the fund was "a big lie."

Former federal prosecutor Dan Richman says the comments will make prosecuting the case easier.

"His own comments are spectacularly damning," Richman says. "In the classic white-collar prosecution, you have the paper trail, and the only question is what the defendant intended. Here, the defendant's intention is clear in a way one rarely sees."

Meanwhile, investors are left to sift through the fund's wreckage, trying to determine how much is left.

The fund's investors are likely to include a lot of rich individuals. But Wall Street veteran Dan Strachman, whose books include The Long and Short of Hedge Funds, says a lot of big institutional investors probably invested in it, too.

"Six months ago everybody wanted to be in Bernie Madoff's products," Strachman said. "Today, those who weren't able to get in are wiping the sweat off their brow saying, 'Thank goodness this happened.' "

Those who did invest in the fund are expected to lose all or most of their money. What they will have left will be lots of questions about how Madoff was able to fool so many people for so long — and why regulators didn't stop him until it was far too late.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. 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.