Madoff Red Flags Were There All Along

In 2001, reporter Erin Arvedlund wrote an article for the financial weekly Barrons that was skeptical of Bernard Madoff's strategy and performance on Wall Street. She questioned how Madoff was able to offer good returns. She talks with Steve Inskeep about the impetus for her story and what she learned in the process.

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STEVE INSKEEP, host:

If you're still trying to get your head around the Madoff scandal, we've got a reading tip. It's an article from Barron's, the financial weekly, and it raises questions about Madoff's business strategy. It was published seven years ago and written by a reporter named Erin Arvedlund. What were you hearing back in 2001 that made you think about Bernie Madoff?

Ms. ERIN ARVEDLUND (Journalist): I was new to covering hedge funds, and I had heard that there were a few sort of "Godfather" figures in the industry. And a name kept coming up, Bernard Madoff. Everyone revered him and said his returns couldn't be beat and I should really write something about him.

INSKEEP: So you basically asked that really obvious question, how did you make your money?

Ms. ARVEDLUND: Yeah. I actually talked mostly to investors, the people who had put their money on the line. They talked a little bit about their concerns and the fact that they couldn't seem to make any sense of how he made his money. It sounded so complex that I ultimately decided to run it by some people who had become sources of mine over the years and who traded these instruments. And none of them could figure out how not only did he make the money, but how did he make the amounts of money that he was claiming.

INSKEEP: Wait a minute. This is a legitimate strategy that people use, but maybe not always this successfully.

Ms. ARVEDLUND: Absolutely. It didn't make any sense.

INSKEEP: Was anybody besides you bothered by this?

Ms. ARVEDLUND: Yeah. There were some trade publications. I don't think Madoff gave many interviews.

INSKEEP: He gave an interview to you.

Ms. ARVEDLUND: I actually didn't hear from him until the day that the story was going to run. And suddenly he was made available. I was patched through to him on a boat. And he said he was on a boat in Switzerland. And he said, you know, the idea that it was not a legitimate strategy was ridiculous, but he wouldn't go into the details of how it worked.

INSKEEP: Did he sound legitimate in refusing to answer your questions or evasive?

Ms. ARVEDLUND: Well, at the time, hedge funds were not as big of a phenomenon as they are now. So it wasn't unusual. But yet there were other hedge fund managers out there who were more than willing to talk about it, like, say, Carl Icahn. They were very upfront about what they were buying and selling.

INSKEEP: Given that you did make contact with a bunch of Mr. Madoff's investors seven years ago, have you called them back in recent days?

Ms. ARVEDLUND: Most of the people I quoted for that story aren't in the industry anymore. And the one that I did talk to said he just couldn't believe that this guy had taken advantage of him.

INSKEEP: What was this investor's story to the extent that you are able to reveal it?

Ms. ARVEDLUND: It was an individual investor, and he made a very crucial mistake which is that he didn't diversify his investments. In other words, he had all his money with Madoff. So he's really devastated by this.

INSKEEP: This gentleman, Bernie Madoff, obviously talked to a lot of smart people, including professionals in the industry, and allegedly had deceived an awful lot of people for an awful lot of billions of dollars. When you had that conversation with him by phone from the boat in Switzerland, did he seem like a persuasive guy to you?

Ms. ARVEDLUND: You know, he seemed very affable, very ordinary. He didn't refuse to answer my questions. He just didn't tell me really anything of note. He didn't sound like a snake-oil salesman or a con man.

INSKEEP: You know, one other thing occurs to me. How did Bernie Madoff and his firm respond after you published this article in Barron's in 2001, which didn't get hard evidence against him, but raised a lot of questions about what he wasn't saying?

Ms. ARVEDLUND: Strangely, they were silent. In the ensuing years, I would hear the rumors from other places that Madoff's numbers didn't make sense, and I hoped that one day it would come out. And I'm just sorry it didn't happen sooner.

INSKEEP: Erin Arvedlund published a 2001 article in Barron's about Bernie Madoff. Thanks very much.

Ms. ARVEDLUND: Thank you.

(Soundbite of music)

INSKEEP: Now, seven years later, we've all been reporting a great deal on Madoff and the larger crisis on Wall Street. Erin Arvedlund has found herself a part of the story. After writing for Barron's, she went to work for a Wall Street firm. And two weeks ago she was laid off. She says she's considering a return to journalism.

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