Examining Bernie Madoff, 'The Wizard Of Lies' New York Times financial writer Diana Henriques was the first journalist to interview Bernie Madoff after he was sent to prison. Henriques' new book, The Wizard of Lies, details how Madoff created the biggest Ponzi scheme in history after playing a prominent role in shaping modern markets.
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Examining Bernie Madoff, 'The Wizard Of Lies'

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Examining Bernie Madoff, 'The Wizard Of Lies'

Examining Bernie Madoff, 'The Wizard Of Lies'

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This is FRESH AIR. I'm Terry Gross.

My guest, Diana Henriques, was the first journalist to interview Bernie Madoff after he was arrested for running one of the biggest Ponzi schemes in history. Now she's written a new book called "The Wizard of Lies: Bernie Madoff and the Death of Trust."

On the day he was arrested, December 11, 2008, he was supposed to be managing nearly $65 billion of other people's money. Henriques says if he had actually possessed that money, he would have ranked as the largest investment manager in the world, twice as large as Goldman Sachs.

But, very little of that money was actually there. He was faking everything, from customer account statements to regulatory filings.

Her book is not only about how he did it and the casualties he left behind, it's about how he helped bring automation to the market, became chairman of NASDAQ and exploited his knowledge to swindle investors and fool regulators.

Diana Henriques is a financial writer for the New York Times and has led the paper's coverage of the Madoff story.

Diana Henriques, welcome to FRESH AIR. So how do you interview someone who is famous as a liar and is an excellent liar?

Ms. DIANA HENRIQUES (Author, "The Wizard of Lies: Bernie Madoff and the Death of Trust"; Senior Financial Writer, New York Times): Very carefully. Actually, what I tried to do first was explore factual issues about his life: his childhood, his father's employment, things that I knew I could check with other sources that I had. And then again, pushing him towards his early life on Wall Street, things that I knew I could check.

That factual setting, I felt a little bit more comfortable developing, until I could get a sense of him a little more. I must say, Terry, though: The man is the most fluent liar.

The magic of his personality is how easy it is to believe him, almost how much you want to believe him. For example, he assured me in that first interview, in emails subsequently that we exchanged, that he wasn't going to talk to any other writers, I was the only writer he was talking to.

And I of course said: Oh, well, goodness, that's one less thing for me to worry about. Of course, it wasn't true. It was all a lie. He was talking to other reporters along the way towards the end. So while I was the first to get in to see him, I was very aware that you really had to test everything he told you against, both your own judgment and whatever facts that I could dig up.

GROSS: So are you one of the people who was swindled by Madoff, not financially, but you knew him from your reporting on Wall Street. He was a powerful person on Wall Street.

Ms. HENRIQUES: He was, and I think in that regard, he was trying to play it straight. I knew him as a key figure in the evolution of the American stock market in the 1990s, when automation and computerization - and even more importantly, globalization - began to reshape the American stock market.

Bernie Madoff was a key figure in that process. So at conferences and panel discussions and for Sunday stories that I was working on for the New York Times, he would be one of the people you would call, one of the thoughtful, down to earth, kind of plainspoken but very accessible people who would talk with me and with my readers about these dramatic changes that were happening on the street.

So he was, you know, one of the sources in my Rolodex. Not, by any means, a prominent figure, but I still knew that he was very important in the kind of backstage infrastructure of how stocks are traded on Wall Street.

GROSS: So you were shocked when he was exposed?

Ms. HENRIQUES: I was stunned. I really was. Here was a man who seemed to have built a legitimate business, 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.

GROSS: So let's get back to your interview, well, your interviews, with Bernie Madoff. What did you learn in those interviews about how he managed to cover up his fraudulent operation, his Ponzi scheme?

Ms. HENRIQUES: Well, it was a very well-defended fraud. We have to say that right up front. He is a very inventive man, about how to conceal his tracks.

When you look at the machinery he had in place to hide this scam, he had fake clearinghouse screens that you could look at on computers in his office, and you'd say: Oh, sure, there are the stocks I own right there. But it was all phony.

You would see his key lieutenant, Frank DiPasquale, apparently trading stocks for you with Europe, when, in fact, he was just trading keystrokes with an employee hidden in a room down the hall.

He saved old letterhead and old office equipment. So if he needed to reconstruct a back-dated document to stick in the files, knowing what regulators would look for, he could do that. It was really brilliant, the way he covered it up.

So that's one way he was able to keep it going and to carry it out. But another way, and maybe even more important, was this sort of Madoff magic, the magic of his personality.

He inspired trust in a very unusual way, Terry. 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, you know, the most charming guy in the room. And Madoff was never the most charming person in the room, neither in my interviews or in my interviews with other people who knew him very well.

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. That was his gift.

GROSS: If you're just joining us, my guest is journalist Diana Henriques. She's the author of the new book "The Wizard of Lies: Bernie Madoff and the Death of Trust."

Let's get back to the system that he created to generate these fake transactions and a fake paper trail. He had, like Ponzi scheme software that was created. He didn't create it himself, but did he commission somebody to create Ponzi scheme software so he could fake all these trades between banks that never really happened?

Ms. HENRIQUES: Well, we do know that Frank DiPasquale, his key lieutenant, has pleaded guilty to a set of federal charges that include helping create that wonderful suite of software, as you call Ponzi software, that enabled them to both maintain the incredible number of account statements that they had to send out to thousands and thousands of customers, but also to change those records with a couple of keystrokes if it was necessary for - you know, to deflect a regulatory visit or to fool an auditor or an accountant.

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.

GROSS: In a Ponzi scheme, you need to keep getting new money coming in so that you could pay people at the other end. You also have to have a constant stream of cash coming in.

So he had to constantly attract new investors. And one of the ways he did that, he had feeder funds that would be affiliated with him. Explain what a feeder fund is.

Ms. HENRIQUES: Well, a feeder fund in those - the ones that he used - were principally hedge funds, which were lightly regulated investment partnerships, many of them offshore. And their managers had the option of raising money that they would pass along to another money manager.

So they're really just conduit funds, Terry. They're a little pipeline that, you know, had an investment manager at one end and Bernie Madoff at the other, and the money just flowed into the hands of all of these varied hedge funds, really, all over the world and wound up in Madoff's offices in the Lipstick Building.

GROSS: Why would a hedge fund give its money to Bernie Madoff? I mean, I always thought hedge funds were supposed to have brilliant investors who managed the money.

Ms. HENRIQUES: And many of them do, without a doubt. But the Madoff, really, almost invented a new species of Ponzi scheme. The traditional Ponzi scheme exploited investors' greed. And many hedge funds did the same thing, you know: I can make 85 percent a year for you. I can make 100 percent a year for you, or in the traditional Ponzi scheme, 50 percent a month.

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.

And 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 like the Magellan Fund.

But they were willing to give up those greater returns in exchange for the consistency of Madoff's returns.

GROSS: So hedge funds were very useful to Bernie Madoff, not only because they were giving him a lot of money, but I think one of the rules in a lot of the hedge funds is that you can't withdraw the money any time you want to. It has to stay invested for a certain amount of time before you have access to your money.

Ms. HENRIQUES: Yes, they're not as liquid as a traditional mutual fund. But many of Madoff's feeder funds were attractive to hedge fund investors because they were a little bit more liquid.

Rich investors tended to use Bernie almost as this sort of money market fund dressed in Armani. I mean, it was a fancy form of investment but one you could get your money out more easily than from a lot of other hedge funds.

That was its principal attraction when times were good, but that was also its greatest vulnerability when the market turned so desperate in 2008.

GROSS: So he not only got all these hedge funds investing with him, he also got a lot of nonprofit foundations, endowments, pension funds. How did he enter that world?

Ms. HENRIQUES: Well, he had a couple of introducers, if you will, a couple of people who helped open the door. Ezra Merkin, here in New York, was a known quantity to so many philanthropies and university endowments.

The community from which he drew his early investors were philanthropists, very generous people, and they had ties to the boards. So he had people who could make the introductions.

He never pushed hard to get new money. That was part of his genius. He made it seem that this was a very exclusive club, a very small club, maybe he would take your money but maybe not.

And so people felt very lucky if they could get Madoff to handle their money, and that attitude imbued the investment committees of a great many charities and institutions, as well.

GROSS: If you're just joining us, my guest is journalist Diana Henriques. Her new book is called "The Wizard of Lies: Bernie Madoff and the Death of Trust." Let's take a short break here, and then we'll talk some more. This is FRESH AIR.

(Soundbite of music)

GROSS: If you're just joining us, my guest is New York Times senior financial writer Diana Henriques. Her new book is called "The Wizard of Lies: Bernie Madoff and the Death of Trust."

As you write, you can't really understand what Madoff did or how he did it without understanding the stock market when he started in the '60s and how it changed over time.

So let's go back to the early '60s, when Bernie Madoff first starts his brokerage. How did the Wall Street of then, the stock market of then, compare to now?

Ms. HENRIQUES: I don't think today's investor would even recognize it. In the Wall Street of his day, when he first set up his fund, there was the New York Stock Exchange, there was the American Stock Exchange, and then some of their sister exchanges around the country, like Boston and San Francisco, all had stock exchanges.

And that's where listed stocks traded, and principally, their customers were individual investors, frankly. Big institutions did not invest in common stocks that much back in the '50s and early '60s.

So those were the listed stocks, the big board they call the New York Stock Exchange. And those were the blue chips we now think of: the railroads, the utilities, the big automakers.

But, you know, after the war, coming out of World War II, there were all kinds of new technologies that were being put to use in the commercial realm, all kinds of family-owned companies that had a little bit of stock that needed to grow.

They weren't big enough or well-known enough to be listed on these big, formal stock exchanges, but their stocks still traded hands, and they traded hands in this over-the-counter market that consisted of thousands of individual dealers with a list of stocks and a telephone, who would trade with one another, by telephone, build these relationships and offer quotes on a particular stock.

But you couldn't look that quote up in the newspaper. There wasn't a tickertape you could check it on, and of course, Bloomberg wasn't even dreamed of yet or Yahoo! Finance or any of the places that we take for granted today.

So it was a very opaque market, where individual traders could prosper by buying cheap and selling dear. They could buy a stock at 50 cents a share and, if they were lucky, sell it the same day for a dollar a share, and those kinds of profits were not uncommon in that day.

GROSS: So because it was an opaque market, was this a good place for a swindler like Bernie Madoff to set up a practice?

Ms. HENRIQUES: Well, I don't know that we can be sure that Bernie Madoff was a swindler when he set up his practice in 1960. There were an awful lot of people who were going into the OTC market, the over-the-counter market, to trade legitimately and to make markets in these stocks, and I believe he may well have been one of them.

However, he did get into trouble in 1962. It was the first near-death experience that almost derailed his career. He had put his clients' money into these very speculative, new-issued, over-the-counter stocks, kind of like the technology stock bubble, you know, flimsy little outfits that might prosper but usually didn't.

And he invested his clients' money in those stocks, and in a little air pocket that the stock market hit in 1962, the bottom just fell out, and those stocks went to almost zero.

Well, Bernie had a choice. First of all, he never should have put such cautious investors' money in such wild, reckless stocks in the first place. But having done so, he could have confessed to them: Look, I lost all your money. But he didn't.

He covered it up. He bought those stocks back from their accounts using money that he had borrowed from his father-in-law. He made them think that he had navigated that very rocky market of 1962 safely and soundly and, you know, sort of reinforced his reputation as a genius.

So the first time we can see him actually bending the rules, gilding the lily, if you will, was in that 1962 crisis. It wasn't a Ponzi scheme, no. I don't know for sure that his Ponzi scheme dated that far back. But I do know that that was an experience he had where he confronted the difference between telling the truth and admitting failure and telling a lie and looking like a genius.

GROSS: Yeah, it's amazing. He had that gift to turn incredible failure into brilliance.

(Soundbite of laughter)

Ms. HENRIQUES: Well, he could not accept failure. He absolutely could not. I think that is the fundamental root of his life, the root of his crime was he could not admit failure.

GROSS: So he's one of the people who, early on, embraced automation in the market.


GROSS: And that helped lead to his prominence on Wall Street. What did he do to embrace automation and to help lead on that?

Ms. HENRIQUES: There were so many ways in which he was a pioneer. When I was a younger reporting working at Barron's magazine, he was one of the firms that I would call if I wanted to know how late-breaking news was affecting a widely traded stock.

Once the New York Stock Exchange had closed, Bernie's trading desk would start trading those stocks overnight. So he did what we call after-hours trading, and that would be one of the places you would call to say: You know, how did this news affect General Electric? And he would check with his traders and give you a report back.

So he recognized that the market, the worldwide market, had become a 24-hour beast. It wasn't - it was no longer an animal that went to sleep every afternoon at 4:30, when the stock exchange called it a day. So he developed the technology and the staffing, the manpower, to trade stocks during the night and then took it a step further and started trading stocks overseas.

He was one of the first to open a London bureau and start trading in European securities that could be invested in here. So he saw globalization coming.

His brother Peter was really the technology genius behind the development of the software that speeded up the pace at which his firm could trade stocks. And as more mutual funds and hedge funds and big institutions and endowments and public pension funds started to pour into the stock market, the faster you could trade, the better they liked it.

So he was in the vanguard in so many ways, and what was important about this, Terry, was not just that it made his firm an enormous success. It put him on the side of the regulators.

The regulators, as well, the SEC and the industry's regulators, knew that the traditional ways of trading stock, you know, standing on a trading floor in a loud-colored coat, that those days were numbered. And they were trying to keep the American market competitive vis-a-vis London, vis-a-vis Tokyo.

And they knew that the market needed to automate, needed to get faster and more competitive and more global, and Bernie was on their side. So that, to some extent, helped diffuse any suspicions that they might have had about Madoff.

They trusted him. They trusted his advice. He had actually, as they saw it, been on the side of the angels with respect to modernizing the stock market.

GROSS: NASDAQ was the first market to automate, and he became the chair of NASDAQ in 1990. That's a really important position.

Ms. HENRIQUES: In a way, it was. It was a very prominent position, a great soapbox for him to have. It is a somewhat honorary position. He's not an executive chairman. There were, you know, there were businessmen who were running the stock market day to day.

But it gave him a great prominence in the industry. He probably affected the market more, Terry, by his behind-the-scenes work on the committees that were writing trading rules and that were negotiating with the SEC over regulations. He probably had more of an impact in those behind-the-scenes ways than he did simply holding the chairmanship. But as you say, it was a prominent position that made him even more trusted within the industry itself.

GROSS: My guest, Diana Henriques, will be back in the second half of the show. Her new book is called "The Wizard of Lies: Bernie Madoff and the Death of Trust." She's a senior financial writer for The New York Times. I'm Terry Gross, and this is FRESH AIR.

(Soundbite of music)

GROSS: This is FRESH AIR. I'm Terry Gross back with Diana Henriques, author of the new book "The Wizard of Lies: Bernie Madoff and the Death of Trust." She's a senior financial writer for the New York Times and has led the paper's coverage of the scandal. The book explains how Madoff ran the largest Ponzi scheme in history while maintaining a reputation as an innovator and leader. He was influential in the move towards automating the market, became chairman of the NASDAQ, and used that inside knowledge to swindle investors and fool regulators.

One of the turning points in Bernie Madoff's career was Black Monday, October 19th, 1987, where the market tanked, but how did he do?

Ms. HENRIQUES: He actually seemed to be doing very well from the outside. Black Monday and then Black Tuesday for the NASDAQ market were just dreadful. I mean it was the scariest time anybody in the market had ever seen. But Madoff's firm seemed to fare very well. It had actually it was commended later by the SEC for its performance during that dreadful week. But behind the scenes what we did not know and what we - what I learned in research for this book was - some of his biggest investors were totally terrified by that rollercoaster ride of 1987 and decided that they really wanted to take some of their Madoff profits off the table. They wanted to withdraw money from their big accounts. Now Madoff felt, and his explanations are very murky, as I say in the book - he claims that they had an agreement, that they were going to reinvest their profits, let them roll over, not make big withdrawal demands and then they did. They turned the tables on him. They left him hanging out to dry, as he told me in my first interview with him.

Now, that doesn't make a lot of sense. If he was pursuing the investment strategies he claimed he was at that time, he ought to have been able to get his footing. But what is certainly true is he faced enormous demands for cash at that time, after the '87 crash, and at about the same moment he started soliciting money from hedge funds. It's like a little faucet of cash was turned on and suddenly became a gusher. So he survived that '87 cash crisis by tapping into this world of international hedge funds. And as we later saw, Terry, that just carried him, floated him higher and higher into prominence in the world of finance.

GROSS: So do you date the start of the actual Ponzi scheme to post-Black Monday and Tuesday in 1987, when investors started withdrawing money because they were afraid of the turmoil in the market and he had to start paying them off?

Ms. HENRIQUES: I actually have a suspicion it started a few years before that. I don't think we'll ever know. Madoff absolutely flatly refuses to admit that the crime started any earlier than 1992. I don't think that's credible. I think somewhere within the mid-80s you see a textural change, both in the number of accounts he had, in what he was telling people he was doing with their money, in the kind of volume of money he was taking in. So I think at least around the mid-80s he was already committing some kind of fraud on some scale. Maybe he wasn't ripping off every account, but I think he was starting to cheat by the mid-80s, and then these withdrawals hit after 1987 and drove him, very quickly, into trouble, and then he had to really start cheating on a massive scale.

GROSS: And he says 1992 was the turning point in which he really started the Ponzi scheme. What happened in '92?

Ms. HENRIQUES: Well, in 1992 the SEC launched an investigation of one of the major pipelines of money into the Madoff fraud. A little outfit called Avellino & Bienes - lots of individual investors who had invested for a generation or two generations with this small operation that grew out of Madoff's father-in-law's accounting firm. That operation came under SEC scrutiny and was investigated. Madoff had to suddenly scramble in two ways. He had to get records concocted that would satisfy the SEC about these accounts. And he had to come up with enough money to pay all these investors back at the SEC's demand.

If you look at the steps that were documented that he took in the days of that summer of 1992 it really is impossible to believe that he was not already operating a fraud at that point.

GROSS: What do you think his motivation was for operating this fraud, this Ponzi scheme? Was it for personal gain? Was it just to save himself because he was over his head and he needed money to pay off investors? Was he just so deep into deception? Did he like the game of deception? Do you have any idea what his motivation was?

Ms. HENRIQUES: As I said, Terry, I think his motivation was this utter inability to confront failure in himself. As long as he could succeed, legitimately, he did. And when he could no longer be the huge success he wanted to be by trading legitimately, he cheated. And I think is that hubris, that unwillingness to admit defeat.

I have to tell you, in both of the prison interviews that I did with him, he insisted to me that he hadn't really been defeated by the market turmoil of 2008. I mean he could have kept the fraud going. Even though the stock market was in a death spiral and we were all scared to death, he insisted over and over and in emails, you know, I had plenty of people who wanted to give me money. Even then I wasn't defeated. I didn't fail in this fraud. I just got tired and quit. And I felt that was so telling that he couldn't even admit being a failure at his fraud. He had to claim that he was really in control and he had just decided to stop rather than having been defeated by the failure.

GROSS: Yes. But he's very contradictory, because he also told you that he was in so over his head. He said it was almost like, it sounds horrible to say it now, but I just wanted the world to come to an end. When 9/11 happened I thought that would be the only way out. The world would come to an end and I'd be dead and everyone would be gone.

Ms. HENRIQUES: A shocking statement, isn't it?

GROSS: Yeah. That's the most shocking thing I've read I think.

(Soundbite of laughter)

GROSS: I mean...

Ms. HENRIQUES: It stopped me in my tracks too when he said it in that visiting room. When he said it he glanced over at his lawyer and kind of shrugged and looked a little baffled by what he said. I think it surprised him too. What he was saying in that, Terry, I think was he just could not see any other way out. And he's right, frankly. I mean the ironclad logic of a Ponzi scheme is you flee. You're arrested. Or you kill yourself. I mean there aren't that many exit strategies to a Ponzi scheme. And I think he recognized that, that he was just never going to get out of it.

GROSS: Well, he had to give up in 2008 because he was in so over his head there was no way out. Bear Stearns collapsed. Lehman filed for bankruptcy. Fannie and Freddy were bailed out. The market collapsed. How did that affect Madoff? How did he know, then, his time was up?

Ms. HENRIQUES: Well, money was flowing out, in part, because he had left himself so vulnerable by accepting these 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 liquid investments or in stocks that had suddenly taken a nosedive, but if you had money with Madoff, you thought well, that's pretty liquid money. That's almost like my money market fund. So that was the first money they 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 amounts, paying those redemptions, but he could see that more money, 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.

Now I would say he was pretty sure he couldn't keep it going. But what he said was, he didn't think he wanted to keep it going anymore. It was going to be too much trouble to keep it going. So he could see the writing on the wall about the end of November of that year.

GROSS: And he turned himself in, eventually.

Ms. HENRIQUES: Well, eventually he confessed to his sons. He planned to turn himself in, but not on that timetable. He had an appointment with his defense lawyer for the Monday after the day he was arrested. I think he thought he was going to tidy everything up, stay right in control, get everything organized the way he wanted to, had a bunch of checks he wanted to write out to family and friends with the couple of hundred million dollars that was left in his bank account - and then he was going to go to his lawyer and they were going to go together and turn himself in. But it didn't turn out that way.

As I describe in the book, he was confronted by his sons about these plans to make these big payments. And when they started to question him he lost his composure and asked them to go with him to the penthouse nearby. And he sat down with Ruth and his two sons in the study that he loved so much and told them that it was all a fraud. That the firm was insolvent, that they were ruined. And for some reason he seemed to think that having told them, he had told his brothers the night before, that he still was in control. That he told them I'm going to turn myself in. I just have a few more things I need to do. And I think he expected that he was still in charge.

We know, of course, that what happened was his shattered sons immediately went and consulted with a lawyer who said listen, you can't wait for him to turn himself in. This is a crime in progress. We have to report it. And they did. And he was, to his surprise, arrested the following morning. So that's when things kind of spun out of his control.

GROSS: If you're just joining us, my guest is New York Times senior financial writer Diana Henriques. Her new book is called "The Wizard of Lies: Bernie Madoff and the Death of Trust."

Let's take a short break here then we'll talk some more.

This is FRESH AIR.

(Soundbite of music)

GROSS: My guest is journalist Diana Henriques. Her new book is called "The Wizard of Lies: Bernie Madoff and the Death of Trust."

Now one of the things Bernie Madoff told you, and this is now a very famous quote, is that the banks and the hedge funds he was dealing with, he said they had to know. But the attitude were sort of if you're doing something wrong we don't want to know. The implication being everybody was making so many profits, so much profits they didn't want to know. They just wanted to keep making the money.

So what's your reaction to that quote?

Ms. HENRIQUES: Well, Madoff came to that opinion somewhat late. He did not make that statement in my first visit with him in August. At that point I asked him directly who else knew. And the only person he conceded might have suspected was this large private investor, Jeffry Picower, who drowned in his swimming pool about nine or 10 months after Madoff was arrested. He said Jeffry might have known. How could he not have known? But he did not identify anyone else as likely having known.

Now when I went back for the second interview in February, that's when he trotted out this idea that well, the banks had to know. They must have known. But the banks, of course, insist that he fooled them just as effectively as he fooled everybody else, and those are going to be epic lawsuits, Terry. I can't wait to cover them. The banks are fighting those allegations that had been filed by the Madoff trustee and those cases are going to be extremely interesting and hard fought.

But Madoff's own perceptions - in fact he told me in the second visit, he said he did not realize until he read some of the trustee's lawsuits against the banks how suspicious they were becoming of him in the summer of 2008. He didn't realize that they were starting to look askance at him and starting to have a few little doubts. The trustee's lawsuits raised some emails, some communications back and forth that suggest that some bank executives were starting to have their doubts.

But Madoff told me in February that he was not aware that they were suspicious of him at that time. So I think we have to take what Madoff says about who did know, who should have known, who might have known - we have to take that with a grain of salt. Now 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, Terry 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 dotting every I and crossing every T, that would not have looked that unusual to the Wall Street of that day. It would not have automatically suggested to suspicious bankers that he was running a Ponzi scheme. It would, perhaps, just have suggested that he was, you know, no better or worse than most of us on Wall Street.

MARTIN: Meanwhile, there's so many lawsuits now, pertaining to the Madoff Ponzi scheme. It's raising a lot of questions like who has the right to sue; who can really be held liable for the losses? Can investment banks, can hedge funds be held liable? So what are some of the questions the lawsuits are raising now?

Ms. HENRIQUES: Well, we all have a stake in the outcome of them, in fact. One of the biggest questions that's pending before the appellate court here in Manhattan now is if you're trapped in a Ponzi scheme how are your losses going to be calculated in the bankruptcy courts?

There is a heartbreaking division among the Madoff investors between those who had managed to withdraw all of their original cash investment before Madoff collapsed and those who had never taken out a penny and therefore lost all of the cash that they had invested. That battle is going to shape a lot of what the rest of us experience in terms of the law in the future.

As you pointed out, there are private lawsuits that are making their way through the courts that are going to determine whom you could hold responsible for misleading you if you find yourself in a Ponzi scheme like this. Those are going to be important cases.

Another important issue is what happens to indirect investors? Many, about 5,000 investors had accounts directly with Madoff. And when I say investor, that investor might have been an investment club with dozens of members, an extended family, even a pension plan with hundreds of beneficiaries. But there are about 5,000 direct accounts, more than twice that number of indirect accounts, accounts with the feeder funds or with a fund that was a feeder fund. So those indirect investors and their fate is another issue that's before the courts. It's going to take years to wrangle these things out but we all have a stake in how these turn out.

GROSS: The tragedy of the Madoff Ponzi scheme is not just like the gazillions of dollars that private investors lost. It's also the deaths. I mean people committed suicide after this. One of those people was Madoff's son Mark, but others committed suicide too.

Ms. HENRIQUES: They did. And, you know, one of the most shocking things about my interview with Madoff in August of last year was when he told me that, you know, doing this little quick calculation, he figured that with the money that the trustee might recover and the money that his early investors had already gotten out of their Madoff accounts, that they probably were going to come out better than people who had legitimately invested in the stock market. And then in February he said well, look at all this money the trustee is gathering, and I think everyone is going to come out whole. And it was so shocking to me that he's just talking dollars and cents.

You can't come out whole. You have all these bereaved families. You have investors who, as you say, faced with their losses, could not go on and killed themselves. You have beloved homes that had to be sold, college educations that had to be aborted. The human and personal wreckage that flowed from the dollars-and-cents losses can never be repaired. And that's what is so surprising to me that Madoff still does not see that deep human pain and dimension that was caused by this crime.

GROSS: Were you able to gauge if the suicide of Bernie Madoff's son Mark had any impact on Bernie Madoff?

Ms. HENRIQUES: I was. The physical deterioration I saw between my visit in August and my visit in February was really shocking. I was quite stunned by it. He'd gotten so much thinner, haggard. The belt around his trousers had to be sort of looped under.

And whereas, in August he'd been very natty and very crisp in his uniform, when he was talking with me in February there was a button unbuttoned on his shirt halfway down and he hadn't noticed until halfway through our interview and then he quickly buttoned it. But he was rumpled and disheveled and very intense. He really did seem shattered by Mark's death, although he was very reluctant to talk about it.

GROSS: Do you see Madoff as something, a not - excuse me for asking you to diagnose him, but do you see him as something as a sociopath?

Ms. HENRIQUES: I swore off armchair psychology years ago. I'm not even sure I know what sociopath means. I find him a fascinating character. I think we're fooling ourselves if we think that he is somehow unique or rare in our market environment. That's why I warn in the book against seeing him as some sort of monster, some sort of inhuman psychopath, you know, who arises and can't be stopped. He is not, as I said, he is not inhumanly monstrous; he is monstrously human.

GROSS: Diana Henriques, thank you so much for talking with us.

Ms. HENRIQUES: Glad to be here.

GROSS: Diana Henriques is the author of the new book "The Wizard of Lies: Bernie Madoff and the Death of Trust." You can read an excerpt on our website, freshair.npr.org.

Coming, Milo Miles reviews a new CD by a singer and guitarist from Niger. Milo says he could become a star in the West.

This is FRESH AIR.

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