Profile on Bernie Madoff: King Con's fall from grace

Published on Saturday 14 March 2009 18:59

His was truly a Faustian pact, a devilish consumption of others' wealth

IN HOLLYWOOD, they are already planning the film of his life and crimes. Across the USA and elsewhere, and across all echelons of society, broken people are still reeling from the damage he inflicted. In a downtown New York prison, Bernie Madoff is contemplating the rest of his life behind bars.

Ren-Thierry Magon de la Villehuchet, a respected financier from Access International Advisors, contemplated life and decided against it. He committed suicide just before Christmas following his $1.5bn losses in the Madoff Investment Securities scandal.

There have been other suicides, while many more people have had their retirement plans and lifestyles destroyed by Madoff, who pleaded guilty last week to 11 charges that cumulatively total the largest fraud in world history. The sums swindled by the one-time chairman of the Nasdaq technology stock exchange are still being calculated but the total involved is now thought to be about $65bn. This weekend his victims and the wider financial world have time to ponder the roots of both the crime and the criminal.

Bernard Lawrence Madoff – it is pronounced 'made-off' – was the ambitious graduate of a Long Island University whose arrival on the New York financial scene in the 1960s coincided with the introduction of new technologies and less rigid controls on investors.

Madoff was visionary in those early days. He eagerly promoted electronic trading, which is now the norm worldwide, but at first he was fiercely opposed by traditionalists and had to survive Congressional hearings into allegations that he was effectively bribing traders.

Madoff beat that rap and his firm expanded. At the same time, he assiduously worked the social scene on the east coast of the USA in order to gain contacts with seriously wealthy individuals.

By 1989, his brokerage firm was handling a twentieth of all trading on the New York Stock Exchange, and after becoming Nasdaq chairman a year later, Madoff moved onto the next and most crucial phase of his career – under the guise of pinstriped respectability he became a secret criminal mastermind, fleecing investors of millions of pounds.

He did it through a Ponzi scheme, named after the 1920s Italian fraudster who emigrated to America. Basically, Madoff, like Ponzi before him, offered high returns to investors, but the money used to pay them was from other investors joining the system later.

To keep new investors coming in, Madoff simply falsified his accounts, all done by apparently innocent employees who just wrote down what he said and never questioned the wisdom of the wizard financier.

In one sense Madoff was egalitarian. He conned ordinary Americans out of their hard-earned nest eggs as well as swindling high-flyers from all walks of life. From Hollywood producer Jeffrey Katzenberg to the much-married Zsa Zsa Gabor and Steven Spielberg's charity, Madoff happily pocketed their cash.

Many of his victims were fellow Jews, including Elie Wiesel, the Holocaust survivor and Nobel Peace Prize winner, whose Humanity Foundation was taken for millions. Arab wealth was also targeted. He scammed the Abu Dhabi Investment Authority for hundreds of millions.

As long as only a few people claimed their money each year, the new investments comfortably paid off the older ones. A lot of the rest of the investments were diverted towards paying for his wealthy lifestyle which was never overt, but was undeniably sumptuous.

Sauve and charming, he mixed easily in high society along with his wife Ruth and family. They were regulars at charity events in particular. His sons Mark and Andrew, both in their forties, and his brother Pete, who is seven years younger than 70-year-old Madoff, were all employed by him and all say they knew nothing of the fraud until December 10 last year when Bernie confessed everything to them. His wife still protests the family's innocence and is trying to protect more than $60m of assets.

It is the sheer audacity of Madoff's scheme which staggers the imagination, and the fact that he brazened it out so often.

Madoff got away with his scheme for almost a decade after it was first rumbled. Government documents show that as long ago as 2000, financial investigator Harry Markopolos put his claim that Madoff Securities was the world's largest Ponzi scheme, to the American government's financial services watchdog, the Securities and Exchange Commission. It took no action because Madoff even conned the SEC, as he admitted in court last week.

His was truly a Faustian pact, a devilish dance of consuming other people's wealth while he awaited the inevitable fate. He managed to postpone it time after time until eventually the collapse of other banks and investment houses, run not by swindlers but by fools, brought him down late last year. Investors hurt by the credit crunch wanted their cash back – it didn't exist. He told the court last week: "I always knew this day would come."

His fall to ignominy has been infinitely greater than Conrad Black's and Jeffrey Archer's put together. Consider all the opprobrium heaped upon our own Sir Fred Goodwin, who committed no criminal offence, and then multiply it a hundred times and you will still not be close to the vilification of Madoff in the USA. There is a link from Shredded Fred to Madoff – the former Royal Bank of Scotland chief executive inadvertently bought into Madoff's schemes to the tune of 600m when RBS unwisely bought the investment banking business of ABN Amro.

The greatest fraudster of all time didn't just live the lie, he played it to the max, with a smart penthouse in New York, his yachts in Florida and the Mediterranean, his beachside mansion in the Hamptons, and his Mayfair base in London. He was a patron of charities, though not the ones he fleeced, but Madoff never sought a high profile – it might well have triggered jealousy-inspired inquiries.

His name was virtually unknown outside the financial industry, high society and Jewish community circles until December. Only now has the public learned of the opulence of his art-bedecked office in the famous Lipstick building in New York, and about his fabulously decorated $7m penthouse apartment in the swish Upper East Side of Manhattan. It all contrasts strongly with his new abode: a 2.5 metre by 3 metre cell in the Metropolitan Corrections Centre, where he will reside until June, after which he will be sent to a Federal prison.

The expected sentence is 150 years, meaning Madoff will die in jail. Many of his victims wish him even longer in Hell.

YOU'VE BEEN GOOGLED

• Madoff's financial career had humble beginnings. He began his own business with just $5,000 he made from summer jobs as a lifeguard and garden sprinkler installer on Long Island.

• Marrying his wife Ruth, nee Alpern, was one of the keys to Madoff's early success. Ruth's father Saul, an accountant, introduced him to some of his first clients.

• Reactions to the exposure of his fraud ranged from disbelief to anger. Property tycoon Donald Trump, inset, summed things up when he said: "He was a pretty respected guy, but he turned out to be a whack job."

• He had his own charity, the Madoff Family Foundation. Its assets have now been frozen pending inquiries into the missing loot.

• Until recently, the Madoff website stated: "Clients know that Bernard Madoff has a personal interest in maintaining the unblemished record of value, fair-dealing and high ethical standards that has always been the firm's hallmark."