The Madoff Chronicles: Inside the Secret World of Bernie and Ruth (8 page)

The Madoffs were members of several other golf country clubs, including the Atlantic Golf Club in Bridgehampton, New York. Investigators discovered that Bernie used clients’ money to pay $947,703 in country club dues for himself, his brother, Peter, and their wives between 1996 and 2008.

Bernie was considered an above average golfer, with a nine handicap, according to people who played with him regularly. Ruth was also above average and often played with Bernie, defying the belief of many golfers that love and golf don’t mix.

They enjoyed each other’s company. Some of Ruth’s most treasured memories are of weekends spent alone with Bernie in their New York apartment. This was not a couple who sought separate vacations or a little breathing room from each other.

“They were incredibly close,” said Eleanor. “I think they genuinely loved and liked each other. Which is huge, when you’re together for so long. They did everything together. He wanted to be with her. The movies, and dinners, even a quiet dinner at home.”

Still, according to former employees, Ruth was well aware that Bernie had a wandering eye.

She surprised him once at an industry cocktail party, where Bernie was “getting a little frisky” with another woman, recalls Little Rick. “Bernie’s there and Peter’s there and they’ve both got blondes next to them and who walks into the place—in dungarees and a T-shirt no less—but Ruth Madoff.

“She takes one look and she was out. There was no scene. She was a very sophisticated, very classy lady. Needless to say, after that day, everybody went to the industry dinner, all the wives, everybody.”

Little Rick says Ruth kept a very close eye on Bernie after that. As he served as a chauffeur one day, he heard Bernie ask Ruth, “So, honey, when you coming back?”

“She goes, ‘You think I’m gonna tell you when I’m coming back?’

“I wanted to turn around, tell him, ‘She knows your ass real good,’” Little Rick said.

Madoff also had a loyal team of attractive female masseuses. His “little black book,” a $415 goatskin version from the French leather goods store Hermès, contained nine women, under M, who provided massages, in New York, Montauk, Florida, and France.

“I did tell Bernie if he loses that book that somebody’s gonna think he’s a pervert,” said Eleanor, who kept a separate copy of the address book and provided it to the FBI.

In the book, the Madoff number for “Lena” traces to a sexually explicit Web site, where “Lena” is also called “Lilly.” On the site, customers say they paid $150 for a “nude” massage. “The massage was very good and she used her tits and hair to add to the sensual feel. I loved it,” wrote one satisfied client.

Other female masseuses have Web sites that state they are “non-sexual.” Bernie’s former messenger, Little Rick, said Madoff told him he often liked to watch “one woman massage another.”

The stories of Madoff with other escort service women, hotel masseuses, and certain attractive female employees were well known around the office. According to former employees, this was especially true in the 1980s. Ruth learned to live with it.

She could find her consolation in her status as Mrs. Madoff, the wife of one of Wall Street’s most successful investment strategists. Their presence was sought after by hostesses in Manhattan, the Hamptons, and Palm Beach. Her corporate platinum Amex card allowed her to buy whatever she wanted, whenever she wanted. In January 2008, company documents show that Ruth spent $3,792 on a one-day Paris stroll from Giorgio Armani to Jil Sander to Marni.

And she made sure to send word back to the old neighborhood about just how wealthy she and Bernie were getting.

Bernie’s childhood friend Jay Portnoy says his mother received regular updates from Ruth’s mother, Sara Alpern, and Bernie’s mother, Sylvia. “I was often told, ‘Mrs. Alpern says Bernie’s doing very well in the stock market,’ ‘Mrs. Madoff says Bernie’s now doing extremely well,’ ‘Mrs. Alpern says Bernie’s now a millionaire,’ and then a multimillionaire.”

By 2006, at the age of sixty-eight, Madoff had enough money and free time to enjoy a fourth home, this time on the French Riviera. The Chase Bank corporate account had several billion dollars in it, enough to handle the continued 12- to 20-percent returns and the occasional client withdrawal. Under Frank and Annette’s supervision, the seventeenth floor was operating like a well-oiled machine. Madoff could take time away from the office without fear of the scheme collapsing. He and Ruth loved France—especially the Riviera.

Bernie and Ruth had traveled there often, staying at the Hôtel du Cap Eden Roc in Cap d’Antibes, between Cannes and Nice. It is one of the most elegant hotels in the world, built on a cliff overlooking the Mediterranean and surrounded by a forest of pines. The yachts line up along the waterfront so that their owners can be ferried to the hotel’s outdoor terrace for lunch next to the pool. It was Bernie Madoff’s kind of place.

The Madoff villa was nearby, in an area of Cap d’Antibes known as Château des Pins.

Ruth and Bernie spent a lot of time and money collecting antiques and art for their French villa: a $35,000 painting bought at the Armory Show in New York, furniture from hidden Parisian shops, a leather chair from London. The villa was modest by the standards of many of the Riviera’s grand estates, but the Madoffs loved it.

“Nothing flashy at all,” said Nando Pignatelli, the former stock broker who often visited at the Madoffs’ place. “Don’t forget that I live in Monte Carlo, and I know what these rich people are and want to look like when they want to show off. He was never a show-off.”

Madoff’s most prized possession was the eighty-eight-foot yacht he bought for about $7.5 million in 2007, named
The Bull
. He docked it at Juan-les-Pins in Cap d’Antibes, near the Riviera villa. His New York decorator, Susan Blumenfeld, decorated it for the Madoffs, and Bernie commissioned an oil painting of the vessel. Now he could be delivered by sea to the Hôtel du Cap’s terrace like the other wealthy residents of the area.

He now had a yacht on the Riviera, part ownership of two private jets, four multimillion-dollar homes, access to a bank account with billions of dollars in it, and no way out of the monumental crime scheme that had made it all possible.

After his arrest, Bernie was asked how he had planned to end his Ponzi scheme, what was his exit strategy?

“I just somehow hoped the world would end, that would have been a way out,” he told a visitor.

“But Bernie,” the visitor said, “that would mean that Ruth and the boys and the grandkids would all be dead.”

“Right,” said Bernie.

Ruth seemed oblivious to any problem, even though they otherwise seemed so close.

“As far as I know, there was nothing that they kept from each other since they were teenagers,” said Eleanor.

Ruth had helped Bernie run the business when he started it. Her father steered him some of his first clients. Ruth’s role had diminished over the years, but she still had her own office one floor below Bernie’s. Former employees have told investigators that she was there at least once or twice a week.

At one point, she went back to school to study nutrition and received a master’s degree from New York University. She is also listed as one of the two executive editors of a cookbook called
Great Chefs of America Cook Kosher
, though her precise role in the book’s creation is in dispute. Although Ruth and her co-executive editor appear in a photograph wearing aprons in a kitchen, the editor of the book, Karen MacNeil, told ABC News that she wrote and assembled the book and its recipes herself and never once met or talked with Ruth.

Mostly, when Bernie went to the office, Ruth seemed to be a rich wife who had lunch, played golf, played bridge at the club, worked out at the Equinox gym, and enjoyed her wine and a smoke. She did not seem to have a care in the world other than making sure all the help was paid.

“People like Madoff pick people in their lives who stay with them. Who are basically codependent,” said former FBI agent Garrett. The type of person who thinks, “‘I don’t really want to know what you’re up to, but I do want to benefit with the yachts and clothes and houses and antiques.’”

In the weeks before her husband’s arrest, Ruth emptied her accounts of $15.5 million and helped Bernie prepare for the collapse. If she didn’t know it then, she would soon realize that she was married to a crook, and yet she remained close and loyal. Still in love, she said.

“When your life becomes this sort of mega-materialism and there’s really no reality in your life,” said Garrett, “you can basically rationalize away all those things around, outside this world of wealth and materialism that you’re entitled to.”

When reality hit, Ruth would be devastated.

“OBVIOUSLY, FIRST OF ALL, THIS CONVERSATION NEVER
took place, Mark, okay?” Bernie Madoff warned the man on the other end of the line.

“Yes, of course.”

It was December 19, 2005, and for the first time in more than a decade, Madoff was facing the prospect that he might get caught by the Securities and Exchange Commission, which has broad powers to investigate the financial industry.

The SEC investigators were due to arrive in a few days, and Madoff was on the phone, coaching a witness on how to outsmart their questions.

“I’m giving you, and, basically what you should respond to them. Obviously, not that we had a, we didn’t have a conversation on all of this stuff,” Madoff again warned.

Madoff was tense. His criminal scheme was booming. Customers were happy, and there were billions of dollars in the Chase account—more than enough to pay out the huge returns he had promised. The only thing other than a market crash that could get in his way was the SEC. And now they were at the door.

Madoff had had close calls before. His scheme had narrowly survived the economic downfall triggered by the 9/11 attacks in 2001. Because he never bought or sold any stock, he did not really care what the market did. But the tough post-9/11 market led huge numbers of his customers to withdraw their money from him, and the Chase account bank balance had become precipitously low. Investigators say Madoff hid this liquidity shortfall by repeatedly sending bank wire transfers of hundreds of millions of dollars to his London office, which then immediately wired the money back to him. It was a Madoff version of “kiting checks.” The SEC did not notice, and no one at the firm or its banks raised a red flag.

Madoff’s last close call had come in 1992, when the SEC investigated the accounting firms of Avellino & Bienes and Telfran Associates, who had been steering millions of dollars to Madoff. But the accountants had received only civil fines, and the SEC did not pursue Madoff’s “too good to be true” returns of 12 to 20 percent a year. As a result, Madoff’s name never appeared in any of the SEC’s public documents back then. The perception of many investors, in fact, was that the SEC investigation cleared Madoff of any suspicion of wrongdoing. There was a flattering article in the
Wall Street Journal
and new customers pleaded for Bernie to take their money.

In 2004, the SEC initiated, but then shut down, an inquiry into allegations that Madoff was “front-running,” the illegal practice in which brokers place their own orders to buy and sell before their customers. The SEC dropped the case after “higher-ups” apparently decided all investigative resources should be focused on the unrelated allegations that mutual funds were playing fast and loose with their money.

But now, in 2005, Madoff sensed he was again in the crosshairs of the SEC.

Investigators planned to interview Amit Vijayvergiya, the chief risk officer of the Fairfield Greenwich Group, with offices in Greenwich, Connecticut, and headquartered in New York City. Fairfield Greenwich Group is a giant hedge fund that had steered billions of dollars from its clients to Madoff. They were Madoff’s single biggest customer, with accounts totaling some $7.2 billion.

Any close examination of the books would reveal lots of loose ends and contradictions about how Fairfield Greenwich’s money was invested by Madoff. If these records were pulled and pursued, Madoff knew it could be his undoing. It was essential that Madoff and Fairfield Greenwich get their stories straight.

On the call with the worried Madoff was Vijayvergiya, from the Fairfield Greenwich offices in Bermuda, and Mark McKeefrey, the Fairfield Greenwich general counsel and chief operating officer at the New York headquarters. Lawyers for Fairfield Greenwich had already disclosed to the SEC that they were going to contact Madoff. The SEC apparently had no objection, although it seems unlikely they would have approved the conversation that followed.

Madoff took Vijayvergiya through what he should say in response to certain technical questions and advised him, most of all, to act casual with the SEC examiners.

“With these guys, anything you can’t answer you basically just say I, you know, don’t answer. You know, you just say, you know, I’m not knowledgeable in that aspect of it,” Madoff advised as he spelled out how to deflect and bamboozle the SEC.

“But as I say, with them, you don’t offer anything unless they…,” said Madoff, whose sentence was finished by the cooperative Vijayvergiya.

“…unless they ask,” said Vijayvergiya.

Among Madoff’s most important skills was his ability to co-opt, outwit, and calmly lie to the SEC and others who might have uncovered his fraud. He worked hard at infiltrating and ingratiating himself with the very government and industry agencies that were supposed to investigate him.

Madoff had served as the chairman of the board of directors of the NASDAQ stock exchange for three one-year terms, and as chairman or member of nine other boards at the National Association of Securities Dealers (NASD). As such, he was a man to be reckoned with—especially by the industry regulators who worked for the NASD. NASD is now called the Financial Industry Regulatory Authority (FINRA).

Either FINRA or NASD took “regulatory action” against Madoff’s broker-dealer trading operation for relatively minor procedural infractions in 1963, 1975, 2005, 2007, and 2008. Even though Madoff Investment Securities was all one big firm in the same building, FINRA said it had no jurisdiction to investigate the investment advisory side of the business. And so Madoff’s fraud continued unchecked. Madoff also made sure to be an active presence at another major industry group, the Securities Industry Association, where he chaired the trading committee. His brother, Peter, also served on the board of that group, which later merged to be known as the Securities Industry and Financial Markets Association. Peter was forced to resign his position when Bernie was arrested.

Bernie and Peter reportedly provided tens of thousands of dollars for conferences set up by the Securities Industry Association. Who could ever suspect the man funding the industry oversight organization of wrongdoing?

At an industry conference on regulation in 2007, Madoff spoke as if there was no way for any fraud to last for long. “If you read things in the newspaper, and you see somebody violate a rule you say, Well, they’re always doing this, but it’s impossible for a violation to go undetected. Certainly not for a considerable period of time,” said the man who, at the very same time, was decades into carrying out the largest fraud scheme in Wall Street history.

Similarly, Madoff cultivated important relationships with the SEC and its top officials.

In 2000, Madoff was asked to help an SEC advisory committee dealing with stock market rules in the wake of electronic trading.

The Madoff “little black book”—the book of essential contacts that he never traveled without—also included the misspelled name of a senior SEC official, Mike Macchiaroli, and the correct, direct line number for his Washington office. He is the associate director in the office of Broker Dealer Finances, in the Trading and Market Division.

Investigators were surprised to find Macchiaroli’s name in Madoff’s book, and wondered why a senior SEC official was considered one of Madoff’s “essential contacts.” They said that Macchiaroli had been a respected, behind-the-scenes presence at the SEC for years. “He was in market regulations, which doesn’t do the investigations, but when the enforcement people received a tip or a complaint about Madoff, he would have been the kind of person they might run it by,” said one of the investigators on the case.

The question was whether Macchiaroli did anything to help Madoff. Did he come to Madoff’s defense? David Kotz, the SEC inspector general, received a copy of Madoff’s “little black book” from the FBI and was asking the same questions. Madoff had badly misspelled Macchiaroli’s name—Macrioli—so the relationship couldn’t have been that close, and investigators found that Madoff often made more of his connections to the SEC than there was in reality. Still, given the SEC missteps in the various investigations of Madoff, the appearance of Macchiaroli’s name in the book caused agents to wonder.

When asked, Macchiaroli first said he had “nothing to do with enforcement” and denied that he had any “close relationship” with Madoff and had “only met him once or twice on the street.”

Madoff’s secretary, Eleanor, said she doubts that. “He wouldn’t be in Bernie’s address book if Bernie didn’t need his number. If he only spoke to the man once, or only ran into him in the street, there’s no way he would be in that book. I’m not saying the man is lying, I’m just saying I know Bernie’s habits.”

In a later conversation, Macchiaroli said it was no surprise that he would be in Madoff’s address book, and he recalled a more extensive set of contacts with Madoff—going back to at least 1987. “During the crash in ’87, for example, I called all of the firms. Madoff was one of the firms we called to see how they were doing, how they were coping, and Madoff knew me.” Macchiaroli said “I don’t recall” if anyone from the enforcement division had ever contacted him about Madoff, but he said he had always had a high opinion of Madoff. “I know the same things that other people know. You look at him, he looks like a grandfather, treats everybody very nicely.” But Macchiaroli was adamant that he was not involved in any way in helping Madoff avoid investigation by his agency.

“What the hell would I have done for him?” asked Macchiaroli.

Madoff had another, perhaps even more important, connection to the SEC, through his niece, Shana, who was the firm’s compliance lawyer. Shana’s love life became a focus of the investigation after her uncle’s arrest. In 2007, Shana married Eric Swanson, a ten-year veteran of the SEC who was the assistant director in the Office of Compliance Inspections and Examinations’ market oversight unit in Washington. He supervised “the commission’s inspection program responsible for regulatory oversight of trading on the securities exchange.” In his official capacity, Swanson would have known Shana’s uncle well. His office conducted regular inspections of all broker/dealers, including Madoff, and Swanson was the SEC official who approved the 2003-2004 “front-running” investigation of Madoff that was abruptly halted. Swanson says another official had already taken over the case when it was stopped and that he played no role in that decision.

In April 2006, friends say that Eric asked Shana out for a drink and it quickly became serious. At the time, the separate SEC investigation of the Ponzi scheme allegations was going full-tilt in New York and investigators had already concluded that Shana’s uncle Bernie had “mislead” (sic) them.

Shana and Eric had known each other from attending various industry conferences that dealt with the rather arcane SEC compliance rules relating to the Madoff firm’s legitimate trading operation. At the time of their first date, Shana had spent the last year and a half attending to her dying brother, Roger, suffering from leukemia. He would die two weeks later.

“Shana and Eric were really an unlikely match,” said one family friend. “He was a schmuck from the Midwest and she was this divorced New York lawyer into yoga. But her brother’s death had a big impact on her, and she and Eric really found each other.”

Four months after their first date, Swanson submitted his resignation to the SEC and moved to New York to live with Shana. They were married in September 2007. One Madoff family friend who attended the wedding recalled that “half of the frickin’ SEC seemed to be there. On one side there was the Madoff family, and on the other the SEC.”

An employee from Madoff’s London office who attended the wedding said that Madoff looked at all the SEC officials in attendance and said, “That’s the enemy.”

Former employees said that Shana was not everyone’s favorite in the office. “She appeared to be very spoiled,” said Eleanor, who had known her since she was a child and was actually fond of her. Shana’s uncle was the boss and her father, Peter, was second in command. “If you’re raised in that kind of an environment, and your parents spoil you, you’re gonna have a different way and a different air about you.”

Her marriage to an SEC official was quite a coup for Madoff, and it came just two months before the SEC office in New York formally closed its investigation of the firm, finding no Ponzi scheme.

Madoff boasted about the relationship between Shana and Eric at a 2007 industry conference on the markets and government regulators. “So there’s always this friction that goes on between the regulation side of the industry and the practitioners that say okay, where do you draw the line?” Madoff said. “I’m very close with the regulators so I’m not trying to say that what they do is bad. As a matter of fact, my niece just married one,” he said to laughter.

“My condolences,” said trader Muriel Siebert, whose own trading company was on the same floor of the Lipstick Building with Madoff.

“Did the SEC approve?” asked another panelist.

“He’s an attorney,” Madoff said as the laughter continued.

When Madoff’s scheme was exposed one year later and the failure of the SEC to detect it became known, the marriage was no longer a laughing matter.

The SEC inspector general, David Kotz, launched a full investigation into the SEC’s failure to detect the crime and Madoff’s dealings with people at the agency, including Swanson. Kotz interviewed Madoff for three hours in New York in June 2009, and included questions about his niece’s marriage, but the inspector general told prosecutors that Madoff’s information was of little value and would not “shape and fortify the future of Wall Street regulation and oversight.”

Friends said Swanson was devastated to be linked in any way to questions of corruption and he even hired a public relations adviser. “Swanson did not participate in New York’s investigation and didn’t seek to influence the outcome,” said family spokesman Eric Starkman of Starkman Associates.

Even if the relationship was as innocent and unconnected to the SEC’s oversight as Swanson and Madoff maintain, it served to underscore the cozy relationship that Madoff’s firm enjoyed with the principal government regulator of financial institutions, the SEC.