The Wizard of Lies: Bernie Madoff and the Death of Trust (65 page)

a similar approach was taken, with the same special master appointed: Campbell Robertson and John Schwartz, “Rethinking the Process for BP Spill Claims,”
New York Times
, Sept. 15, 2010. The program was officially called the Gulf Coast Claims Facility, and it went into operation in June 2010 under an agreement between British Petroleum and the Obama administration.

the concept was still generally viewed as a faster route to recovery: “Mr. Feinberg and the Gulf Settlement.”

Lax & Neville filed a class-action suit against Picard:
Mary Albanese et al. v. Irving H. Picard
, filed as Adversary Proceeding No. 09-01265 (BRL), in the
Main Madoff Liquidation
on June 5, 2009, and amended on June 23, 2009.

“I am a human face on this tragedy”: Statement of Allan Goldstein, “Assessing the Madoff Ponzi [
sic
] and the Need for Regulatory Reform,” before the House Committee on Financial Services, Jan. 5, 2009, p. 1.

“I was willing to forgo outsized gains”: Ibid., p. 2.

“I sit before you today a broken man”: Ibid., p. 3.

“We are not trust funds, hedge funds or banks”: Ibid.

a similar complaint by Helen Chaitman:
Diane and Roger Peskin and Maureen Ebel v. Irving H. Picard
, filed as Adversary Proceeding No. 09-01272, in the
Main Madoff Liquidation
.

14. The Sins Of The Father

They came to ask Bernie Madoff: Kotz Report, Exhibit 104.

several former top executives at Merrill Lynch and Morgan Stanley: A hedge fund run by a former head of Merrill Lynch’s brokerage unit, John “Launny” Steffens, had a stake in Madoff through Ezra Merkin’s Ascot Partners, and Madoff’s direct investors included the family of Frank A. Petito, a former chairman of Morgan Stanley & Co.

“I could see how you might see them as false”: Confidential interviews with people familiar with the Kotz-Madoff session.

“We seek neither mercy nor sympathy”: The letter is filed as Document 84 in the files of
Madoff Criminal Complaint
.

a fax machine came to life: This passage is based on court records filed in the government’s civil forfeiture agreement with Ruth Madoff.

On June 29, spectators squeezed elbow to elbow: This account is based on the author’s notes and observations during the sentencing and a transcript of the hearing.

The fur coat stayed: Confidential interviews with people familiar with the U.S. Marshals’ asset-recovery efforts in the Madoff case.

So did her used golf shoes: An inventory of seized property is attached as Exhibit A to Document 121 in the docket for
Madoff Criminal Complaint
.

there was no evidence that Ruth had been involved: The Law Blog, “Ruth the Truth? Feds Find No Evidence on Bernie’s Wife,”
WSJ.com
, July 1, 2009, 3:36 pm EST; also Amir Efrati, “Evidence to Charge Ruth Madoff Lacking,”
Wall Street Journal
, July 2, 2009.

investigators had found no evidence linking the sons to Madoff’s Ponzi scheme: Alex Berenson and Diana B. Henriques, “Inquiry Finds No Signs Family Aided Madoff,”
New York Times
, Dec. 16, 2008.

grew leery of including them on playdates: Margolick, “Madoff Chronicles, Part III.”

Catherine Hooper, an accomplished woman whose background as a fly-fishing guide: Ibid.

Andrew exchanged punches with the trader: Ibid.

“came out of the experience with a shaved head”: Roger Madoff,
Leukemia for Chickens
, p. 132.

enjoying each day because “life is short”: Ibid.

to change her own and their children’s last names to “Morgan”: Jose Martinez with Alison Gendar, “Take Off My ‘Madoff’ Daughter-in-Law Begs Court to Let Her and Small Kids Change Name from Hated Label,” New York
Daily News
, Feb. 25, 2010.

“perceived as the succubus to Bernie’s incubus”: Professor Richard A. Shweder, a cultural anthropologist at the University of Chicago, quoted in Lynnley Browning, “The Loneliest Woman in New York,”
New York Times
, June 12, 2009.

Many lifelong friends shunned her: Browning, “Loneliest Woman.”

demanded the return of $44. 8 million:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Ruth Madoff
, filed as Adversary Proceeding No. 09-01391 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 3.

Her lawyer, Peter Chavkin, was outraged and said so: Public statement from Peter A. Chavkin, released by his law firm, Mintz Levin, July 29, 2009.

“had Bernie on a short leash”: Sheryl Weinstein,
Madoff’s Other Secret: Love, Money, Bernie, and Me
(New York: St. Martin’s Press, 2009), pp. 43, 47, 53.

“stands as a powerful reminder”: Diana B. Henriques and Stephanie Strom, “Woman Tells of Affair with Madoff in New Book,”
New York Times
, Aug. 13, 2009.

Ruth Madoff had changed her hair color: Initially reported by Anna Schecter and Asa Eslocker, “Ruth Madoff: Summer in the City with No Apologies, Red Dye Job,”
ABC News: Brian Ross Investigates
, July 16, 2010. A video posted on the Brian Ross Investigates Web site included telescopic camera footage of her at lunch at a sidewalk restaurant.

15. The Wheels Of Justice

signing authority for one of the firm’s bank accounts until about 1985: Diana B. Henriques, “Judge Freezes Madoff Brother’s Assets,”
New York Times
, Mar. 25, 2009.

he was sued by Andrew Ross Samuels:
Andrew Ross Samuels v. Peter B. Madoff
, Verified Petition-Complaint, Index No. 09-5534, Supreme Court of the State of New York, County of Nassau, Mar. 16, 2009.

the subject of a criminal investigation: Letter to the Honorable Madeline Cox Arleo, U.S.M.J., from Charles T. Spada of Lankler, Siffert & Wohl, dated Jan. 26, 2010, filed as Document 40 in
Lautenberg v. Madoff.

In September 2009 the presiding federal judge: Opinion by U.S. district judge Stanley R. Chesler in
Lautenberg v. Madoff
, U.S. District Court for the District of New Jersey, Sept. 9, 2009.

“his many years of close association with his brother”: Opinion by U.S. district judge Stanley R. Chesler in
Lautenberg v. Madoff
, U.S. District Court for the District of New Jersey, Nov. 18, 2010, pp. 6–7.

Irving Picard filed a clawback lawsuit:
Picard v. Madoff Family
.

“Simply put, if the family members had been doing their jobs”: Ibid., p. 2.

“has not taken on the burden of proving criminal complicity”:
Picard v. Madoff Family
, Trustee’s Memorandum of Law in Opposition to Defendants’ Motions to Dismiss, May 21, 2010, p. 1.

“the trustee’s concession is significant”:
Picard v. Madoff Family
, “Defendant Peter B. Madoff’s Reply Memorandum of Law in Further Support of His Motion to Dismiss the Complaint,” June 21, 2010, p. 1.

At 2:45 pm on Tuesday, August 11, 2009: This passage is based primarily on the author’s observations and notes, and on a transcript of the hearing in which one of the quotes cited here is slightly garbled. 299 Kohn was questioned privately in a Viennese court: Confidential interviews. A letter filed by Kohn’s lawyers in a private lawsuit also confirmed that a member of their firm had represented her in several matters, including “a criminal investigation conducted by the Vienna Public Prosecutor’s office.” See Letter to the Honorable Richard M. Berman, United States District Court for the Southern District of New York, from Price O. Gielen, of Neuberger, Quinn, Gielen, Rubin & Gibber, dated Nov. 2, 2010, and filed as Document 146 in
In re: Herald, Primeo, and Thema Fund Secs.
, Case No. 09-cv-00289 (RMB), p. 3. Her lawyers acknowledged the investigation was pending as of publication, but said no charges were likely to be filed against Kohn, who denied any role in the Madoff fraud.

revoked Bank Medici’s banking license:
Picard v. Kohn
, pp. 35, 110.

the SFO would quietly announce that it was closing its examination: Diana B. Henriques and Matthew Saltmarsh, “Two Decisions Reshape Inquiry into Madoff Case,”
New York Times
, Feb. 2, 2010.

those charges would later be dropped: Heather Smith, “Access International’s Littaye Charged in Madoff Case (Update3),” Bloomberg news service, Nov. 4, 2009; and Benjamin Masse-Stamberger and Jean-Marie Pontaut, “Madoff L’heure des comptes,”
L’Express
, Sept. 29, 2010.

the SEC’s assertion simply wasn’t enough to sustain the case:
SEC v. Cohmad
, Opinion and Order of Judge Louis L. Stanton, Feb. 2, 2010.

“Nowhere does the complaint allege any fact”: Ibid., p. 4.

roster of important regulatory actions: In February 2009, Halliburton and its subsidiary, Kellogg Brown & Root, paid $177 million to settle the SEC case, without admitting or denying wrongdoing. The KBR subsidiary also paid $402 million to settle related criminal charges filed by the Justice Department. According to the SEC, the combined settlement was the largest ever paid under the Foreign Corrupt Practices Act. See SEC Litigation Release No. 20897A. UBS agreed to pay $200 million to settle the civil charges, without admitting or denying wrongdoing. See SEC Litigation Release No. 20905. The mortgage industry executive was Angelo Mozilo, the former chief executive of Countrywide Financial, who was sued by the SEC on June 4, 2009; without admitting or denying wrongdoing, he paid $67. 5 million to settle the case on Oct. 15, 2010. See SEC Litigation Release No. 21068A and Press Release No. 2010-197. The SEC sued Goldman Sachs in April 2010 for allegedly deceiving investors in the sale of complex mortgage derivatives; in July 2010 Goldman paid $550 million to settle the case, neither admitting nor denying wrongdoing but acknowledging that its marketing materials were “incomplete.” See SEC Litigation Release No. 21592.

“there will very likely be a subpoena on your desk”: Robert Khuzami, “My First 100 Days as Director of Enforcement,” Aug. 5, 2009, accessible at
www.sec.gov/news/speech/2009/spch080509rk.htm
.

the relationship had not influenced the SEC’s handling of Madoff or his firm: Kotz Report, p. 408.

“Yet, at no time did the SEC ever verify Madoff’s trading”: Ibid., p. 23.

“When potential investors expressed hesitation”: Ibid., p. 25.

Mary Schapiro immediately issued a statement apologizing again: Statement by SEC chairman Mary L. Schapiro, Sept. 2, 2009, accessible at
www.sec.gov/news/speech/2009/spch090209mls-2.htm
.

The lawsuit contended that the SEC was liable:
Phyllis Molchatsky and Stephen Schneider, M.D. v. U.S.A.
(hereafter
Molchatsky v. U.S.A.
), filed as Case No. 09-cv-8697 (LTS/AJP) in U.S. District Court for the Southern District of New York. Molchatsky was a disabled retiree who invested her life savings of $1. 7 million with a Madoff feeder fund in 2001, and Dr. Schneider had invested more than $750,000 of his retirement savings with Madoff in 1997.

“Plaintiffs’ losses are undeniably tragic”:
Molchatsky v. U.S.A.
, “United States of America Memorandum of Law in Support of Its Motion to Dismiss,” pp. 1–2.

the final total would be 16,518: See Third Interim Trustee’s Report for the Period Ending March 31, 2010, p. 27,
Main Madoff Liquidation
. The figures were updated on Feb. 21, 2011, from the trustee’s Web site,
www.madofftrustee.com
.

Judge Burton Lifland took his seat: This passage is based on the author’s observations and notes and a transcript of the hearing.

“a thorough and comprehensive analysis”:
Main Madoff Liquidation
, Memorandum Decision Granting Trustee’s Motion, Judge Burton R. Lifland, Mar. 2, 2010, p. 6.

“Given that in Madoff’s fictional world”: Ibid., pp. 10–11.

“It would be simply absurd to credit the fraud”: Ibid., p. 30.

“at no time was I ever aware that Bernard Madoff was engaged in a Ponzi scheme”:
Friehling Plea Transcript
, pp. 34–35.

The next defendants to come before the court: The original case was
U.S.A. v. Jerome O’Hara and George Perez
, filed as Case No. 09-mj-02484-UA-1 in U.S. District Court for the Southern District of New York. That case was preempted by a subsequent superseding indictment, as noted previously.

telling him to “ask Frank”:
SEC v. Jerome O’Hara and George Perez
, filed as Case No. 09-cv-9425 in U.S. District Court for the Southern District of New York, pp. 23–24.

he stood accused of having conspired to sustain and conceal the Ponzi scheme:
First Superseding Bonventre Indictment.

“I’m saying Dan Bonventre is absolutely innocent”: Diana B. Henriques, “Another Madoff Aide Faces Fraud Charges,”
New York Times
, Feb. 25, 2010.

the senior Picower lawyer, Bill Zabel, balked: Confidential interviews with three people briefed on the negotiations.

the worst moment of the entire tortured case: Interview with David J. Sheehan.

16. Hope, Lost And Found

The scene at the firm was like law school finals writ large: Interview with David J. Sheehan.

Among the checks Madoff had prepared:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Irwin Lipkin et al.
, filed as Adversary Proceeding No. 10-04218 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 16. Gary S. Redish, a lawyer for the elder Lipkins, denied the trustee’s claims. The fact that the Lipkins used their Madoff accounts to make gifts to their grandchildren showed they “had absolutely no knowledge of the Ponzi scheme,” he said. James K. Filan, a lawyer for Eric Lipkin, declined to comment on the trustee’s claims.

listed as the firm’s controller:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Enrica Cotellessa-Pitz and Thomas Pitz
, filed as Adversary Proceeding No. 10-04213 (BRL) in U.S. Bankruptcy Court for the Southern District of New York. Richard R. Leff, a lawyer for the couple, filed a formal answer in the case, contesting the trustee’s claims and denying that either Cotellessa-Pitz or her husband had any knowledge of the Ponzi scheme.