Making Sense of Madoff

What do you ask the architect of the biggest financial fraud in history? Diana Henriques, author of a bold new book on the Ponzi schemer, reports

The prison warden’s assistant called me on my cell phone at breakfast on Thursday, February 10, 2011. It was a call I had been hoping to get for almost six months.

On August 24, 2010, I had become the first journalist to interview Bernard L. Madoff since he was arrested, in December 2008, for running the largest Ponzi scheme in history. He had pleaded guilty and was serving a 150-year sentence in the federal prison in Butner, N.C. I had flown to Butner the night before that August visit and checked into a cheap, slightly damp motel room. Too alert to sleep, I reviewed my questions for Madoff until well past midnight.

What do you ask the architect of the largest financial fraud in history? Throughout that summer, as I waited and hoped for permission to visit, I had asked almost everyone I knew what one question they would ask Bernie Madoff. In almost every case, I got the same answer: “Why did you do it?”

Oddly, that question was nowhere near the top of my own list. I strongly suspected, even then, that Madoff himself did not know the deep, true reason why he had committed his crime.

In my research, I had come to see a man who simply could not admit failure, especially to himself. “Bernie never had a losing day,” said one longtime stock market friend — recalling a quietly confident man who always had a cheerful response when other traders were bellyaching about a brutal day in the market. He had lived most of his life in a gilded atmosphere of admiration. His wife Ruth had worshipped him ever since she’d first met him when she was 13 and he was a sun-bronzed 16-year-old lifeguard. His two sons, who worked on his legitimate stock-trading desk, shone in his reflected achievements. Nothing I’d seen or knew of Madoff suggested a self-reflective man who would dig deeply for the causes of his own self-destructive actions.

So my own key questions for him were rooted in fact, not psychology: ”When did the fraud start?” And “Who else knew?” His answers to those questions might be lies – indeed, I believe they were – but at least the questions dealt with facts that he certainly knew. What man could forget the day he crossed over the line and committed his first criminal act? And what mastermind does not know his own accomplices — or cannot remember that awful moment when someone else discovers his crime in progress?

And yet, when we had met in a dimly-lit prison visiting room in August, Madoff had claimed to be that unknowing man.

He was smaller than he seemed on television – shorter, thinner, less regal. But he still had the aura, the quiet magnetism his longtime friends and defrauded investors remembered. His prison uniform was crisply pressed; his shoes were shiny. He seemed a bit bemused to be talking to me in this strange place, so far from the Wall Street world where I had first met him in the 1990s.

With a twinkle toward his lawyer, he joked mildly about how little lawyers and prosecutors knew about the stock market. He flattered me about my own market knowledge – that was his magic trick. He never acted as if he were the smartest, most charming person in the room. He acted as if you were the smartest, most charming person in the room. I learned a great deal in those moments about how seductive this man must have seemed to uncertain regulators and investors.

But he steadfastly dodged my insistent questions about the timing of his first criminal acts, claiming he could not recall the day he had first robbed Peter to pay Paul, the first step he had taken to construct a Ponzi scheme that would wipe out $65 billion in paper wealth. The fraud started sometime in 1992, he insisted. That was his story and he would not budge, despite my well-founded skepticism.

And who else knew? Well, maybe one financially sophisticated Palm Beach investor – Jeffry Picower, now dead — had suspected. Picower never said anything, Madoff said, but how could he not have suspected something? Madoff fingered no one else, not even Frank DiPascali, his right-hand conspirator in the fraud, who had pleaded guilty more than a year earlier.

I had requested a follow-up visit the moment I returned home from Butner. It was denied, although Madoff was allowed to exchange e-mails and letters with me through the fall. I tried again, as my book’s deadline neared. And on that Thursday morning in February, I learned my request had been approved. The visit was scheduled for the following Tuesday. I raced back to Butner.

I was stunned by the man who met me in the visiting room on February 15, 2011. It was just over two months since December 11, the second anniversary of his arrest — and the day his older son Mark had committed suicide, broken at last by the legacy of suspicion and shame his father had left him. Much thinner and rumpled, in a badly pressed uniform with a shirt button undone, Madoff reached out his hand to shake mine. There was no humorous flattery this time, only an intense determination to implicate the big banks that dealt with him through the years of his fraud and a fierce certainty that his victims would ultimately recover more than anyone expected.

Dollars and cents, placing the blame – those were the targets of his laser-like focus, despite his obvious grief. He later acknowledged weeping for days after hearing of Mark’s death. As our February visit ended, Madoff told me he was talking with a prison psychologist to try to figure out how he lived a life of lies for so long. “I always wanted to please people, that was a weakness that I had,” he said. “My counselor says people ‘compartmentalize.’ I never believed that I was stealing. I thought I was taking a business risk, like I did all the time. I thought it was a temporary situation.”

But the pain was piercingly permanent, for his own family and for all the other devastated families whose lives were torn apart by his fraud. I did not feel he had yet reached the point of fully comprehending the mountain of grief he had created – but as he walked out of the visiting room, I wondered if he was finally taking the first steps toward that knowledge.

Diana B. Henriques, a senior financial writer at The New York Times, is the author of the new book,“The Wizard of Lies: Bernie Madoff and the Death of Trust.” A Polk Award winner and Pulitzer Prize finalist, she has won several awards for her work on the Times’s coverage of the Madoff scandal and was part of the team recognized as a Pulitzer finalist for its coverage of the financial crisis of 2008.

7 comments so far.

  1. avatar Baby Snooks says:

    He does have a point about the banks.  Not defending what he did but he certainy isn’t alone in having committed fraud, now is he? I will always believe he started out just trying to cover enormous losses. Probably later than 1992 and probably on hedge funds.  I will also always believe he was set up. And still doesnt realize it.  

    He wiped out a big chunk of liberal and primarily Jewish wealth that supported liberal causes in this country. Coinicidence? I don’t think so. 

    There were at least 100 “unindicted co-conspirators” in the Enron mess all of whom were allowed to keep hundreds of millions of dollars they made off their participation. Most were never named.  That should have set off alarm bells. But didn’t. 

    Most people are wary of Wall Street. With good reason. Most people who lose it all are told “too bad.” Even though they lost it to crooks like Bernie Madoff and Ken Lay.

  2. avatar phyllis Doyle Pepe says:

    I saw an interview with Diana on the PBS News Hour. What caught my attention then and now is this: ” He flattered me about my own market knowledge – that was his magic trick. He never acted as if he were the smartest, most charming person in the room. He acted as if you were the smartest, most charming person in the room. I learned a great deal in those moments about how seductive this man must have seemed to uncertain regulators and investors.”
    How easy was it for him to convince people and then cover up his dastardly deeds. That kind of onsequeness lures and captures. It’s a tragic tale, Shakespearian in its enormity, not only monies lost, but a soul to boot.

    • avatar Baby Snooks says:

      Most sociopaths are charming.  Wall Street by the way is filled with charmers. As for the regulators they are supposed to be looking at the books. They apparently didn’t. One of the many mysteries of how all of this happened.  I do believe he was set up. But I also belive he is a classic sociopath. Convincing himself that somehow he would “win it all back” and clear it on the books. And instead kept digging a bigger hole for himself. And for all the investors. As for the “big boys” who were investing and running the “feeder funds” that provided quite a bit of the investments I doubt that Picower was the only one who “had to have known” and yet he was the only one they went after. I don’t think he really knwos what happened. He was too busy trying to cover it all.  And if he ever did figure it who would believe him? Who would believe any of them?

      So maybe they thought everyone else was just stupid. Apparently that’s what they thought of all the girls who lunched with Lea Fastow and played her version of “Wheel of Fortune” by putting up $25,000 and months later hitting the jackpot. As much as $1 million in some cases. All were allowed to keep it. No one knows why they were. Perhaps it was one of the partnerships that they didn’t investigate. There were quite a few they didn’t. 

      Something wrong with the picture as they say.

  3. avatar KarenR says:

    The only thing outstanding about Madoff’s scam was the size of it, but stuff like this happens on smaller scale all the time. Trusted bookkeepers embezzle from organizations. Scam owners set up too trusting bookkeepers to take the fall for financial misdeeds. Trusted managers and cashiers looted stores to line their own pockets.

    Almost all start small and gradually escalate their take as their confidence grows. It’s that exact behavior that ends up giving them away as frauds instead of mere incompetents. It’s also one of the primary patterns good auditors are trained to see. The only reason Madoff’s scam grew so large was because he had previously established a legitimate stellar reputation that made it easy for others to blindly trust him.

    Trust but verify – ALWAYS.

    • avatar Paul Smith says:

      Good points. Also remember Mr. Madoff generated modest returns, always in step with the market at large, rarely spectacular. Smart enough to know not to show off.

  4. avatar Bella Mia says:

    Donald Trump said he was approached several times by Madoff to invest in his funds, but each time Trump declined. Said he didn’t feel good about it. Donald seems to have a penetrating insight into people’s motives.

    • avatar Baby Snooks says:

      Donald Trump says a lot of things.  Of course a lot of things are said about Donald Trump. Particullarly of late by people who thought they were buying into “Donald Trump” real estate developments not realizing he had only lent his name. Or sold his name.  He of course has no control over what they people he lent his name to did. Or at least that’s what he says with regard to the lawsuits being filed. Those lawsuits no doubt were one of the many reasons he decided not to run for president.