The Madoff Mysteries (with Jim Campbell)
Bernie Madoff was a riddle wrapped in an enigma, running a Ponzi scheme he didn't need to run.
The notorious Bernie Madoff operated the largest, and longest running, Ponzi scheme in history. From some 16,000 investors, Madoff made off with $64.8 billion—more than the GDP of Latvia and Estonia combined. And he kept up the charade for decades. Madoff’s was the Cats of Ponzi schemes.
None of this—what he did, why he did it, how he got away with it for so long—makes much sense. Two years after his death, Madoff remains an enigma. His story is as complex as his own twisted psyche, a tale riddled with paradoxes, ironies, and contradictions. In his excellent book Madoff Talks: Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History, Jim Campbell sifts through the wreckage Madoff left in his wake to provide the clearest picture yet of what exactly happened.
When is a con man not a con man?
Close your eyes and imagine a con artist. Who do you see? Someone like Slippin’ Jimmy McGill, probably; a smooth talker who uses his silver tongue to sell the con. A fellow who is clearly not what he claims to be. A B.S. spewer.
But Bernie wasn’t like that at all. He was exactly the opposite. He was a Wall Street lion. He used to help explain complex criminal schemes to the SEC. In 1987, during the crash, he insisted his market maker outfit stay open, when his rivals stopped taking calls; he took enormous losses that day, but got the job done, earning him much respect. He was the chair of NASDAQ, for Pete sake. That guy would rip you off? Really? Him?
“He’s very effective as a con man,” Campbell, my guest on today’s PREVAIL podcast, tells me. “I used to tell him, in fact, ‘Bernie, the reason you’re such a great con man is you’re the anti-con man.’” Madoff was the softest of soft sells. “He was low-key. He never needed your money.”
Heaven and hell
On the 19th floor of the Lipstick Building was Bernie’s legitimate business—a market maker called Bernard L. Madoff Investment Securities, or BLMIS. At the time of his arrest in December 2008, it was the sixth-largest firm of its kind, worth something like $3 billion. As USA Today reported at the time:
Madoff's tightly run firm — which treats employees and their families to a weekend outing each year at his oceanfront home in Montauk, N.Y., the easternmost point of Long Island — was the sixth-largest market maker for Standard & Poor’s 500 stocks this year through October, executing trades on $1.86 billion of shares, SEC data show.
Two floors below was the “boiler room,” where the handful of shadow employees who ran the Ponzi were situated. The two facilities could not have been more different, in appearance, personnel, or adherence to the law. And he operated both simultaneously.
When he moved to the Lipstick Building, Campbell explains, “he’s building the 19th floor and the 17th floor at the same time: one of the biggest ethical enterprises on Wall Street, and one of the biggest criminal enterprises downstairs—side by side. . . . How the heck is it fathomable that one mind can compartmentalize like that?”
Resources, human and otherwise
Madoff’s legit business was staffed with MBAs and Ivy League graduates. He gave them state-of-the-art equipment. He was meticulous, and wanted everything kept neat and orderly and uniform. He treated them like family.
On the 17th floor, where the operators of the Ponzi set up shop, he brought in scrappy characters with high school diplomas. He gave them outdated tech. The place was kind of a dump—file boxes packed all over the place, cigarette butts in the ashtrays.
The guy who was in charge of the day-to-day operations of the Ponzi scheme was Frank DiPascali, a graduate of Archbishop Molloy High School in Queens, with a few college credits under his belt. He would have been turned away if he’d applied upstairs. But he did whatever needed doing to keep the Ponzi going. He was the single most essential employee on Madoff’s payroll, on either floor.
That Madoff operated the market maker business helped him evade the law for decades. It gave him cover. “Bernie had the broker/dealer/market maker and the investment advisory Ponzi scheme,” Campbell explains. “Those are different sets of [SEC] examiners. And because he wasn’t registered as an investment advisor—which, of course, he should have been registered for 30 years—they never had investment advisory experts on the scene who know how to detect a Ponzi type of scheme.” When regulators came, they only looked at the legitimate business—and the legitimate business was as legitimate as it gets.
Madoff claimed that he wanted to help his family, protect his family, provide for his family. But he kept all of them in the dark. He lied to his wife, Ruth. He lied to his sons, Andrew and Mark. He lied to his brother, Peter, who served as chief of compliance for the legit business. He lied to his employees. He lied to his investors at the feeder firms. He lied to the Jewish community that invested heavily with him. He lied to the SEC and the other regulatory agencies. Sometimes he lied to Jim Campbell, too, although Campbell vetted everything he said and was able to separate fact from fiction.
To me, the craziest part of the Ponzi scheme is that Madoff didn’t need it. He already had a successful, well-respected Wall Street business. Sure, he raked in $800 million from the Ponzi, which he used to improve his lot, but it’s not like he was dodging eviction notices or defaulting on car payments. The mental energy, and the stress, involved with keeping up the criminal enterprise must have been off the charts. Why do it? Why keep it up? Why risk it all?
Bernie Madoff couldn’t handle it when he took losses. It may have been as simple as that. Back in the 60s, Madoff borrowed money from his father-in-law to pay for losses suffered by his initial fund investors—at the time, family and close friends. When the market tanked, “I was utterly mortified,” he told Campbell.
“To me,” Campbell writes in Madoff Talks, “the revealing insight lay in his comment ‘I was utterly mortified.’ The event signified, from the very start of his money management days, Bernie virtually guaranteed positive returns to his investors. . . . He viewed himself as a good guy.”
LISTEN TO THE PODCAST
S5 E2: Madoff Talk (with Jim Campbell)
Bernie Madoff ran the largest Ponzi scheme in history—and he ran it for decades before finally getting caught. Greg Olear talks to Jim Campbell, author of “Madoff Talks,” about how he got access to Bernie and his family, his contribution to the Netflix docu-series “Madoff: Monster of Wall Street,” the complexity of the Madoff scheme, the failure of the regulatory agencies to identify and stop the fraud, and the similarities and differences between Bernie Madoff and Sam Bankman-Fried. Plus: a new get-out-of-jail-free card.
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