Bernie Madoff was in the news again recently—or at least his bankruptcy case was. It seems the trustee and some of Madoff’s victims are fighting over legal fees—surprise, surprise. It was a small story, and just the latest chapter in a long saga, but it had me thinking again about Madoff, and about the largest Ponzi scheme in history. Which, given that I write crime fiction, often with Wall Street backdrops, is probably inevitable. After all, the case is a playground of crime fiction motifs, and rich in inspiration.
In the event you somehow missed it, here’s the story in a nutshell: Bernie Madoff rose from modest beginnings in Queens, New York, to become what my grandfather would’ve called a big macher on Wall Street—a big deal. He amassed huge wealth and influence as chief executive of Bernard L. Madoff Investment Securities, the firm he founded in 1960. His company was a major market-maker in stocks, and the technology he helped develop was instrumental in the creation of the NASDAQ. The firm eventually came to employ Madoff’s wife, brother, sons, and other relatives, and Bernie himself became an elder statesman in the financial services industry, serving on the boards of major industry groups and as chairman of the NASD.
In the late 1970s, Bernie added a new line of business to his company: an investment-management division, with affluent individuals as its client base. By 2001, this division had grown into one of the largest hedge funds in the world, with investors that included universities, hospitals, charitable organizations, bold-faced names in sports and entertainment, as well as banks and other hedge funds. It was this part of his business that Madoff was discussing in December 2008 when he confessed to his sons: “It’s all just one big lie…basically a giant Ponzi scheme.” And so it was: Madoff had for years been fabricating client statements so that they showed steadily growing investment account balances. If ever clients wanted to liquidate their holdings, they were paid with money from other investors. The rest of the cash apparently went to finance Bernie’s lavish lifestyle.
Madoff’s sons went to the FBI and Madoff was arrested, and the messy aftermath began. Personal fortunes—many large, but some quite modest—were wiped out. There were an unknown number of stress-induced heart attacks and strokes among Madoff investors and at least two suicides (a retired British soldier whose family fortune had evaporated and a French money manager who’d lost over $1 billion of his own and his clients’money). Several charities—also Madoff investors—closed their doors for good, and anti-Semites the world over gleefully trotted out the usual slanders about Jews and money.
Over 15,000 Madoff victims were eventually identified, and total losses (of original principal invested) were calculated at over $20 billion. And regulators, including and especially the SEC, were red-faced at their failure to uncover the scheme, despite having investigated Madoff eight times in sixteen years, and having received a virtual road map to the crime from an independent financial-fraud investigator.
The feds filed a dozen fraud and perjury charges against Madoff on March 10, 2009, and two days later, Bernie pleaded guilty to all of them. On June 29, 2009, he was sentenced to 150 years in prison, but this was not the end of anything. Investigations are ongoing into who else may have participated in the crime (Madoff’s chief financial officer and his accountant have already pleaded guilty; others are under indictment). And the bankruptcy, with its lawsuits and wrangling over how to calculate losses and distribute funds, shows no signs of wrapping up soon.
There are excellent, lengthier versions of this story to be found online, but even in abridged form, its appeal to the crime writer is evident.
Starting with the scale of the thing. The numbers are staggering: over $20 billion in principal lost; over 15,000 victims; and a fraud perpetrated over a nearly thirty-year period (according to investigators, the fund was apparently a sham from the start). It’s a crime of Dr. Evil–like proportions, though without the death ray. And it’s the sort of thing that, before Madoff, might have strained credibility if you’d read it in a novel. But not anymore.
Then there is the con itself. Bernie’s pitch was simple: he claimed to generate consistent (though not astronomical) returns on stock investments by using a split-strike conversion strategy. It was bullshit, of course, but well-chosen bullshit. Split-strike conversion is an option-based strategy, not easy for a layman to understand, and I imagine more than a few investors nodded sagely as explanations sailed over their heads. But Bernie’s brilliance resided not in his pretend strategy but in how he sold it. Which is to say, he didn’t sell it: as the best conmen do, he let his victims sell themselves. He did, however, make it easy for them.
Over the years, Madoff cultivated a reputation in certain circles (the circles of his earliest victims—affluent, older Jews in New York and Florida) not simply as a man who understood the markets but as an initiate to their deepest mysteries—a man who knew the secret name of wealth, and who could conjure it from the air. This aura was enhanced by the (fabricated) returns reported by his earliest investors, the success of his market-making business, and his participation in many industry groups.
And now comes the beauty part. His reputation as a financial Jedi established, Bernie then put up a velvet rope: he made access to his money management services—access to himself—something exclusive, available only to a select few, a status symbol. Would-be investors were turned away once, twice, sometimes more often, and even those “fortunate” enough to have Madoff manage (steal) their money were rarely granted audience with the great man. To a pool of potential clients (victims) steeped in the culture of Manhattan private schools, finicky co-op boards, and Palm Beach country clubs, such exclusivity was catnip.
Bernie had them lining up, but he wasn’t content to stop there (as Ponzi schemes require ever-larger inflows of cash to stay afloat, he couldn’t stop there). In the late 1980s, he tapped a fire hydrant of funds in the form of other asset managers (hedge funds and banks in the U.S. and abroad) with large sums of money to invest. There is much speculation (and many lawsuits) on the subject of how much the managers of so-called feeder funds knew, should have known, or didn’t want to know, about the reality (or lack thereof) of Madoff’s business. What is undeniable is that they funneled billions into Bernie’s coffers and enriched themselves hugely in the process.
There was a genius to it—albeit of a totally evil sort. Like any skilled conman, Madoff had a deep and practical knowledge of certain aspects of human psychology—of things like greed, feelings of entitlement and exclusion, and the tendency of people to look the other way when they think their pockets are being lined. These are insights a crime writer can appreciate.
But the size and structure of the crime, however fascinating, are basically plot points: they speak to what happened, and to how. As both a reader and a writer, I’m always more interested in who and why, and for those I look to character. The Madoff case is a treasure trove of characters.
One of my favorites is the dogged investigator—Harry Markopolos—who sussed out Madoff’s scheme, and who tried for years to get the SEC to notice. In 1999, Markopolos was working for a fund that specialized in options trading strategies, and he was trying to reverse-engineer Madoff’s reported performance. This, of course, proved impossible to do, and Markopolos realized that something was amiss. He eventually came to suspect that Madoff was running a Ponzi scheme. He informed the SEC of his suspicions several times, starting in 2000, but was rebuffed on each occasion. In 2005, he submitted a twenty-one-page paper to the SEC (entitled “The World’s Largest Hedge Fund is a Fraud”), which laid out his analysis in detail. The SEC ignored this too, and Harry’s vindication came only after Madoff confessed.
Markopolos makes an appealing though unlikely hero. He seemed more than a little uncomfortable in the spotlight that found him after Madoff’s arrest, and he comes off less like Philip Marlowe than like the hero of a USA Network series—brilliant without a doubt, but also a bit off-center. But his testimony before Congress on the Madoff affair and on his efforts to get the SEC’s attention was bracing: informative, insightful, and acerbic.
Then there is the Madoff clan—wife Ruth, sons Mark and Andrew, brother Peter, niece Shana—who worked for Bernie and enjoyed the fruits of his wrongdoing (whether they knew of it or not). Before the fall, they seemed to be a golden family: attractive, accomplished, and close-knit, not to mention privileged and prosperous. Afterward, they were ruined—personally, professionally, and socially (the many pending lawsuits could finish them financially as well). They insist on their ignorance of Bernie’s schemes, but many have questioned this. (These skeptics include the feds, who are reportedly investigating Peter, Mark, and Andrew for tax fraud, and who may file charges later this year.) Bernie claims his family was in the dark and that he acted alone, but is he a reliable witness?
Other witnesses have come forward—former friends, former employees, victims (the categories overlap)—and as in any good mystery, their testimonies are contradictory. Ruth was a devoted wife, a loving mother, a generous friend, clueless when it came to the business; Ruth knew all of Bernie’s secrets. Mark and Andrew revered their father; Mark and Andrew lived in his shadow, were intimidated by him, were constantly, futilely, seeking his approval. They must have known; they couldn’t have known. It’s cliché at this point to cite the biblical or Shakespearean parallels, but still they come to mind.
It will likely be some time (and possibly several trials) before we know whether any in the family were Bernie’s accomplices or if they were all his dupes, but as a writer it’s hard not to speculate about family dysfunction and about dinners at chez Madoff. What was it like at the table, as the evening wore on and people grew tired and short-tempered and had too much to drink? What did they say to one another? What did they do?
Finally there is the most interesting character of all: Bernie Madoff himself. What are we to make of him? A monster, to be sure: who else would wreak this sort of havoc? Who else would—with or without their knowledge—entangle his own children in his crimes? A monster then—but what kind? A Wall Street Jekyll and Hyde, perhaps—a respected financier by day; by night a predator? Some sort of Frankenstein, maybe—a tanned and manicured patchwork of Jay Gatsby, Hannibal Lecter, and (of course) Charles Ponzi?
Bernie has given us little to go on in this regard. Since his arrest, he’s said almost nothing, and his plea allocution was an exercise in minimalism. He’s granted no interviews to reporters, though he did speak at length to two attorneys representing a group of his victims. From this, and from the accounts of convicts who were (or are) in FCC Butner with him, we gather that Bernie is not a contrite man. He is, apparently, disdainful of his victims and sees them as greedy fools and ingrates. And he has nothing but contempt for the SEC, who he thinks should’ve caught him long ago (hard to argue that point). But otherwise, on the important questions, Bernie has kept mum. Why did you do it? What was it like to lead a double life for so long? Did you ever feel remorse? Did you hate your victims? All we get is silence and his weird half-smile.
As a writer, I’m grateful he’s kept quiet. In silence, Madoff becomes a blank page—an empty screen on which we can project anything. When I look at him, I see noir.
Its European roots notwithstanding, I believe that noir finds its fullest, blackest flowering here in America, that it thrives in the fault lines of class, race, religion, and gender that shoot through our society, and expresses the dark side of the American impulse toward self-improvement and self-invention. Noir is concerned with how our ambitions can deform us, how the urge to better ourselves can spring from self-loathing, how aspiration can twist into rage and deceit. Noir is about corrosive secrets and double lives and the dangers of wanting too much. And only noir, it seems to me, can do justice to Bernie’s story.
We’ll be seeing versions of it for years to come, I suspect, as Madoff has entered not just our national consciousness but our unconscious as well. Personally, I’m looking forward to a David Mamet treatment, maybe with Ricky Jay in the lead.
Peter Spiegelman, a veteran of over twenty years on and around Wall Street, is the author of the novels Red Cat, Death’s Little Helpers, and Black Maps, which feature private investigator John March, and is also the editor of Wall Street Noir, an anthology of crime fiction. His latest novel, Circus Time, will be published by Knopf in 2011.