Betrayal: The Life and Lies of Bernie Madoff

Introduction

The old man was thrilled. Rolls-Royces and Jaguars were pulling up to the valet stop outside of Palm Beach’s Club Colette. Under the warm night sky, guests in black tie exited their cars and made their way into Carl Shapiro’s ninety-fifth birthday party.

They entered a large white tent filled with gorgeous exotic flowers that scented the air as the help passed around flutes of champagne. Inside the restaurant, waiters carrying trays of Iranian caviar and blinis stood ready as guests made their way to tables overflowing with red and peach roses. Steve Lawrence and Eydie Gorme warmed up in the wings.

The problems of the outside world seemed a distant matter on this February evening in 2008. Millions of Americans outside of Palm Beach were coming home from work anxious about the future. The papers were filled with warnings of dark times. Federal Reserve Chairman Ben Bernanke testified in Washington that the economy was deteriorating. The foreclosure rate on subprime mortgages was ballooning. The stock market continued its four-month, 2,000-point slide.

Yet the world of Club Colette seemed perfect tonight. Carl’s three daughters, Ronny, Ellen, and Linda, had sweated every detail to honor their father, a patriarch of American philanthropy whose name graced a legion of hospitals, university buildings, and research facilities. Guests speculated that the party had cost Carl’s family seven figures. The next day’s Palm Beach Daily News would gush that the club had been espaliered with enough greenery and orchids to make Marie Antoinette weep with envy.

The party was a decidedly Jewish affair. Credit card mogul Howard Kessler walked into the room not long after presenting a private performance of the Israeli Philharmonic string quartet in his living room. Financier Abe Gosman had recently lost half a billion dollars from the collapse of his business, but it was just a battle scar in the eyes of this crowd, which welcomed him in his formal wear for another night on the circuit. Shapiro’s son-in-law, Bob Jaffe, fabulously wealthy by marriage, impeccably attired and deeply tanned, mingled with the crowd. Carl took his place at the head table, reserved for his family and a few close friends. Bernie and Ruth Madoff were as close as they came, and they joined the group. Bernie sidled up right next to his old mentor.

It had been almost fifty years since Shapiro, founder of the women’s clothing manufacturer Kay Windsor, had discovered Madoff, fresh out of school and chomping at the bit to conquer Wall Street. He’d given Bernie his big break, throwing him some money to invest as a kind of test, and he had performed brilliantly. A half-century later, Madoff was a titan of Wall Street, and he had more than returned the favor. He’d invested Shapiro’s fortune and made him a multimillionaire.

Carl was a slight, gray-haired eminence, startlingly spry for a man whose one-hundredth birthday wasn’t far off the horizon. Bernie was almost 70 but in the prime of his career. His hair had grayed, but he wore it long, bushy, and combed back, an elegant look for a mogul who fussed over every detail of his appearance.

They chatted about small things, mostly family stories mixed with updates on their golf games, the sort of things old lions talk about when they get together in public for dinners and charity events. They had an ease with one another that had developed over the decades, back to the days when they were just Carl the garmento and Bernie the stockbroker. All the years and the stratospheric wealth they’d accumulated since then seemed to fade away.

It was a glorious night. A cake the size of a dining-room table was presented to Shapiro. New England Patriots’ owner Robert Kraft presented him with a jersey emblazoned with the number 95. Carl took the microphone and sang I’ve Grown Accustomed to Her Face to his wife, Ruth. Steve and Eydie serenaded them with their favorite song, It Had to Be You. The 95-year-old glowed with the spirit of a young man still in love with his girl.

Bernie, as usual, kept a low profile. Between courses, the room buzzed with the patter of socialites flitting from one table to the next, but he sat in his chair, making quiet small talk with the people around him. Except for a dance with his wife, he barely left his seat.

In truth, Madoff hated events like these. People never stopped looking at him when he went out in Palm Beach, even if he shrank into chairs and eluded the spotlight. The founder of Bernard L. Madoff Investment Securities LLC was such a successful investor that people literally begged him to invest their savings for them, sometimes in their black ties at events like these. Always, he’d politely demur. It was Jaffe, Shapiro’s son-in-law, sitting a few chairs from Madoff, who took their money on Bernie’s behalf, if they were lucky.

For all his reluctance, Madoff was in many ways the real center of attention this evening. For Jewish Palm Beach society, this was a rare sighting of the reclusive money manager. Easily half the men and women in this room had their money in Madoff accounts; many of them had invested every cent of their savings with him. It was a status symbol in this crowd to be accepted as his client.

Shapiro was a figure of respect in this circle, but Madoff was the source of their joy. Some made it a point to toast his name at their private dinner parties. Some would approach him in public and show their appreciation with tears in their eyes. People looked at Bernie Madoff with awe. He had, after all, made them rich.

Some could attend events like these only because of Madoff’s success with their money. It was Madoff who freed them to dance into the night with barely a worry about the economic collapse looming outside of their beautiful world. Madoff, not Shapiro, was the real father figure in this room.

What could he have been thinking, sitting at his table observing this river of the wealthy? This gathering of the ruling class comprised a club he had longed to join since the age of 13. They were accomplished men and women, giants of industry who had scaled the heights of American business. Madoff wasn’t as bright as they, a fact he’d known from an early age. He had achieved his success as an outsider, the architect of an unglamorous, fringe business he had built outside the gleaming walls of the New York Stock Exchange, and for years the barons of Wall Street sneered. Now he was one of them.

What did it feel like to realize that no one there, not even Carl Shapiro, knew the truth? All those social climbers in black tie whose futures he held in his hands didn’t seem to have a care in the world tonight as they bathed in their self-satisfaction. How could they know that their fortunes didn’t exist, and never had? How could they know that, instead of Bernie fueling their extravagant lifestyle, they had been fueling his? How could the women know that before the year was out, they’d be lining up at pawn shops, desperate to sell the jewelry that glittered around their necks tonight? Or that they and their husbands would be forced to sell their mansions or luxury condos?

How could Carl Shapiro know that the man he loved as a son had stolen hundreds of millions of dollars from him to keep his scam afloat? How could he know that in ten months, Bernie Madoff would confess that his remarkable success was all a lie? How could they know this glorious evening that this revered man was betraying them all?

On this magical night, as Carl and his wife danced to Steve and Eydie’s serenade, Bernie Madoff sat in his chair and wore the look of a decent man.

Thirteen months later, Madoff arrived at a Manhattan courthouse wearing a bulletproof vest under his charcoal suit.

Police ushered him past a roped-off mass of reporters, television cameramen, and newspaper photographers who had traveled from around the world to record the moment. Plainclothes police officers escorted him upstairs to a large courtroom filled with dozens of former clients who had been invited by the court to face him at close range. Over a dozen U.S. marshals formed a human chain in back of the courtroom, each of them scanning the room for signs of potential trouble.

Madoff stood at the defendant’s table staring straight ahead at Judge Denny Chin’s empty chair, seemingly determined not to turn around and risk eye contact with one of his former investors. Finally, Judge Chin entered the room and read the charges against him. Madoff fidgeted nervously as he uttered his first public words since his arrest on December 11.

Guilty, he said.

He pulled out a written statement and began reading it in a voice so soft the judge had to ask him to speak up.

Your Honor, for many years up until my arrest on December 11, 2008, I operated a Ponzi scheme…for which I am so deeply sorry and ashamed.

I knew what I was doing was wrong, indeed criminal. When I began the Ponzi scheme I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by I realized that my arrest and this day would inevitably come.

I cannot adequately express how sorry I am for what I have done.

And then Bernie Madoff, so widely trusted by his legions of clients that they called him the Jewish T-bill, was led to a back door and swallowed up by the prison system forever.

His friends back in Palm Beach were stunned by the amount of money involved in his scam. Far from being just a financial guru in their clubby little world, Madoff confessed to running a scheme that ripped off investors around the globe—the largest financial crime in history. His victims ranged from Steven Spielberg and holocaust survivor Elie Wiesel to banks in Switzerland, Austria, Italy, and Spain.

All told, almost five thousand clients lost money to Bernie Madoff. Investors lured in by his ability to produce consistent double-digit returns refinanced their homes and poured the cash into their Madoff accounts, only to wake up penniless, and in some cases homeless. Fellow investment advisors, so dazzled by his success that they invested every cent with him, were wiped clean.

Some of Madoff’s victims committed suicide. On December 23, 2008, a European investor slit his wrists after learning that he had lost his family’s fortune and his clients’ investments. Two months later, a British army major shot himself in the head after losing his life savings.

In his telling, Madoff was a good man who got into trouble late in his career and couldn’t get out of it. It was an explanation shared by many of his friends, even those he deceived and bankrupted: he was a good man who did a bad thing. But the storyline was as much a fraud as the financial statements he’d manufactured; the facts point to his launching his criminal operation when he was in his twenties.

Many of Madoff’s victims had loved him, yet he showed no anxiety, guilt, or remorse as he bankrupted his best friends and even his own sister. Never once did he try to warn them off from his swindle. On the contrary, he successfully hit up Carl Shapiro for hundreds of millions of dollars in the days before his scheme fell apart.

Why did he betray almost every person who ever cared for him? In the course of researching this book, I interviewed more than a hundred people from his past, from the first girl he ever kissed to family members who played in his house as children, the employees at his company, and the inner circle of friends who became his family as an adult. I’ve read through over two thousand pages of court documents; census, military, marriage and immigration records; congressional testimony; private emails; phone conversation transcripts; and old yearbooks. There is not a hint of criminality or madness in his background.

Yet Bernie Madoff bore scars that few knew about. His parents ran afoul of the law with a shadowy stock trading operation run out of the Madoff home, an eerie precursor to his crimes. Time and again as a kid, he was spurned and humiliated for what was perceived to be his inferior intellect. As his friends excelled in school, he fell hopelessly behind. He was rejected by one girl after another for his shortcomings and relegated to lesser classes and lesser schools. He was assigned to the heap of mediocrity at a young age.

But he excelled at making money, and with it came the stature that once had eluded him. When he couldn’t generate as much money as he wanted or needed, he simply invented it.

When America met Bernie Madoff, the economy was tanking. The housing bubble had burst spectacularly, and Wall Street institutions were collapsing from bets on financial instruments that proved worthless. As Americans were growing suspicious that their economy was based on a mirage, his arrest seemed to prove that it was true. He was everyone’s worst nightmare.

Madoff’s case was a frightening example of nobody asking questions when the going was good. Just as only a few quiet voices questioned the sanity of subprime mortgage derivatives, only a tiny handful of skeptics raised their voices about Madoff’s strangely consistent profits, even though no one could replicate his formula or understand his methods. Many on Wall Street suspected he was cheating but did nothing about it. Government regulators proved hapless.

By the night of Carl Shapiro’s birthday celebration, Madoff was a warped man. He had created much of the wealth in the room at Club Colette that evening, then yanked it all away in an epic betrayal. The people in their tuxedos and gowns were thrown into a panic, like passengers on the Titanic.

This is the story of Bernie Madoff’s descent into evil, and the havoc that he wreaked along the way.

1

The Struggler

In the early 1950s, the housewives of Laurelton, Queens would pause their phone conversations every time an airplane roared overhead, so close was their neighborhood to Idlewild International Airport. People would swear that the planes flew so close to their windows they could see the passengers in their seats.

Laurelton wasn’t the wealthiest community in New York, but it was idyllic in many ways. The Jews who filled the modest one-family homes had made it out of the tenements of the Lower East Side, Brooklyn, and the Bronx and were luxuriating in the first real houses they had ever known.

It was the smallest of worlds. The boys at P.S. 156 played stickball on its asphalt playground as girls jumped rope. Down the street, the Laurelton Jewish Center hosted Ping-Pong and basketball tournaments for kids after school. Lil Ed’s luncheonette played Rosemary Clooney and Bill Haley and the Comets on its jukebox, and teenagers drank shakes at the counter. After catching a movie at the Itch, as the movie theater was known, the teens would dance in their parents’ basements, and steal a kiss or two if they felt brave enough. It was a Happy Days existence, the New York Jewish version.

It would prove to be a fleeting moment in time, as Laurelton was just an economic pit stop on the way to the suburban prosperity of Long Island. In the early 1960s, the residents would flee en masse as black families began moving into this homogenous community and the illusion of an all-white Jewish world was fatally punctured.

But for a short period, Laurelton was a treasured home for a community experiencing its first taste of the American dream. People kept their doors unlocked all day, and everything most kids knew of the world could be found on Merrick Road, where you could pick up some egg foo yong at the House of Chang or a charlotte russe at the Four Star Bakery. Times Square was about fifteen miles to the west but a universe away. If the older kids got ambitious, they’d get on the Q5 bus and take it to the neighborhood of Jamaica, twenty minutes away, where they would expand their horizons at Macy’s and Gertz.

In the summer of 1953, as lines of moviegoers snaked down Merrick Road to see From Here to Eternity at the Itch, an 18-year-old freshman at Ohio State University named Stephen Richards prepared for his summer break back in Queens.

He was a rare breed, an affluent kid from Queens. The borough was a workingman’s haven, separated from Manhattan by two bridges, one tunnel, and an entire way of life. Forest Hills, Stephen’s neighborhood, was perhaps the toniest of a pretty unglamorous bunch.

Stephen was a slim young man with the swagger of someone who’d been born to comfort. His father headed up the legal department of the Maryland Casualty Company, one of America’s largest insurance firms in the 1950s. At times in his life, Stephen’s family had a car and a driver, an almost inconceivable amenity in middle-class Queens. The money allowed him to go to an out-of-state university instead of a local public college, a rare privilege.

He was a frat boy at Ohio State and prided himself on being a sharp New Yorker in a world of midwestern hicks. His roommate, Bob Roman, was an Ohio native and a little sheltered from the rest of the country. So Stephen decided to take him home for vacation and show him the big city. Along the way, a frat brother back in Columbus decided to fix Bob up on a blind date. The frat brother was from Laurelton and knew a pretty 16-year-old blonde girl back home named Joan Alpern.

The adventure led Stephen and Bob to a modest two-story house on a pretty tree-lined street. Sitting on the back porch of the Alpern home was Joan, her younger sister, Ruth, and Ruth’s boyfriend, Bernie Madoff. The five hit it off immediately; Joan and Bob were instantly smitten with one another, and the group spent much of the languid summer day together.

Bernie was a thin, lanky boy, 15 years old, with a thick mop of brown hair, small, almond-shaped eyes, and a large, rounded nose. There was little that was remarkable about his looks aside from his long eyelashes, which were so striking that the girls who knew him could describe them a half-century later. Ruthie was blonde, pretty, and spunky, far more animated than her boyfriend. Bernie seemed happy to play the introvert to her extrovert. They seemed unusually bonded for such a young couple; they had an ease in their relationship more typical of an old married couple. Stephen had never met Madoff, but he liked him immediately. He had a relaxed, nonthreatening demeanor; friends would sometimes have a hard time getting him to take things seriously. He seemed to be a good listener, not some showboat.

The two chatted for a while. Stephen asked Bernie if he knew what he planned to do over the summer. I’m pretty set, Madoff said. I’ve already got a job. I’m helping a guy install sprinkler systems. It sounded like a dull way to spend a vacation.

In the week that followed, Stephen and his roommate hit the big city, walking the streets of Manhattan, visiting tourist sites, and soaking up the energy of its postwar boom. Yet their week on the town ended back on that same porch in Laurelton, for Bob was drawn to Joan, who would one day become his wife.

With a light summer breeze pushing through this little porch in Queens, Joan and Bob pursued their burgeoning courtship and Stephen and Bernie got to know one another. The two were developing an easy rapport.

How’d you make out on that sprinkler job? Stephen asked.

Madoff smiled. I installed one sprinkler with the guy and realized I could do this thing myself, he said. I went into business the next day. He was boasting, a wise-ass showing the college kid how well he was doing. But there was a good deal of substance behind Madoff’s cockiness. While his friends were playing basketball or goofing off at the Laurelton Jewish Center, Bernie was on his hands and knees on his neighbors’ lawns every day installing sprinkler pipes. It was unglamorous work, digging holes into hardened soil and sinking pipes into the ground. Each long pipe had to snake along a ditch to a central water supply, where a clock and a meter would need to be installed to get the water spraying automatically. It was blue-collar stuff.

Madoff’s friends took notice. Donny Rosenzweig would stare out the window of his house, watching Bernie on his knees in the dirt, digging into the Rosenzweigs’ grass with a hand spade. Donny was surprised that a friend of his was doing the work of a laborer.

Bernie was the image of a driven young man. Later that summer, he boasted to Stephen that he’d made several thousand dollars from his fledgling sprinkler business, a head-turning sum of money for a kid to earn. Stephen was dazzled. Fifteen-year-old Bernie Madoff had made more money in one summer than Stephen would make in his first year out of college. His destiny as a businessman was obvious; he radiated an entrepreneur’s spirit. This kid is something else, Stephen told people. He’s going to go places.

The forces driving Bernie Madoff’s insatiable quest for success were not all good, but that was impossible for Stephen to know at the time. The positive impression Bernie made on him was so deep that it stayed with Stephen for almost a lifetime, coloring decisions he would make for years to come, and ultimately ruining his life.

Years later, Bernie Madoff would tell anyone who would listen that he had grown up poor on the Lower East Side. I fought my way out of there, he told a guest at his niece’s wedding. I had to scrape and battle and work really hard.

None of it was true.

The Madoff family had followed the classic immigrant path. Bernie’s parents, Ralph and Sylvia, were born to Eastern European Jews who had fled to America to escape the terror of government-sanctioned pogroms. Ralph’s father, David Solomon Madoff, born in the town of Pshedborsh, Poland, traveled to America in April 1907 with his wife, Rose, making his way from Hamburg, Germany, aboard the mighty Hamburg-Amerika line passenger steamship Graf Waldersee. They arrived at Ellis Island thirteen days later and settled in Scranton, Pennsylvania. Both had grown up speaking Yiddish, but David soon learned to read and