On July 29, Bernard
Madoff was sentenced to spend 150 years in prison for his
part in running a multibillion-dollar confidence game. His
scheme sucked in more than 8,000 investors, Âincluding
seven financially sophisticated funds thatâ€”by
the time the whole thing collapsed in December 2008 accounted
for well more than two-thirds of Mr. Madoff's money.
Despite the complexity
of the massive swindle, three books now attempt to give
an account of it and of the man behind it all. They are
Erin Arvedlund's "Too Good to Be True": Andrew Kirtzman's
"Betrayal"; and Jerry Oppenheimer's "Madoff With the Money."
Each tells a similar story.
Mr. Madof, who grew
up in Queens, N.Y., and once worked as a lawn-sprinkler
installer, married his high-school sweetheart and, at age
23, opened his own brokerage Âcompany. It soon
became one of America's largest market makers for the business
of trading outside the confines of the New
York Stock Exchange . Mr. Madoff himself became one
of the leading lights of the new Nasdaq exchange and briefly
Despite this respectable
face, Mr. Madoff was running a Ponzi scheme under the guise
of an investment-advisory business. It operated in a suite
of locked offices one floor below his Ârenowned
Âbrokerage company. The swindle itself had nothing
to do with Wall Street, aside from the facade. Mr. Madoff
bought no stocks or options. He simply took in money from
investors and issued bogus monthly statements showing that
they were making "profits." When an investor asked to withdraw
his money, Mr. Madoff paid him with the funds of other investors.
The tale is fairly
lurid in itself, but the authors of these Madoff books try
to enliven their narratives with anecdotes (for instance,
from Mr. Madoff's high-school chums) and with heart-wrenching
stories from early small investors who, thanks to Mr. Madoff,
lost their life savings. Such stories do little to explain
just how Mr. Madoff managed to con savvy international funds
out of about $10 billion.
Ms. Arvedlund's "Too
Good to Be True" is the most fully reported of the three
books. She was one of the earliest journalists to investigate
Mr. Madoff's suspicious activities, having written a critical
piece on him in ÂBarron's in 2001. She not only
brings great lucidity to the subject but supplies invaluable
context about the devices that Mr. Madoff used to perpetuate
his confidence game. She even shows how the Securities and
Exchange Commission works”or fails to work.
Mr. Kirtzman's "Betrayal,"
though accurate and highly readable, lacks such contextual
depth. He gives a thorough account of the suspicions of
analyst Harry Markopolos, whose warnings about Mr. Madoff
to the SEC were ignored. As for Mr. Oppenheimer's "Madoff
With the Money," it often reads like a celebrity profile.
It is packed with titillating stories about Mr. Madoff's
personal life about sexual massages and adulterous affairs
but almost all of the material is speculative or anonymously
sourced. (Ironically, he missed the avtual affair that Madoff
had withSheryl Weinstein). And Mr. ÂOppenheimer's
financial reporting is something less than stellar. He writes
of Irving Picard, the court-appointed trustee who is supposed
to recover whatever he can of Mr. Madoff's money that Mr.
Picard is seeking to recover a "billion dollars" of what
Mr. Oppenheimer describes as an "estimated $65 billion lost."
Actually, as Mr. Picard's interim report to the court tells
us, he is seeking to recover over "$13.7 billion" by way
of eight lawsuits. The "$65 billion" figure was invented
by Mr. Madoff for the false book-keeping he used to dupe
his investors. Mr. Picard (and, for that matter, the government)
Âestimates the total loss to be under $15 billion
from 1995 to December 2008.
The problem with
many of details of the whole Madoff scandal is that it is
really too early to know what is true. Mr. Picard, the FBI,
the SEC and various prosecutors are still engaged in pursuing
evidence, as are authorities in Britain and Austria. Since
these books went to press, for example, Frank DiPascali,
Mr. Madoff's chief deputy for three decades, has pleaded
guilty to multiple counts of conspiracy, securities fraud,
investment-adviser fraud, mail fraud, international money
laundering, perjury, tax evasion and falsifying records.
presented the case against Mr. DiPascali, they cited unnamed
"co-conspirators" who helped steal the money and convert
it "to their own use and the use of others. Presumably,
these co-conspirators will be named and indicted in the
near future. Unfortunately, readers of these early books
will miss such crucial information.
Here is what we don't
know now but may know soon. First, we do not know when the
Ponzi scheme was launched. The electronic records of Mr.
Madoff's activities, at least those that have been made
public, go back only to 1995. The trustee's forensic accountants
are now reconstructing microfilm records that go back much
further, to the 1970s.
Chronology is a key
piece of the puzzle. If it turns out that the Ponzi scheme
was in existence for roughly 30 years, its authorship appears
in a different light. Thanks in part to the meticulous research
of Ms. Arvedlund, there is evidence showing that Mr. Madoff's
father-in-law, Sol Alpern, initially financed Mr. Madoff's
brokerage business and then, together with his associates
Frank Avellino and Michael Bienes, raised more than $440
million for Mr. Madoff to manage before the SEC shut the
brokerage firm down in 1992 (because Avellino and his associates
were not licensed to sell securities). Investors were guaranteed
up to a 20% annual return, no matter how the market fared.
(This was the type of guaranteed deal that Charles Ponzi
made with his own investors in the early 20th century.)
Second, we do not
now know how, or by whom, billions were siphoned out of
the Ponzi scheme. It is clear that more than $8 billion
exited by way of a few dozen accounts controlled by two
long-time Madoff associates. Some of these accounts were
stuffed with extraordinarily high notional profits. The
money redeemed through the accounts amounted to more than
two-thirds of the money that Mr. Madoff looted between 1995
and 2008. Mr. Picard, the trustee, has filed civil suits
charging that the men controlling these accounts were either
part of the fraud or privy to it. These men deny the charges
and have not yet had their day in court.
Finally, we do
not know the extent of the conspiracy. At the time these
books were written, Mr. Madoff was swearing that he acted
alone. He claimed that he personally forged all the fake
trades that generated the imaginary $64.7 billion in client
accounts. This feat required precisely counterfeiting tens
of thousands of confirmation slips so that they matched
the price range of actual stocks and options within the
daily volume of trades. As of Tuesday, Mr. DiPascali, facing
a 125-year sentence, is telling a different story. He admits
that he and others complicit in the conspiracy assisted
Mr. Madoff by counterfeiting trades, fabricating records
and laundering money. His sentencing in May 2010 is contingent
on his continued cooperation with the SEC, the FBI and prosecutors,
so we are likely to hear much more from him. We can be glad
for these early Madoff portraits in book form, but we do
not yet have a picture of how one of the largest swindles
in the annals of crime was perpetrated.