Posted by Brad A. Greenberg
The New York Times yesterday published an in-depth exploration of the Bernard Madoff web of lies. It begins:
By the end, the world itself was too small to support the vast Ponzi scheme constructed by Bernard L. Madoff.
Initially, he tapped local money pulled in from country clubs and charity dinners, where investors sought him out to casually plead with him to manage their savings so they could start reaping the steady, solid returns their envied friends were getting.
Then, he and his promoters set sights on Europe, again framing the investments as memberships in a select club. A Swiss hedge fund manager, Michel Dominicé, still remembers the pitch he got a few years ago from a salesman in Geneva. “He told me the fund was closed, that it was something I couldn’t buy,” Mr. Dominicé said. “But he told me he might have a way to get me in. It was weird.”
Mr. Madoff’s agents next cut a cash-gathering swath through the Persian Gulf, then Southeast Asia. Finally, they were hurtling with undignified speed toward China, with invitations to invest that were more desperate, less exclusive. One Beijing businessman who was approached said it seemed the Madoff funds were being pitched “to anyone who would listen.”
The juggernaut began to sputter this fall as investors, rattled by the financial crisis and reaching for cash, started taking money out faster than Mr. Madoff could bring fresh cash in the door. He was arrested on Dec. 11 at his Manhattan apartment and charged with securities fraud, turned in the night before by his sons after he told them his entire business was “a giant Ponzi scheme.”
The case is still viewed more with mystery than clarity, and Mr. Madoff’s version of events can only be drawn from statements attributed to him by federal prosecutors and regulators as he has not commented publicly on the case.
But whatever else Mr. Madoff’s game was, it was certainly this: The first worldwide Ponzi scheme — a fraud that lasted longer, reached wider and cut deeper than any similar scheme in history, entirely eclipsing the puny regional ambitions of Charles Ponzi, the Boston swindler who gave his name to the scheme nearly a century ago.
“Absolutely — there has been nothing like this, nothing that we could call truly global,” said Mitchell Zuckoff, the author of “Ponzi’s Scheme: The True Story of a Financial Legend” and a professor at Boston University. These classic schemes typically prey on local trust, he added. “So this says what we increasingly know to be true about the world: The barriers have come down; money knows no borders, no limits.”
While many of the known victims of Bernard L. Madoff Investment Securities are prominent Jewish executives and organizations — Jeffrey Katzenberg, the Spitzers, Yeshiva University, the Elie Wiesel Foundation and charities set up by the publisher Mortimer B. Zuckerman and the Hollywood director Steven Spielberg — it now appears that anyone with money was a potential target. Indeed, at one point, the Abu Dhabi Investment Authority, a large sovereign wealth fund in the Middle East, had entrusted some $400 million to Mr. Madoff’s firm.
Regulators say Mr. Madoff himself estimated that $50 billion in personal and institutional wealth from around the world was gone. It vanished from the estates of the North Shore of Long Island, from the beachfront suites of Palm Beach, from the exclusive enclaves of Europe. Before it evaporated, it helped finance Mr. Madoff’s coddled lifestyle, with a Manhattan apartment, a beachfront mansion in the Hamptons, a small villa overlooking Cap d’Antibes on the French Riviera, a Mayfair office in London and yachts in New York, Florida and the Mediterranean.
Just as the scheme transcended national borders, it left local regulators far behind. Its lies were translated into a half-dozen languages. Its larceny was denominated in a half-dozen currencies. Its warning signals were missed by enforcement agencies around the globe. And its victims are now scattered from Hollywood to Zurich to Abu Dhabi.
Indeed, while the most visible pain may be local — an important charity forced to close, an esteemed university embarrassed, a fabric of community trust shredded — the clearest lesson is universal: When money goes global, fraud does too.
If you’re reading this blog, you’ve got to read the rest of the Times penetrating look at what went wrong and how so many people lost so much. Particularly troubling are all the middlemen wealth managers we’ve been reading about—you know, those guys who invested their clients money with Madoff, often unbeknownst to their clients.
“Is it possible that all these fund managers and investors were in the dark about what Madoff was doing?” Mark Lacter asked on his business blog “Not likely.”
That perception, and it’s a common one, is going to feed lawsuits that will last for years to come. Stanely Chais is already defending himself against one.
4.27.11 at 10:21 am | Interviewed on the Today Show earlier this week,. . .
2.28.11 at 6:50 pm | NPR interviews NY Magazine editor Steve Fishman. . .
2.16.11 at 9:19 am | Bernard L. Madoff said he never thought the. . .
2.16.11 at 9:18 am | In a lengthly, far reaching article based on. . .
12.11.10 at 10:21 am | Mark Madoff Found Dead
2.25.10 at 8:56 am | The Madoff family is looking for a name change. . .
12.17.08 at 7:51 pm | The tribalism of Hollywood means Jews go down. . . (45)
3.14.09 at 10:28 pm | Yes, Jim Cramer is Jewish. But-- sorry to bum. . . (15)
2.25.10 at 8:56 am | The Madoff family is looking for a name change. . . (11)
December 21, 2008 | 5:20 pm
Posted by The Web Guy
As news of the Madoff scandal ripples across the WWW, haters of various stripes are rejoicing.
Neo-Nazis, Holocaust revisionists, Jews for Jesus, ‘white’ supremacists and other anti-Semites are gleefully filling blogs and Web sites with their garbage, or zevel as one poster here put it in Hebrew.
The arrest of a Jewish businessman whose alleged $50 billion Ponzi scheme drained the finances of private investors, philanthropic foundations and banks has prompted an outpouring of anti-Semitic comments on mainstream and extremist Web sites.
The Anti-Defamation League (ADL) said that the public comment sections of highly trafficked news sites, blogs, and financial message boards that have featured material on the scandal surrounding Bernard Madoff and his investment firm are filled with anti-Semitic comments, mostly from anonymous users.
Site users have posted comments ranging from deeply offensive stereotypical statements about Jews and money—with some suggesting that only Jews could perpetrate a fraud on such a scale—to conspiracy theories about Jews stealing money to benefit Israel. These and other anti-Jewish tropes have appeared on popular blogs devoted to finance, in comment sections of mainstream news outlets and in banter among users of Internet discussion groups.
“Jews are always a convenient scapegoat in times of crisis, but the Madoff scandal and the fact that so many of the defrauded investors are Jewish has created a perfect storm for the anti-Semites,” said Abraham H. Foxman, ADL National Director. “Nowadays, the first place Jew-haters will go is to the Internet, where they can give voice to their hateful ideas without fear of repercussions.”
I will not tolerate zevel like this here.
Hateful blog comments (and posts with personal attacks and/or profanity) will be immediately deleted and persistent offenders will be banned without notice and without recourse.
December 20, 2008 | 10:02 pm
Posted by Dean Rotbart
In an email sent Friday to alumni and other members of the Tufts University community, President Lawrence S. Bacow disclosed that the Medford, MA school is also a victim of the Madoff investment scam. Bacow, who himself is Jewish, says the university’s funds had been invested through Ascot Partners, an investment management firm run by J. Ezra Merkin. Merkin, who until the scandal broke had served on the board at Yeshiva University, is also blamed for YU’s losses of at least $110 million.
Here is the Tuft’s email:
December 19, 2008
I have promised to keep you informed when the economic news of these extraordinary times has special significance for Tufts. The news this past week has been dominated by a financial scandal of unprecedented scale and scope. I am sorry to report that Tufts is one of a growing number of victims of the crimes allegedly committed by Bernard Madoff.
In 2005, the university’s Investment Committee authorized an investment with Ascot Partners, which in turn invested the entire sum with Madoff Securities. We have written off the value of this investment, which totaled $20 million, or slightly less than 2 percent of our endowment. This write-off will not significantly affect our operations. We will cooperate with any investigations of this fraud and will work to recoup as much of our investment as possible.
It is personally painful for me to communicate this information to you. We deeply appreciate the trust and confidence that each donor places in the university. We also have an obligation to our students and faculty to manage these resources wisely for their benefit. You have my word that we will look closely at our experience in this case so that we can strengthen our investment process for the future.
I will continue to keep you informed as we work our way through these difficult times. For now, I send all the members of the Tufts community my very best wishes for the holiday season ahead.
Lawrence S. Bacow
December 19, 2008 | 7:37 pm
Posted by The Web GuyHadassah, the womens' Zionist organization, admits that a tough economy -- and the Madoff scandal -- has cost the group dearly, but that won't keep them from fulfilling their mission.
A Message from Nancy Falchuk, Hadassah National President
Shalom from Hadassah House.
I'm speaking to you at a defining moment in Hadassah's history. This is a moment in which the past and the future are calling on us for leadership and action.
Like all of America's citizens and institutions, Hadassah has felt the impact of the global financial crisis. And as I'm sure you have heard by now, Hadassah was also one of many philanthropic organizations that fell victim to Bernard Madoff.
Despite the substantial loss, I want to assure you of Hadassah's strength, sustainability and commitment. We will get through this crisis because of the wisdom that is our inheritance, because of the fortitude of our leaders and members, and because our life- enhancing and life-saving programs demand it of us.
As difficult as the crisis is, the good news is that we are ready for it. For much of the past year Hadassah has been restructuring and cutting costs. Plans we had in place for the coming year are now on fast forward.
We've had to tighten our belt so much it hurts. But everything we do to meet the challenge is aimed at protecting our core mission of strengthening Israel and the Jewish people.
Protecting our mission and our values takes more than planning. That's why we need every member of Hadassah, and generous non-members as well, to be involved. This a critical moment in which your financial support is so urgent.
I'm asking every one of you to give as much as you can. And while all gifts are welcome, to protect the Hadassah body as a whole, we especially need unrestricted funds, not dedicated to any our wonderful specific projects.
We stand on the shoulders of women who built Hadassah, our grandmothers, our mothers and our daughters. Their example of devotion through wars, Depression and the Holocaust inspire us today. And what we do today is for the benefit of future generations, people who will be touched, educated, perhaps have their lives saved, because of how we respond to this call to action. We can't let them down.
December 19, 2008 | 2:38 pm
Posted by Dean Rotbart
More awful news awaits the many charities and individuals who have already lost some or all of their wealth to the Bernard L. Madoff swindle.
As this saga unfolds, it is probable that the government will seek restitution even from some innocent victims if the homes they own, the cars they drive or the donations they made were derived – even unknowingly, from the illegal fruits of Madoff’s scam.
Worse, even if the government chooses not to pursue such innocents, a phalanx of plaintiffs attorneys are trolling this very moment for clients who are certain to mount a legal assault on charities, universities and other non-profits in a bid to force them to disgorge past donations whose origins can be linked back to the Madoff scheme.
At the very least, large numbers of individuals and institutions who today consider themselves to be victims of the Madoff scandal should brace for forthcoming legal actions that will allege their remaining wealth is not theirs at all – rather, it is the recoverable property of other claimants who were bilked by Madoff.
To keep their homes, cars, jewelry and other possessions, individuals scammed by Madoff – especially those who still have visible assets – will almost certainly have to hire their own defense lawyers to battle for their rights.
To keep their libraries, laboratories, scholarship programs, hospital services, meal programs and the like, universities and other non-profits who continue to operate in the wake of the Madoff scandal will also almost certainly have to retain law firms to combat efforts to strip those non-profits of past Madoff-related donations – whether directly from Madoff or indirectly from Madoff investors.
It is, say fraud investigators, lawyers and a former federal prosecutor who I spoke with in the past two days, a nightmare that will continue to haunt everyone who had funds invested with Madoff for many, many years to come.
In a worst case scenario, that I have dubbed the ‘Madoff Syndrome’ – in reference to the kind of supercritical meltdown portrayed in the 1979 film, The China Syndrome, Jewish charities and other worthy non-profits may be legally bound to return all funds ever received from Madoff and his minions, even though such funds were long ago spent on worthy deeds and even though existing endowments would be entirely wiped out. Dozens of today’s finest Jewish charities could be felled.
One fraud expert who I spoke with says that the final safety net that is likely to stand between plaintiffs’ attorneys and a complete ‘Madoff Syndrome’ meltdown would be federal legislation to limit the liability of Madoff recipient non-profits.
The specter is daunting. It features well-known Jewish charities and non-profits suing and being sued by one another – and by outsiders – in a desperate bid for their very survival.
The few foundations that have already turned off their lights and locked their doors may yet say a prayer of thanks that they won’t be around to experience the gut-wrenching battles that await the survivors.
December 19, 2008 | 11:22 am
Posted by Dean Rotbart
The $50 billion estimate of how much investors lost in the Bernard L. Madoff Ponzi scheme is likely as bogus as the rest of Madoff’s claims.
In the week since Madoff was arrested by federal agents in his New York apartment, the world has more or less taken at face value his own reckoning of the size of his mega-swindle.
Moreover, news reports have detailed lists of those who entrusted their funds to Madoff and his Bernald L. Madoff Investment Securities (BMIS) firm and are now out millions, tens of millions, hundreds of millions and even billions of dollars.
Those numbers may also, in the end, prove bogus.
Because in a pure Ponzi scheme, say experts, there are no “real” investments and hence no “real” profits to be lost.
Almost without a doubt, many of the victims of the Madoff scheme who are reporting to the news media how much money they lost with Bernie Madoff are still under the hypnotic-like fantasy that their “profits” had been real. But they most probably weren’t.
It is like the math word problems that my sixth grade daughter gets nightly for homework. Follow along:
It is September 2008 and a Jewish charity is given a $1,000 donation from a happy Bernie Madoff investor. The grateful charity takes that $1,000 and invests it with BMIS.
In October, the charity is delighted to see that its investment is now worth $1,010. In November, amazingly, it has risen to $1,022. On December 1st, it is worth $1,035.
Then comes the bad news on December 12th that Madoff and BMIS are one large fraud. How much did the Jewish charity lose?
Of course, the reality of this scheme and the profundity of those injured by it are a lot more complex than my daughter’s math homework.
But even my 12-year-old daughter can tell us, and the news media, that to report the Jewish charity lost $1,035 of its endowment is inaccurate.
The $35 in returns were phony, that much is easy to understand. Although on paper the Jewish charity may have been told it “earned” that money, inside Madoff central, there were no investments and hence no earnings. The money that the Jewish charity “invested” likely went out the BMIS door the very same day to keep up the charade for other so-called “investors.”
What takes an honors student to understand, however, is that the $1,000 the Jewish charity received in the first place also did NOT exist.
That donation was made from funds that another Madoff victim had extracted from his “profits” which came from funds that another victim had deposited with Madoff and so on and so on and so on.
To repeat, the thousand dollar donation in the first place to the Jewish charity, which the donor thought was his money, was in fact the fruits of the swindle of another, who undoubtedly reviewed her statement and was – until December 12, 2008, satisfied with the profits that she had been earning with BMIS.
So when the news media and others take out their adding machines and run the tape – all the way up to $50 billion, the media seem virtually certain to be counting the same “losses” many times over.
There are real losses in the Madoff scandal, and those numbers will be large too. If prosecutors and forensic accountants can ever strip away all the “profits-that-existed-only-in-the-warped-mind-of-Bernie-Maddof” funds, they’ll find that real people and real institutions lost real money, but probably nowhere near as much as the media are reporting and the feds are letting go uncorrected.
Sadly, it is consistent with the life and modus operandi of Bernald L. Madoff, that he would even exaggerate how big a crook he actually is.
December 19, 2008 | 2:55 am
Posted by Danielle Berrin
The Bernard Madoff scandal is provoking spasms of angst and introspection in the American Jewish community (not that we don’t do angst and introspection normally) and I thought I would ask David Wolpe, one of the greatest American rabbis (as well as Christopher Hitchens’ sparring partner), a few questions about this drama and its cultural and theological implications:
Jeffrey Goldberg: Should Bernard Madoff be excommunicated for his sins against his people?
David Wolpe: We do not practice formal excommunication. I would not prevent him from entering a synagogue to pray. We are in the atonement business. However, he should be barred from any honor or recognition. To the extent permitted by his sentence he should do something of service to the community to make small reparations for the incalculable harm he caused. Short of formal excommunication, however, informal ‘shunning’ has a nice, solid ring to it.
JG: “Shunning,” huh? Does that imply that you believe his crimes might be irredeemable? At what point do you give up on a sinner?
DW: Maimonides lists sins—following the laws of the Mishna—that cannot be fully forgiven. Common to most is an inability to make restitution (another example is one who coldly assumes “I’ll sin, be forgiven, sin, be forgiven” etc.). Madoff cannot conceivably make restitution to the unnumbered he has hurt—from lost personal savings to people dependent on the bone marrow registry whose holdings he squandered. Perhaps someone of purer soul might be persuaded to find redemption possible for him. I confess I cannot.
JG: Do Jews wring their hands too much? I didn’t notice a great deal of Christian angst over Ken Lay.
DW: I wonder if the people in Ken Lay’s church wrung their hands. Since Judaism is not a religion, but more like a religious family, bound by strong communal ties, Jews are more likely than Christians to feel pride or shame in the actions of other Jews. You don’t get strong bonds without a degree of identification. That is why the foolishness in other people’s families doesn’t embarrass us.
JG: Should we be embarrassed because we’re supposed to be so smart (especially with, you know, money) and yet we got fleeced by Bernie Barnum, or should we be embarrassed because there are evildoers among us? And what does this mean for tribal trust?
DW: We should be grateful that trust still exists. Cunning is an unlovely stereotype; I can’t read a balance sheet to save my soul (perhaps not the best metaphor in this instance) and I am hardly alone. It may hurt that trust, which is sad; for years the fact that the diamond business all over the world, among Jews and non-Jews, is conducted with a handshake because Jews set it up that way is a tribute to decency and probity. One man’s venality and cruelty can’t set the standard.
Vast amounts of money call not only for trust but for a solid sense of genuine value in this world. Rabbi Akiba says in the Talmud that the central commandment is to love your neighbor as yourself (Leviticus 19:18). May I propose that these days, “Guard your soul carefully” (Deut. 4:9) deserves pride of place.
December 19, 2008 | 2:05 am
Posted by The Web Guy
From Jacob Berkman at JTA:
Jerome Fisher, the owner of Nine West shoes, who reportedly lost $150 million through investments in Bernard Madoff, gave heavily to the Israel Museum, according to the latest 990 tax form for his foundation.
The Jerome and Anne C. Fisher Charitable Foundation gave $226,228 to the museum in 2006. The Fishers sponsor the museum’s directorship, which is now held by James S. Snyder.
The Fishers also gave $5,000 to the American Friends of the Magen David Adom, Israel’s Red Cross, in 2006.
The gift to the Israel Museum was the Fishers’ second largest of 2006, as they gave $333,334 to the University of Pennsylvania that year as well.
Jerome Fisher, almost came to blows with Madoff’s chief fund raiser, Bob Jaffe, at a black-tie birthday party in Palm Beach Saturday night.
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