Madoff with the Money (12 page)

Seven months after Bernie and Ruth tied the knot, Bernie graduated from Hofstra. By then he already had started his own portfolio, reporting to the SEC one position in a stock, a half-dozen shares in a company called Electronics Capital, worth $300. Within months it would grow to the princely sum in those days of $16,140. It rose because it was supposedly being pumped at his friends' stock brokerage, Lieberbaum & Company, believes Peter Zaphiris, who went to work there.

While Bernie's Hofstra grades and class standing were said to be unexceptional, he had fulfilled one important goal: He had completed four years of ROTC training and received his commission as a second lieutenant in the U.S. Army Reserve.

Others who had been commissioned in his class soon went off to serve their two years of active duty.

But Bernie put off that requirement.

As a senior at Hofstra, he had taken the Law School Admission Test (LSAT) and somehow managed to score enough of a passing grade to be accepted at Brooklyn Law School for the semester starting in September 1960.

Like Hofstra, Brooklyn Law, located on Pearl Street in teeming downtown Brooklyn, had no campus, no dormitories, and no cafeteria. And like Hofstra, its tuition was low, it had both day and night classes, and many of its students were holding down full-time jobs.

As it turned out, Bernie had absolutely no interest in becoming a lawyer.

“Law school for Bernie was clearly a means to stay out of the military,” maintains Joe Kavanau, who was at Brooklyn Law with Bernie.“He never had any intention of being an attorney. Back then the 2S deferment kept you out of the military. In Bernie's case he was a commissioned officer, but the 2S had the effect of deferring his active service.”

One of the great benefits of Brooklyn Law for Bernie, besides keeping him out of the Army, was that classes were from 9 A.M. to noon. The hours allowed him to actively pursue his stock business, Bernard L. Madoff Investment Securities, which he formally started in 1960. He was then 22 years old.

The law school classes were held in two large rooms, each with about 150 students, and alphabetically divided. One room had students whose last names started with
A
to
K
, and the other with
L
to
Z
. So while Joe Kavanau and his pal, Bernie, were in school at the same time, they were in separate classrooms, though Kavanau's father drove both of them to the Brooklyn-bound subway station in Queens every morning so they could get to class.

A friend of Kavanau's, though, Charles “Chuck” Lubitz, was in Bernie's class, sat next to him, and recalls him with an oft-heard refrain from those days, which was: “There was nothing special about Bernie Madoff.”

Bernie, however, was boasting that he already was involved with the stock market and Wall Street, and envisioned himself making it big.

He was a
macher
.

By the end of Bernie's first semester, he'd decided he'd had enough.

To Lubitz, he complained that “the pace was a little too slow” for him. Bernie said he wanted action. “This was not the track he wanted to be on.”

Lubitz, however, was unaware that Bernie was only taking up space at Brooklyn Law in order to delay going on active duty.

Years later, as an attorney in Palm Beach, Lubitz crossed paths with his former law school classmate. He had been retained to represent investors who were victims of Bernie's spectacular Ponzi scheme. He says, “Bernie lived a good part of the year in Palm Beach and got around. Most of the people were people who knew him and invested with him directly. I'm trying to get some or all of their money back. This will go on probably beyond my lifetime.”

Elliott Olin, Bernie's close friend from Laurelton, was also enrolled at Brooklyn Law. At some point, Bernie approached Olin with an offer he thought his longtime pal couldn't refuse.

“It was their first year of law school, and after six months, Bernie told Elliott, ‘I'm getting out of here. I'm going to go full-time into the stock market,' and he asked Elliott to quit law school, too, and go in with him,” says Olin's widow, Sheila Olin. “But Elliott told him, ‘I'm not going with you,' and Elliott did finish law school, and had a successful practice, and boy, am I happy he didn't go with Bernie.” She says Bernie was “annoyed that Elliott wasn't going with him.” Sheila believes that this dispute resulted in the end of their friendship, despite the fact that Bernie's sister, Sondra, had married Elliott's cousin, Marvin Wiener, the dentist.

Bernie walked out of Brooklyn Law for the last time in June 1961, having put up with what he felt were boring lectures and required reading about torts and contracts, nothing in which he had a whit of interest.

When his 2S deferment ended, the dreaded letter came from Uncle Sam requesting the company of Second Lieutenant Bernard L. Madoff to report for two years of active duty in the Army Reserve. When he first joined the ROTC at the University of Alabama (and continued it at Hofstra), he signed a contract committing himself to service to his country after he got his commission. He had delayed that commitment for a year by hiding in law school. But now he had to face the marching music. While Bernie liked sporting the Army green and playing soldier during two weeks of Army Reserve training at Camp Drum in upstate New York, he didn't see himself spending two whole years of his life playing soldier on some military base in the sticks, or worse, being on active duty if a war broke out.

Bernie had money to make.

His call-up came at a most inopportune time, not only because he wanted to hit the ground running in the world of stocks and high finance, but also because the world situation was growing hotter. It was a dangerous time for anyone going into the armed forces. Several months before Bernie became eligible to serve his country, President Kennedy increased the number of so-called U.S. Army military advisers and aid to Southeast Asia, the start of the Vietnam War escalation and troop buildup, and that year the first U.S. soldier would be killed by the Viet Cong. Moreover, the Cold War with the Soviets was intensifying: The Berlin Wall dividing East and West Germany was built, with U.S. and Soviet tanks facing each other, and the week that shook the world, the Cuban missile crisis, was at hand.

Bernie was a
macher
, not a fighter, at least not on the battlefield.

With active duty looming, Bernie suddenly suffered a medical malady that might have been dubbed “nervous from the service.”

“He was a commissioned officer. But by the time they got around to attempting to activate him, Bernie had developed an ulcer and he got a medical discharge,” states Joe Kavanau. “It was perfect. It kept Bernie, a nervous type, out of the Army. The ulcer was sort of a natural progression [from his facial ticks and twitches]. A couple of guys who were in ROTC got screwed because they got deferments through law school and ended up going in. One guy was in the Transportation Corps and ended up on the docks in Da Nang—not a good place for a Jewish boy.”

Because of an ulcer—real, imagined, or invented—Bernie was a free man. (Due to federal privacy restrictions, it was impossible to secure Bernie's service record, if one even existed, without his permission, which he was in no position to give being locked up in the Metropolitan Correctional Center.)

Unlike Bernie, when Elliott Olin, who had gotten a commission but was deferred through his three years at Brooklyn Law, was called up, he and his wife, Sheila, went to an Army base in Georgia, where Olin respectfully served his required two-year commitment, she says.

For Bernie, who would cheat thousands of investors out of billions and even cheat on his wife, it was no surprise that he would also successfully rob Uncle Sam out of two years of his life.

However, years later Bernie brazenly misled his employees who had actually proudly and bravely served their country. He boasted, or gave the impression, that he had served as a finance officer in the Army for four years. Moreover, he often lorded it over a longtime employee, Tony Teletnick, who had seen combat in Vietnam as an enlisted man.

“The boss would scream at Tony, and Tony would say, ‘Boss, you were nothing but a second lieutenant in the peacetime army stationed stateside. When you spend a year in Nam as a grunt like I did, then tell me about hard times,'” recounts the late Teletnick's friend and Bernie's personal messenger, Bill Nasi, who says he and others had no reason to disbelieve Bernie's war stories. “Bernie would say to Tony, ‘I'm going to pull rank on you because I own the place and I was a second lieutenant in finance, and you were nothing but a buck sergeant.' And Tony would tell the boss, ‘You can't tell me what to do, because you weren't in the infantry.'”

On another occasion, Nasi had heard a news story on the radio reporting that captains of American finance and industry had started out as second lieutenants in the army, and he mentioned it to Bernie. “He had a big smile on his face,” recalls Nasi. “He said, ‘You're right! Look at me!'”

Bernie even once played out a little military fantasy in the trading room of his company. He was reminiscing one afternoon with Nasi about the old days at Madoff, and noted that his sons, Mark and Andy, and his brother, Peter, now were doing all the hiring, and that he hardly knew any of the young people working at the firm he had built from the ground up. “They're all young kids and I have a feeling they're scared of me,” he said. With that, he handed Nasi a clipboard and told him to follow him into the trading room. “Use a pen. Make believe you're taking notes,” said Bernie, pretending he was an army officer conducting an inspection of the recruits in his company, with Nasi playing his first sergeant. “As we were walking by these young people, they were getting nervous. We did the five-cent tour. We walked down, did an about-face, and walked out of the trading room, and Bernie's laughing to himself. ‘See, what did I tell you?'”

Bernie also seemed to have a fetish about military clothing.

He liked the fact that Nasi mostly wore starched and pressed army fatigues to work. The neatness of the outfit apparently acted as a balm for Bernie's obsession with orderliness, Nasi believes.

At a dinner honoring the future king of Ponzi at the Waldorf-Astoria Hotel in New York City in the early 1990s, Nasi showed up in his best suit, and Bernie came over to say hello. “I pulled up my pant leg and Bernie was impressed because I had on paratrooper boots,” recalls Nasi, who himself was never in the military because of poor eyesight. “Bernie says, ‘My God, spit-shined boots!' He liked that. He was still pretending he was Mister Military.”

Bernie had several mentors in the early years of his career. The first were his father and mother, who ran questionable Gibralter Securities out of their Laurelton house. It was from Ralph and Sylvia that Bernie learned some of the ins and outs of the stock buying and trading game.

The second was his new father-in-law, Saul Alpern, who began steering business his way from virtually the moment Bernie slipped the wedding ring on the slender third finger of the accountant's favorite of his two daughters, Ruth—young, pretty, and smart, a chip off the old block, a math whiz.

“The Saul that I knew was the salt of the earth,” asserts Joe Kavanau. “The guy was a square—with pens in his shirt pocket. He was just a funny character, a nice man.”

At Queens College with Ruth was Jay Portnoy, who sometimes spent time at the Alpern house in Laurelton studying with her. From those visits, he came away with the feeling that “she really adored her father. A couple of times I was in the Alpern home [and met her father] and then afterwards Ruth would say, ‘Isn't he brilliant?' or ‘Isn't he great looking?' or some such like that. She was very much in awe of her father.”

There also would be a third guru for Bernie as time went on, one who would play a role in his early successes, but he was still to come.

Bernie's investment advisory operation that became the Ponzi scheme appears to have begun at a most unlikely place—a low-rent Borscht Belt bungalow colony in the bucolic Catskill Mountains of New York. Called Sunny Oaks, its clientele consisted mainly of elderly Jewish couples, and Saul Alpern was a popular fixture.

The bungalow colony catered to a mostly Brooklyn, Bronx, and Queens middle-brow, middle-class snowbird clientele—a demographic of retired small-time lawyers, teachers, accountants, and merchants, none of them high rollers—who wintered in the Jewish sections of Miami Beach and escaped the blazing Florida summer sun for the cool mountain breezes of the Catskills and Sunny Oaks.

Unlike the famous and flamboyant Catskills resort hotels of that era, such as Grossinger's and The Concord, where big-name entertainers performed for the mostly upscale Jewish guests, Sunny Oaks was an array of simple, rustic cabins attached to a farmhouse that served as the main building. Nestled in the woods of Woodbridge, New York, it was one of the many bungalow colonies that dotted the area. It was a place where everyone was treated like members of the family, or as another observer noted, a “resort of last resorts.”