Madoff with the Money (13 page)

Life at Sunny Oaks was simple and carefree—there were no locks on the doors, no television sets, and no phones in the rooms. The bungalow colony offered yoga, folk dancing, and a place for retired New Yorkers to play cards, read the papers, and kibbitz—all for $300 a week, including room and board.

It was in this picturesque setting, around 1960, that Alpern began advising his close friends, the Sunny Oaks owners, and many of their guests to put their money with his son-in-law. At the time, Bernie, who had just graduated from Hofstra, was said to be sharing office space with Alpern.

As Cynthia Levinson Arenson, the granddaughter of the founders of Sunny Oaks, a classmate of Ruth's at Far Rockaway High, and still later a Madoff victim, observes: “What Ruth Madoff 's father did was the start of all this. When you first open a stock market thing like Bernie did, who are you going to get for customers but parents and friends of parents who have a little bit of money to invest? And Bernie started doing very well.”

Her stepson, David Arenson, a former journalist, a leukemia patient, and a Madoff victim, notes, “If the Alperns had not been at Sunny Oaks, and if Bernie had never met and married Ruth Alpern, none of us would have invested in Madoff. It was entirely because of family connections.”

After Bernie's arrest, Arenson, who had a blog called “CLL Diary” about living with chronic lymphocytic leukemia, headed one of his posts: “Bernie Madoff Screws Leukemia Patient.”

He says, “Saul felt comfortable recommending Bernie as a source of investment, and Saul himself was an accountant, so everyone trusted him.”

Saul and Sara Alpern were the best friends of Cynthia Arenson's mother and father, Adele and Myles Levinson. Myles Levinson, a lawyer, had inherited Sunny Oaks from his parents. One of Saul Alpern's brothers, Bill, was also a lawyer, and he and his wife, Minette, were part of the close-knit circle that existed at Sunny Oaks. All would invest in Bernie on the suggestion of his father-in-law, and so would many more at Sunny Oaks.

To the Levinsons and Arensons and their guests who put their money and trust in young Bernie, Saul Alpern did not appear to be devious in hawking his son-in-law. They believe he was a
mensch
who just wanted to help his friends make some money, and it was only natural that he would try to help his daughter's groom.

Then in his early 60s, “Saul was very modest, very quiet-spoken, played good bridge, and read the
New York Times
,” recalls Cynthia Arenson, who eventually took over the hotel from her parents after they retired and moved to Florida.

Saul Alpern was partners with a man named Sherman Heller. Their accounting office, under the name Alpern & Heller, was in midtown Manhattan. However, there's no record of the firm being registered in New York State's corporate database. The firm expanded when another accountant, fast-talking Michael Bienes, joined the Alpern firm. Later, Bienes teamed up with another accountant, Frank Avellino, and sometime in the 1970s formed the accounting firm of Avellino & Bienes, located at 120 East 56th Street in Manhattan.

It was then that Ruth Madoff 's father began referring people at Sunny Oaks and elsewhere to Avellino & Bienes, which essentially took over Alpern & Heller's Sunny Oaks client-investor base when Saul Alpern retired to a condo in North Miami, but still kept on top of things. Bernie wanted Avellino & Bienes to handle those small investors, because he had bigger fish to fry.

Frank Avellino and Michael Bienes took charge of the many modest accounts that had accrued at Sunny Oaks and elsewhere, and at that point their firm became the first official Madoff feeder fund.

Over the years Avellino and Bienes would become hugely wealthy—as would other feeder fund operators—doing nothing but recruiting investors and passing on their money to Madoff, for which they received lucrative commissions and finder fees.

“It was easy money with Bernie,” Bienes acknowledged in a TV interview with the program
Frontline
after Bernie was imprisoned. “Easy, easy-peasy money.” He thought to himself, he said, “I'm a little too lucky. Why am I so fortunate?”

“All you needed was five thousand dollars to get into Avellino & Bienes,” states Cynthia Levinson Arenson, who by then was helping run Sunny Oaks and had started investing on her own, following in the footsteps of her parents, who had earlier put a hefty portion of their money with Bernie.

“Avellino & Bienes started out promising 18 percent,” she says. Steady returns were Bernie's modus operandi and one of his lures, and that hefty return continued through good economic times and bad from the early 1960s until the early 1990s.

She asserts that “everyone knew that the money was going to Bernie” even though it was now handed over to Avellino & Bienes.

“Cynthia's mother was just beside herself with just how much money Avellino was paying out,” states David Arenson. “She was trying to get everybody [to invest], saying ‘Avellino's paid 25 percent last year,' so the people at the hotel were like, ‘Oh, my God! How can I get in on this?' I don't think there was a lot of thought as to how they were getting such high returns; it was just that it was being done—because those people were not sophisticated about finances.”

Bernie had seen something he liked and trusted in Bienes and begun courting him. The two had quickly become trusted friends and associates in a very lucrative business relationship.

Bienes tells a bizarre story about that courtship—an encounter at an upscale nonsexual private club that permitted members to swim in the nude, according to a story in
Fortune
magazine.

“I once went swimming naked with him,” he said after Bernie was in jail awaiting formal sentencing for bilking thousands of investors. Bienes continued, “He invited me to the New York Athletic Club on Central Park South. He asked me to come and meet him and get a rubdown. We didn't discuss anything, really. I think he wanted to get the feel of me, you know, and bring me into his orbit.”

The next invitation for Bienes was to a buffet lunch, part of the bar mitzvah celebration for one of Bernie's two sons. “I remember my partner, Frank Avellino, and myself and Bernie meeting in the middle of the dance floor, and we were saying, ‘Thanks for having us.' And he said, ‘Hey, come on, we're family, aren't we?' And at that moment, he had me. We were family. Oh my God! I was in!”

Unlike others who knew Bernie well, the many from high school on up who considered him “a dummy,” “a schmuck,” and “a putz,” Bienes either was sincerely overwhelmed by what he perceived as Bernie's greatness or he saw money signs flashing like neon on The Strip in Vegas, or a combination of both.

To Bienes, Bernie “had a presence about him, an aura. He really captivated you.” Beyond that, he and Avellino jokingly considered Bernie “our boyfriend” because, Bienes later claimed, they thought they were his only client who was feeding him investors. That was an astonishing assertion in light of the fact that they had been doing business with Bernie for decades, and knew there were huge numbers of other investors.

By the mid-1980s, Avellino and Bienes were doing little else but drumming up more and wealthier investors for Bernie, and all were raking in big money—Avellino and Bienes eventually became multimillionaires, and Bernie's coffers had filled with more than $450 million from about 3,200 investors they had sent his way, which was just the tip of the Madoff iceberg.

In 1992, the SEC acted on a tip that incredibly outrageous returns—20 percent or more—were being offered to investors and guaranteed by the Avellino firm. The allegations strongly suggested that a Ponzi scheme was being operated—the very first official red flag raised that appeared to point to Bernard L. Madoff Investment Securities.

As it turned out, the firm of Avellino & Bienes was not registered to trade securities, which the accountants were accused of doing.

When the SEC began its probe of the firm, Bienes acknowledged years later that he and his partner were worried. “We had doubts, and we passed them on to Bernie. . . . Bernie said, ‘I know the biggest lawyers on Wall Street. Don't worry.” Bienes asserted that Bernie was calling the shots. “I was always captive to him. He owned us.”

The investigation came to a quick end when the partners agreed to return all of the money that had passed through them, some $440 million. They were fined $350,000, and their business ordered closed. Their attorney in the matter was one Ira Sorkin, the same Ira Sorkin who 16 years later would represent Bernie when his Ponzi scheme collapsed.

The probe of Avellino & Bienes turned up some interesting evidence, one piece being that while the firm was overseeing almost a half billion dollars of investor money for Madoff, no records were ever kept.

“My experience has taught me to not commit any figures to scrutiny when, as in this case, it [
sic
] can be construed as ‘bible' and subject to criticism,” responded Avellino in writing when asked by auditors appointed by the court to prepare a balance sheet. “In this present instance, quite severely, I explained how the profit and loss can be computed from the records you now hold in your possession that Bernard L. Madoff and I supplied.”

For reasons unknown, Bernie Madoff does not appear on record in the case—the recipient of the feeder money was described simply in the SEC complaint as an unnamed broker.

Shut down by the government, Avellino and Bienes continued to feed investors to Bernie, and Bernie stayed in business unscathed. Feeder fund operators were instructed to keep Madoff 's name a secret. As time would tell, many of the thousands of investors who claimed losses in the Ponzi scheme never knew that their money wound up in his hands.

One of the SEC administrators at the time, Martin Kuperberg, was quoted in the
Wall Street Journal
as stating, “There's nothing to indicate fraud.”

This would be the first but certainly not the last time the SEC would seriously fumble the ball when it came to Bernie Madoff.

After the SEC probe ended, Bienes established an accounting firm called Mayfair Bookkeeping at a time when Bernie had established a London office in the posh Mayfair district. Like Bernie, who had a villa in the south of France, Bienes had a fancy residence in London.

Because of the ongoing Bienes-Madoff connection, the once small-time accountant made so much money that he lived like royalty on an estate worth almost $7 million. He became a philanthropist and a figure of respect in the upper echelon of South Florida—a giver of lavish parties and fund-raisers, and a benefactor of the arts community in Fort Lauderdale. He and his second wife, Dianne, were even knighted by the Catholic Archdiocese of Miami, which an observer noted was “not a small feat for a Jewish kid from New York.”

With Bernie behind bars, the 72-year-old Bienes decided to go public, claiming he, like thousands of others, was a Madoff victim. He maintained he lost $10 million to Bernie. He gave sometimes inarticulate, self-serving, convoluted interviews to
Frontline
and to the
South Florida Sun-Sentinel
and was quoted in
Fortune
magazine. Asked by the
Frontline
reporter how he thought Bernie was able to generate consistent big returns for his investors—before they lost everything—Bienes quizzically responded, “I don't know. How do I know? How do [you] split an atom? I know that you can split them. I don't know how you do it. How does an airplane fly? I don't ask.”

Bienes also maintained to the Florida newspaper that he always thought Bernie was legitimate, that he was a genius investor. He swore that he knew nothing about a Ponzi scheme.