Madoff with the Money (14 page)

He also admitted that for years he and Avellino “were the go-between between Madoff ” and the many investors.

“He put on an incredible act,” observed the business blogger Joe Weisenthal, writing about Bienes' television debut.

Avellino, who had remained silent, lived just as high as Bienes—multimillion-dollar homes in Palm Beach and Fort Lauderdale and a $10 million house in Nantucket where he reportedly asked his housekeeper to put her life savings of $124,000 in one of many foundations and partnerships in which he was involved, in her case a “fictitious entity.”

She lost it all, according to a lawsuit she filed. Avellino also is alleged to have given her the bad news about her loss and the Ponzi scheme a full 10 days before Bernie was arrested—a strong indication he knew along with Bernie and his closed circle that the ceiling was about to cave in.

In the wake of Bienes' going public, the
Wall Street Journal
, quoting unnamed sources “familiar with the matter,” reported in May 2009 that Avellino was among at least eight Madoff investors and associates of the fraudster who were being investigated by federal prosecutors “for signs of complicity.” Bienes was not among those named.

The others included two philanthropists—82-year-old Stanley Chais and 67-year-old Jeffry Picower—who had major investments with Madoff, along with one of Bernie's close friends, 96-year-old Carl Shapiro, who parlayed about $20 million into what's been reported to be more than $1 billion through Madoff over the years. Shortly before Bernie was arrested, Shapiro was the one who handed over $250 million to Bernie. Chais's foundation was taken for more than $100 million, and he personally reportedly lost about $400 million.

It was believed by investigators, according to the
Journal
's sources, that Picower and Chais dictated to Bernie how much return they wanted on their investments. Chais was known to have funneled many California customers to Madoff. After the report appeared, all denied any wrongdoing.

Civil suits were filed by attorney Irving Picard, the trustee overseeing the bankruptcy liquidation of the Madoff firm, who was seeking to recoup billions of dollars to divide among victims. The suit alleged that Chais, a Bronx-born onetime Beverly Hills money manager, and Picower, an accountant and lawyer from Palm Beach and New York City, got exorbitant returns from Madoff—as much as a mind-numbing 950 percent.

Lawsuits alleged that a whopping $6 billion in claimed profits had been withdrawn from Madoff. This was far more than their original investments for various family members and foundations. None of the many thousands of other Madoff investors got anywhere near the returns grabbed by Chais and Picower. In his lawsuit, Picard alleged that the two either knew or should have known that they were “reaping the benefits” of “manipulated purported returns, false documents and fictitious reports.” Chais, according to Picard, requested phony losses from Madoff for tax-avoidance reasons. Chais's foundation, which had almost $180 million in assets, was left with a big zero in Bernie's scheme. All denied any wrongdoing and claimed no knowledge of a Ponzi scheme.

Then, on June 22, 2009, just a week before Bernie's scheduled formal sentencing, the SEC filed a bombshell complaint alleging that Chais had “committed fraud by misrepresenting his role in managing the funds' assets and for distributing account statements that he should have known were false.”

The complaint, filed in federal court in New York, stated that for the past four decades “Chais has held himself out as an investing wizard who managed hundreds of millions of dollars in investor funds. . . . In reality Chais was an unsophisticated investor who did nothing more than turn all of [his three] funds' assets over to Madoff, while charging the funds more than $250 million in fees for his purported ‘services.'

“Although Madoff managed all of the funds' assets, many of the funds' investors had never heard of Madoff before the collapse of his Ponzi scheme, and had not known that Chais invested with Madoff until Chais informed them after Madoff 's arrest.”

The SEC also alleged that Chais “ignored red flags” that indicated that Bernie's reported results “were false. For example, Chais told Madoff that Chais did not want there to be any losses on any of the funds' trades.”

The complaint further alleged that “Madoff did not report a loss on a single equities trade. Chais, however, with the assistance of his accountant, prepared account statements for the funds' investors based upon the Madoff statements, and continued to distribute them to the funds' investors even though he should have known they were false.”

Shockingly, according to the SEC, Chais and his family members and “related entities” withdrew more than $500 million more than “they actually invested with Madoff.”

The SEC complaint sought injunctions, financial penalties, and court orders requiring Chaise to “disgorge” his “ill-gotten gains,” and the SEC said its investigation was ongoing.

Meanwhile, the folks from Sunny Oaks in the Borscht Belt where Bernie's investment advisory business began all fared terribly.

“When Avellino & Bienes was shut down in 1992,” says Cynthia Arenson, “Bernie realized that a lot of the people in Avellino were Saul and Sara Alpern's friends, his in-laws' friends, the friends of Ruth Madoff's parents. So out of the kindness of his heart, Bernie said, ‘Okay, if you have $50,000 you can go directly with me.' At that point to get into Bernie you needed $500,000. To a certain extent he didn't want to bother. When he had a little account like $50,000 like my son had, he'd just put it into T-bills and he didn't bother trading with it. It wasn't worth it to him. He was looking for big bucks to play with.”

Among those small investors Bernie earned the sobriquet “T-bill Bernie.”

In the end, Cynthia Levinson acknowledges that while she suffered $750,000 in Ponzi losses, she estimates that she had taken out that amount through the years because of the high returns she was getting.

“In all those years,” she says, “I essentially made nothing, but it looked good on paper.”

David Arenson and his wife, Marilyn, opened a $10,000 account with Avellino & Bienes around 1990. Because it was such a small amount, he says, it paid a 10 percent return.

“My father and Cynthia always got a higher return than we did because they had a lot more money in Madoff,” he says. “I always felt that if you had more in there or if Bernie was sitting in his little office arbitrarily deciding who gets what that he might say, ‘Oh, Cynthia has more. I'll give her an extra $5,000 this year.' So it was kind of an arbitrary, weird thing.”

As Arenson's health declined with his aggressive form of chronic leukemia that he knew would eventually require a bone marrow transplant and with him facing a possible early death, he decided to withdraw $10,000 to $20,000 in principal every year. In the end, when Bernie admitted his giant fraud, Arenson had lost $65,000.

Says Arenson:

Most, if not all, of Arenson's family were victims of Madoff. His brother, Dan, a helicopter pilot with three children, had an account; and so did their sister, Julie. Arenson's aunt—his mother's sister—left her estate to a daughter. “She inherited money from her family and also put her own money in,” Arenson says. “It was in the hundreds of thousands of dollars my guess is.”

One of Cynthia Arenson's cousins, Robin Warner, a former producer at Fox News, is said to have lost upwards of $1 million to Madoff after investing a couple of hundred thousand dollars inherited from her parents, who were friends with the Alperns, along with money she had earned and saved.

Saul Alpern had convinced Warner's father to invest in the 1980s. Later, she invested with Madoff through Avellino & Bienes. Initially she thought Madoff “was good as gold.” As she told a colleague after the roof fell in, “This was not greed. Why would you want to put your money anywhere else?”

“She was one of those who kept reinvesting, but also living on a 10 percent annual return, or $100,000 a year,” says Arenson. “She wasn't spending. She didn't live high on the hog. Now it's all gone. She has nothing.”

At first, Warner is said to have told family members that she “wanted to kill” Madoff, but then said she didn't want him dead “because he knows where the money's hidden,” and she was hoping to recoup some of her losses.

But Bernie didn't just scam friends; he also scammed family. There was Saul Alpern's sister-in-law, Minette Alpern—Ruth Madoff's aunt. In her mid-90s, Minette was comfortably ensconced in an old age home in Florida, paying her expenses with money that years ago had been invested with Bernie and Avellino on the advice of Bernie's father-in-law. When news of the Ponzi scheme broke, the aged woman was “left bereft,” says Arenson. “She said she could live there for a while more and then she won't have any money left. Her daughter lost everything, too. There were so many others from the family and Sunny Oaks who lost everything.”

After Bernie was arrested and virtually all branches of the Arenson family tree were feeling the pain of their losses, David Arenson came across a curious letter he had received from Bernard L. Madoff Investment Securities. The letter had been sent to investors in the wake of Hurricane Katrina that had devastated New Orleans in the summer of 2005. The letter stated that everyone should rest assured that in case of some major emergency, such as an act of terrorism, a duplicate set of all investors' accounting records had been made and were being kept in a safe place offshore.