The Wizard of Lies: Bernie Madoff and the Death of Trust (62 page)

“I said, ‘I want to sell’”: Confidential interview.

Sonja Blau: In litigation filed by the Madoff trustee in December 2010, she is described as having been known by two other maiden names: Sinja Blau and Sonja Türk. The latter maiden name is also cited in Miriam Shaviv, “Could This Frum Lady Be Madoff’s $40m Agent?”
Jewish Chronicle
, July 9, 2009; and Haig Simonian and Eric Frey, “Profile: Bank Medici’s Sonja Kohn,”
Financial Times
, Jan. 7, 2009. Kohn’s mother, also sued in the trustee’s case, was identified as Netty Blau.

an importing business in Milan and Zurich:
Picard v. Kohn
, p. 61.

by 1985 she had obtained her broker’s license: Central Depository Records for Sonja Kohn, maintained by FINRA.

the firm paid more than $125,000 to settle the disputes: Ibid.

Kohn was introduced to Madoff:
Picard v. Kohn
, p. 62. The trustee asserted that Madoff paid Cohmad “at least $526,000” over the years for this introduction.

suggested he talk with a dynamic Austrian woman: Confidential interviews.

worked with some of the top money managers in Europe: Arvedlund,
Too Good to Be True
, p. 130; New York secretary of state corporate records.

commonly identified as being from Eurovaleur: Interview with Squillari.

Infovaleur was “a sham”:
Picard v. Kohn
, p. 23.

“over tea at the Ritz or Claridge’s in London”:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff
Investment Securities v. Leon Flax, et al.
(hereafter
Picard v. Flax
), filed as Adversary Proceeding No. 10-05267 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, pp. 19–20. Flax was also among the directors and executives of Madoff’s London affiliate who were sued by Picard in the British courts. No lawyer had entered an appearance for Flax in bankruptcy court or responded to the trustee’s claims at the time this book was sent to production.

Through her lawyers, Kohn insisted that she never had any knowledge of Madoff’s fraud: David Crawford, “Madoff Kickbacks Alleged in Austria,”
Wall Street Journal
, July 3, 2009, and a telephone interview with Andreas Theiss, Kohn’s Viennese lawyer, on Dec. 12, 2010.

She also reportedly introduced Madoff to Charles Fix: “Taki” Theodoracopulos, “Madoff’s Make Away,”
Taki’s Magazine
, published online at
www.takimag.com
, Jan. 12, 2009. Theodoracopulos was an investment client and social friend of Charles Fix.

“Austria’s woman on Wall Street”: Nelson D. Schwartz and Julia Werdigier, “Austria’s ‘Woman on Wall St.’ and Madoff,”
New York Times
, Jan. 7, 2009.

the aristocracy of European banking: Unlike Kohn’s Bank Medici boutique, Creditanstalt had a corporate pedigree that really did include the legendary Medici banking family of Italy.

the Herald fund, which opened for business in April 2004:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Herald Fund SPC, et al.
(hereafter
Picard v. Herald Fund
), filed as Adversary Proceeding No. 09-01359 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 10.

none sent more fresh money to him during his 2005 cash crisis: Pierre Clauss, Thierry Roncalli, and Guillaume Weisang, “Risk Management Lessons from Madoff Fraud,” as posted online on Apr. 8, 2009, p. 10. Electronic copies of the study are available at:
www.ssrn.com/abstract=1358086
.

would pump more than $1. 5 billion into Madoff’s hands:
Picard v. Herald Fund
, p. 10.

Littaye insisted that no one at Access deal with Madoff except through him:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. UBS AG, et al.
(hereafter
Picard v. UBS
), filed as Adversary Proceeding No. 10-04283 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 53.

the connection was through a French bank executive: Benjamin Masse-Stamberger, “Revelations: Affair Madoff: Le rapport secret qui accuse JPMorgan,”
L’Express
, Oct. 7, 2010.

he first met Madoff in 1985: Alan Katz, “Madoff Investor Awaits ‘Imbecile’ or ‘Dupe’ Verdict (Update 1),” Bloomberg news service, Jan. 5, 2009.

Madoff was impressed by Littaye’s European connections: Alan Katz, “Madoff Investor’s Suicide Was an ‘Act of Honor,’ Brother Says,” Bloomberg news service, Jan. 2, 2009.

the beautiful provincial estate near St. Malo: Ibid.

an Access executive confirmed an odd fact: The details of this 2006 episode are taken from
Picard v. UBS
, pp. 55–57. According to that complaint, the account was based on internal records subpoenaed by the trustee from Access International and sworn interviews with the Access employee, identified as Theodore Dumbauld, and the independent analyst, identified as Chris Cutler, the founder of Manager Analysis Services LLC.

“I did my best to inject doubt in a courteous yet effective manner”: The description of Cutler’s approach and Littaye’s reaction is from e-mails between Dumbauld and Cutler, quoted in
Picard v. UBS
, p. 57.

a small investment from a multinational development bank in Central Africa: Auditors’ General Report, Central African States Development Bank (CASDB), Year ended December 31, 2008, p. 73.

Madoff feeder funds based in the Cayman Islands:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. Harley International (Cayman) Limited
(hereafter
Picard v. Harley
), filed as Adversary Proceeding No. 09-01187 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 11.

In the course of raising a total of $4. 5 billion:
Picard v. Fairfield Sentry
Original Complaint, p. 13.

would ultimately raise at least $1. 5 billion:
Main Madoff Liquidation
, “Motion for Entry of Order Pursuant to Section 105(a) of the Bankruptcy Code and Rules 2002 and 9019 of the Federal Rules of Bankruptcy Procedure Approving an Agreement by and Among the Trustee and Optimal Strategic U.S. Equity Limited and Optimal Arbitrage Limited,” p. 4.

Many of the feeder funds paid “retrocession fees”:
Picard v. Kohn
, p. 96.

its largest individual account was under $750,000: These details are drawn from
Main Madoff Liquidation
, “Affidavit of Gregory J. Adams in Support of Anchor Holdings LLC’s Claim.”

“These investors did not wish to be protected from risks”: Mark Jickling, “Hedge Funds: Should They Be Regulated?” Congressional Research Service, updated July 2, 2007, p. 6.

the concept of “hedge funds for everyone”: See Franklin R. Edwards, “Hedge Funds and Investor Protection Regulation,” Federal Reserve Bank of Atlanta quarterly review, Fourth Quarter 2006; and Franklin R. Edwards, “New Proposals to Regulate Hedge Funds: SEC Rule 203(b)(3)-2,” presented at the Conference on New Initiatives to Regulate Hedge Funds, at Columbia University, Oct. 21, 2004. In the latter at p. 15, Edwards writes, “Rather than focusing exclusively on restricting access to hedge funds as a way of protecting investors, the SEC should explore ways to make at least some hedge fund strategies
more
available to investors” (emphasis in the original).

sold $20 million worth of these derivative contracts: FGG 2007 Profile, p. 64.

Soon, Nomura Bank International: Sales brochure for Fairfield Sentry Ltd. USD 3X Leveraged Version.

would soon be offered by HSBC, Citibank, Fortis, Merrill Lynch: See “Press Release of Irving H. Picard: Trustee for Liquidation of Bernard L. Madoff Investment Securities Seeks $1 Billion from Seven Global Financial Institutions in Madoff Ponzi Scheme,” Dec. 8, 2010. The actual complaints against the banks were filed under seal in U.S. Bankruptcy Court for the Southern District of New York.

the return on the Fairfield Sentry fund in 2006: The Sentry fund produced a return of 6. 44 percent in 2004 and 7. 26 percent in 2005, but in 2006 its rate of return was 9. 38 percent.

“there is a well-known cloud over the head of Madoff”:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. J.P. Morgan Chase & Co., et al.,
filed as Adversary Proceeding No. 10-04932 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, p. 31. The bank vigorously denied the trustee’s allegations in this case, which remained under seal until Feb. 2, 2011.

pledging $1 million to the school: Confidential interviews.

doubled Frank DiPascali’s annual salary:
DiPascali Criminal Information
, p. 44.

a new sixty-one-foot fishing boat: Ibid.; “The United States of America’s Application for a Preliminary Order of Forfeiture (Final as to the Defendant) etc.,” filed Apr. 21, 2010. Many of DiPascali’s possessions were auctioned off by the U.S. Marshals Service on June 24, 2010. The boat and three family cars fetched just under $1 million.

He did not file his personal income tax returns for 2002 and 2006:
DiPascali Criminal Information
, pp. 43–45;
SEC v. DiPascali
, p. 15.

She emphatically denied the charge: In a telephone interview, Roland Riopelle, a lawyer for Bongiorno, said she was “very vigorously contesting” both the criminal and civil cases filed against her and “wants to try her best to vindicate herself, because she is innocent.”

no evidence it had any impact on the unwise decisions: Kotz Report, pp. 408–9.

he hadn’t even known Shana was dating an SEC lawyer: Kotz Report, Exhibit 104, p. 10.

appearing on a panel at the Philoctetes Center: A transcript of the session (hereafter Philoctetes Transcript) was obtained from the Web site of the Philoctetes Center. The page references are to the PDF version of the transcript.

“You have to understand, Wall Street is one big turf war”: Philoctetes Transcript, pp. 7–8.

“which sometimes the regulators lose sight of”: Ibid., p. 8.

“Wall Street—just so you understand the scale of it”: Ibid.

“Now, no one is going to run a benefit for Wall Street”: Ibid.

“Today, basically the big money on Wall Street is made by taking risks”: Ibid.

“By and large, in today’s regulatory environment”: Ibid., p. 9.

10. The Year Of Living Dangerously

chief compliance officer for the private money management business: SEC Public Filings, Form ADV, Uniform Application for Investment Advisory Registration filed by Bernard L. Madoff Investment Securities in February 2005.

an annual interest rate of 4. 13 percent:
Picard v. Madoff Family
, p. 29.

the firm’s office holiday party: This passage is based on the
Securities Industry Yearbook
, a review of Bernard L. Madoff Investment Securities employee lists, and interviews with Squillari, BLM, three confidential sources who attended the 2007 office party, and confidential sources familiar with the operation of the Madoff firm.

On Madoff’s calendar, this evening belongs to New York City Center: BLM appointment calendar for 2008.

Bernie Madoff catches a night flight to Palm Beach: Ibid.

the touching moment when Shapiro takes the microphone: Shannon Donnelly, “He’s 95, and He’ll Sing if He Wants To,”
Palm Beach Daily News
, Feb. 20, 2008.

his successful application to the Palm Beach Country Club:
Picard v. Cohmad
, p. 15.

Some HSBC units have been recommending various Madoff feeder funds:
In re: Bernard L. Madoff Investment Securities, Debtor; Irving H. Picard, Trustee for the Liquidation of Bernard L. Madoff Investment Securities v. HSBC Bank PLC, et al.
(hereafter
Picard v. HSBC
), filed as Adversary Proceeding No. 09-01364 (BRL) in U.S. Bankruptcy Court for the Southern District of New York, as amended, p. 106.

As early as 2001 a few bank executives were expressing doubt about Madoff: Ibid., p. 16.

a chilling list of what could go wrong: Ibid., pp. 107–11.

the bank will ask KPMG to do yet another assessment: Ibid., p. 111.

When the Wall Street division of the American Jewish Committee honored Madoff: Program for the event, held at the Harmonie Club on Nov. 15, 1999, provided to the author. The list of donors to this event, “A Tribute to Bernard L. Madoff,” was a Who’s Who of the Madoff victims. The “patrons,” those who contributed $10,000 or more, included Edward Blumenfeld, the real estate developer; Stanley Chais, the early feeder fund operator; Maurice J. “Sonny” Cohn, cofounder of Cohmad Securities; Sonja Kohn of Bank Medici; Robert I. Lappin, whose foundation lost millions; Norman F. Levy, whose children’s fortunes were caught in the scandal; Mr. and Mrs. Peter Loeb, members of a fabled Wall Street family; Walter M. Noel Jr. and Jeffrey Tucker of Fairfield Greenwich Group; Jeffry M. Picower, the biggest winner in Madoff’s Ponzi scheme; Carl Shapiro, one of Madoff’s earliest investors; and Sterling Equities, an investment vehicle for Fred Wilpon and the Wilpon family, which owned the New York Mets. The ranks of lesser donors is packed with Madoff victims—Jerome Fisher of Nine West; Mrs. Martin Joel, the widow of Madoff’s onetime officemate; Paul Konigsberg’s accounting firm; the Bernard A. Marden family; Ivy Asset Management; Madoff’s high school friend Michael Lieberbaum; steel industry heiress Gladys C. Luria; Mike Engler’s widow, Marja Engler; Carl Shapiro’s son-in-law, Robert Jaffe; prominent New York lawyer Howard Squadron and his wife, Anne; and artist management impresario Howard Thau.

pension funds and other institutional investors will demand more information: E-mails between Fairfield Greenwich and the fund management company Unigestion in August 2008 cite the “new set of rules that Pension funds have put in place after the Bear Sterns [
sic
] collapse” as the reason Unigestion is withdrawing its money from the Fairfield Greenwich hedge funds invested with Madoff.