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Any other business

What made Madoff tick?

Christopher Silvester selects the best of a crowded shelf of studies into the mind and method of the fraudster

15 December 2009

12:00 AM

15 December 2009

12:00 AM

Madoff: The Man Who Stole $65 Billion
Erin Arvedlund
Penguin £9.99, 320 pages
ISBN 9780141045467
✆ £7.99 (plus £2.45 p&p) 0870 429 6655

Madoff’s Other Secret: Love, Money, Bernie, and Me
Sheryl Weinstein
St Martin’s Press £14.56, 224 pages
ISBN 9780312618377

Madoff with the Money
Jerry Oppenheimer
Wiley & Sons £16.99, 272 pages
ISBN 9780470504987
✆ £13.59

The Believers: How America Fell for Bernard Madoff’s $65 Billion Investment Scam
Adam LeBor
Weidenfeld & Nicolson £18.99, 312 pages
ISBN 9780297859192
✆ £15.19


It is less than a year since Bernard Madoff took his sons into his confidence about the true nature of his fund management business, in which they were junior partners, and they accordingly reported him to the US authorities. With the anniversary approaching, there are already several books available about America’s greatest ever fraudster. Most mention a figure of $65 billion, although, as Erin Arvedlund points out in the best of these books, Madoff: The Man Who Stole $65 Billion, this figure is misleading, since ‘it included phantom gains Madoff had been booking in client accounts over many years. Much of these billions in profits never existed at all, except on paper’. Depending on when the fraud started, which is uncertain, the money investors put in was probably never higher than $30 billion, while the amount Madoff paid to third-party fundraisers was around $15 billion. Not that this makes it any less reprehensible.

Arvedlund was the first journalist to suggest that Madoff’s business was unsound, in an article for the US financial magazine Barron’s, although a couple of investment professionals had blown the whistle on him to an asleep-at-the-wheel Securities & Exchange Commission. Her book is lively and as thorough as possible this soon afterwards. Some of Madoff’s victims were more special than others, she explains. Jeffrey Picower and Stanley Chais, for example, both of whom ran feeder funds, were ‘allegedly ordering up not only fake gains, but fake losses’ to cheat the US taxman. At the same time, of course, honest investors who had declared tax in full on their seemingly legitimate capital gains were unable to claw back the tax they had paid. Irving Picard, the lawyer in charge of liquidating Madoff’s assets, has decided that investors cannot rely on their last statement of return to determine what they are owed, since ‘that allowed Madoff to be the decider of who won and lost, the trustee argued, of who was robbed and who had taken their money out of the Ponzi scheme early enough to get it all back – and perhaps had taken out even more’.

Madoff’s Other Secret: Love, Money, Bernie, and Me by Sheryl Weinstein was serialised in the Sunday Times. Weinstein was the chief financial officer of a Jewish charity that invested with Madoff. ‘Would you like to get together to discuss investment strategies?’ he asked her. They started lunching together and, later, shtupping. ‘I quickly realised he was a total narcissist, completely self-absorbed,’ she recalls. She became convinced that he suffered from Tourette’s syndrome – because he blinked uncontrollably and was constantly clearing his throat – as well as obsessive-compulsive disorder. He cried off from an assignation because he had to fly to Palm Beach to oversee the pruning of trees on his property there and he owned 50 bespoke suits from Savile Row, 25 blue and 25 grey, all identical but numbered so that he could match the trousers and jackets. ‘I found that very peculiar,’ says Weinstein.

Having readily invested her family savings with him as well as her charity’s money, she was slow to let him seduce her. As a lover (only her third), he was ‘very sensual’ and although he was ‘not well-endowed’ she was ‘able to achieve an orgasm’. When they made love, his whole body shuddered – another tic like his blinking. The affair fizzled out and he never sought to steer his former lover away from his Ponzi scheme. He sometimes ‘expressed a macabre desire to be punished… and made references to sado-masochistic sex, something we never explored in our relationship’. Was he anticipating that he would one day be punished for his financial transgressions? There are no answers to the Madoff enigma here, but there are some intriguing shafts of psychological observation.

In the prologue to Madoff with the Money, Jerry Oppenheimer announces his intention ‘to inform the reader about Bernie Madoff, the man – the self-proclaimed macher behind the biggest fraud ever perpetrated’. He has ‘tracked down dozens of people who knew Bernie best – or thought they did’. His book has a hint of the tabloid about it, but he has unearthed some curious material. Like Sheryl Weinstein, Amy Joel, who worked in Madoff’s money-management department, also noticed his OCD issues. He lectured her about entering her apartment wearing shoes she had worn in the streets of New York City ‘because of the dog and human urine and defecation she might have trod on’. He insisted that she pay even the smallest corporate bill within three days of it coming in, because, she surmised, ‘he didn’t want any trouble with creditors’.

But Oppenheimer has significant gaps. For example, J. Ezra Merkin, who put philanthropic clients into Madoff’s funds with negligent abandon, features prominently in both Arvedlund’s and Adam LeBor’s books, but appears on only two pages of Oppenheimer’s book.

Although only 1 per cent of the American Jewish community have been personally hurt by Madoff, according to a survey quoted by Arvedlund, 39 per cent claim to have been affected in some way or other, either by association with a charity or through acquaintance with a victim. Others have cursed Madoff for reinforcing a stereotype. Adam LeBor, in The Believers: How America Fell for Bernard Madoff’s $65 Billion Investment Scam, is primarily fascinated by Madoff as a Jewish cultural phenomenon: ‘Hitler aside, it was a fact that Madoff, a Jew, had stolen the most money from other Jews and Jewish institutions since the Nazi looting during the Holocaust and the post-1945 communist appropriations.’ LeBor, an old Balkan hand, compares him to the callously detached orchestrator of genocide Slobodan Milosevic, but elsewhere notes that he ‘seemed to take a perverse relish in his human connection with his victims’. Madoff ‘performed a kind of psychological jiu-jitsu among his co-religionists’, says LeBor, who places him (rather tiresomely) in a specifically Jewish tradition of ‘fake gods and false messiahs’. Exactly how helpful this is in advancing our understanding is not clear. Madoff practised what is called an ‘affinity fraud’, first on Long Island and later on New York’s Upper East Side and in Palm Beach, preying on fellow Jews who trusted him precisely because he was one of them – more or less, that is, since LeBor identifies Madoff as a shtarker, descended from East European Jewish immigrants who were less morally fastidious than the earlier wave of mainly German yekkes who had already formed New York’s ‘Our Crowd’.

But this affinity did not apply in Europe where the feeder funds for Madoff were not part of the Jewish community but predominantly composed of French and Swiss bankers, aristocrats and even some royal families. According to Erin Arvedlund, ‘this was the old generation of hedge-fund investors – the one who didn’t do heavy-handed due diligence. They invested based on relationships.’ And for Arvedlund, the Madoff scandal ‘transcends ethnicity’.

Christopher Silvester is deputy editor of Spear’s Wealth Management Survey


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