He’s known as inmate No. 61727-054 at the medium-security federal prison in Butner, North Carolina, where he is serving a 150-year sentence.
You probably know him better as Bernie Madoff, the convicted Ponzi schemer who cheated his victims out of $17 billion dollars — the largest financial fraud in U.S. history.
As we near the fifth anniversary of Madoff’s arrest, it’s worth asking: Can something like his Ponzi scheme happen again?
Here & Now’s Jeremy Hobson speaks to Diana Henriques, a senior financial writer for The New York Times and author of “The Wizard of Lies: Bernie Madoff and the Death of Trust.”
On Madoff’s claim that he tried to return money but “they wouldn’t take it back”
“There’s no evidence in the research I’ve done, and talking with more than the 100 investors in the Madoff scheme over the years. None of them have ever mentioned anything that matches that set of circumstances. So I would be pretty skeptical. You are, after all, dealing with one of the most accomplished liars in the 21st century. But I think it does capture his current feelings about his investors … His remorse towards his victims is actually, it seems to me, decreasing as time goes by. His remorse for what he’s done to his family, on the other hand, is real and intense and if anything, increasing over time. So if you feel that Bernie Madoff needs to be sufficiently punished, I think he probably is, because the people he cares most about have cut him out of their lives and have been ruined by what he did.”
On former Madoff employees facing charges for aiding in the Ponzi scheme
“Their defense is that they were largely unsophisticated people about Wall Street, and in many cases that’s true. This was their first Wall Street job. In some cases, they joined Bernie right out of high school, and all they knew about how this was supposed to operate was what he told them. So there’s going to be some of this, you know, ‘I didn’t know better’ defense. And then there’s going to be, you know, ‘I always believed he really had the assets’ defense. These are, it should be said, mostly very low-level employees.”
On Madoff’s business partner
“He wasn’t doing it all by himself. We know he had the skilled help of his right hand man, Frank DiPascali, who has pleaded guilty. Frank DiPascali clearly knew about the fraud, helped with the fraud, organized a lot of the software that enabled Madoff to scale up his fraud. It’s kind of ironic … that Madoff’s legitimate firm was one of the trailblazers on Wall Street in adding automation to the process of trading stocks. Unfortunately, he was also one of the trailblazers in adding automation to conducting a Ponzi scheme. So he didn’t do it alone, although he stood in court when he pleaded guilty, and obviously perjured himself claiming that he did it alone.”
On whether it could happen again
“I’m afraid the answer is yes. One of the things that made this easy for Bernie is that he had custody of all the assets that he was supposed to own, so no one could check and see if they were actually there. That’s still the case. Investor managers are allowed to have custody of their assets … I don’t think enough has changed. Certainly in this very low interest rate environment, I think investors are increasingly desperate to find some meaningful return on their savings, and are going to be increasingly vulnerable to the plausible-sounding wizard who shows up with some slightly better than money market returns.”
JEREMY HOBSON, HOST:
He is known as Inmate Number 61727054, but you probably know him as Bernie Madoff, the Ponzi schemer who was locked up almost five years ago after pleading guilty to the largest financial fraud in U.S. history. He scammed his victims out of more than $17 billion. He's serving a 150-year sentence at the medium-security federal prison in Butner, North Carolina.
He was just joined this week at the prison by former Congressman Jesse Jackson, Jr., who is serving a 30-month sentence for misusing campaign funds. As we near the fifth anniversary of Madoff's arrest, we're going to check in now with Diana Henriques. She's a contributor to The New York Times. She's also author of the book "The Wizard of Lies: Bernie Madoff and the Death of Trust." Diana, welcome.
DIANA HENRIQUES: It's great to be here, Jeremy, thank you.
HOBSON: Well, you have just heard from Bernie Madoff. Tell us what he said.
HENRIQUES: It was a very strange communication. We've exchanged emails, oh, ever since well before my book came out, since August of 2010 when I first interviewed him in prison. And we've spoken by phone occasionally this year. But mostly it's been letters recently.
And I got an envelope from prison this week. It had his handwritten inmate number up in the corner, as they always do, and I opened it up. The only thing inside was a single sheet of paper on which he had photocopied the New York Times article saying that a London judge had exonerated his son Andy of having any knowledge of his Ponzi scheme. That was the only thing.
I looked, you know, looked for a little scribbled note or anything else, but I don't know why he sent it. He would know I had seen the story. In fact I'd even been consulted on the story as it was being prepared. So it couldn't have been that he thought I would have missed it if he didn't send it to me. I think it was just a way of underscoring how much he cared about his son and how he had been saying from the beginning that neither his son Andy or his late son Mark knew anything about his fraud.
HOBSON: Well, and I want to get to that and some of the other people that are being accused of having something to do with it. But first of all, what more do we know about his life in prison?
HENRIQUES: Well, he is suffering from stage four kidney disease, Jeremy. It's not as serious as stage four cancer, but this is no picnic. At some point he's going to need some sort of more aggressive treatment if he elects to do that. When last I spoke with him, he mentioned that he'd had a few minor strokes. There was a period about a year ago when his typing in emails and his handwriting in letters really did become erratic. It's much better now, and he said he seems to have recovered.
So he's - you know, he's a mid-70s fellow with a parental record that's pretty grim. Neither of his parents lived to an extensive age. When I spoke with him soon after he was diagnosed with kidney disease, he expressed a complete determination not to accept dialysis. He said I'm not in the business of prolonging my life here. So we'll see how that turns out.
HOBSON: What about visitors? Does his family visit him? Does his wife, Ruth, visit him in prison?
HENRIQUES: No, neither of them do. Ruth cut him off in the fall of 2010, unfortunately too late to reassure her son Mark, who was sliding into despair and as you know, Jeremy, took his own life on the second anniversary of his father's arrest. Andy, his younger son, is undergoing treatment for a recurrence of lymphoma, of cancer. His spirits are good. He looks pretty good. He's undergoing some pretty aggressive stem cell treatments.
And so Ruth has her hands full. She absolutely has cut Bernie Madoff out of her life. Now, do some of his grandchildren write him? I don't know. I suspect they do. He won't say, to protect their privacy. He has two grandchildren who are college-age.
But I think the bottom line is he's pretty isolated there in Butner, North Carolina, where he's being held, and is no doubt going to become more so as this epic 150-year sentence unfolds.
HOBSON: What about remorse? How much of that has he expressed? I want to listen to a little bit of tape of him at least talking about this in 2011, on a collect call with New York Magazine.
BERNIE MADOFF: Look, I tried to give monies back to my clients, the individual clients, when I realized that it was impossible for me to get myself out. I tried to return funds to my friends. I tried to return monies to the smaller clients and so on. They wouldn't take it back.
HOBSON: It doesn't sound like a person who's expressing a lot of regret and remorse.
HENRIQUES: And frankly it doesn't sound like a person who's telling the truth. There's no evidence in the research I've done in talking with more than 100 investors in the Madoff scheme over the years, it doesn't - none of them have ever mentioned anything that matches that set of circumstances. So I would be pretty skeptical.
You are, after all, dealing with one of the most accomplished liars of the 21st century. But I think it does capture his current feelings about his investors. We actually had a little bit of an argument last spring, where he was pushing this line about how his investors were greedy, don't you love it, they were greedy, they prospered for years and years and years from his investments and now are whining and complaining.
I cautioned him. I said Bernie, is that really what you want me to tell the world your state of mind is now about this? And he didn't back down. So I feel perfectly free to tell you his remorse towards his victims is actually, it seems to me, decreasing as time goes by.
His remorse for what he's done for his family, to his family, on the other hand, is real and intense and, if anything, increasing over time. So, you know, if you feel that Bernie Madoff needs to be sufficiently punished, I think he probably is because the people he cares most about have cut him out of their lives and have been ruined by what he did.
HOBSON: We're speaking with Diana Henriques. She's a contributor to The New York Times. She is author of the book "The Wizard of Lies," all about Bernie Madoff's Ponzi scheme. It was uncovered almost five years ago. Madoff is serving a 150-year sentence. This is HERE AND NOW.
HOBSON: It's HERE AND NOW. Let's get back to our conversation about Bernie Madoff as we near the fifth anniversary of his arrest. We're speaking with New York Times writer and author Diana Henriques about the convicted Ponzi schemer who is responsible for the largest financial fraud in U.S. history.
And Diana, five of Madoff's former employees are now facing criminal charges for aiding him in the Ponzi scheme. Court hearings have revealed how Madoff's inner circle lived the high life with expensive wine and cruises, trips to Las Vegas, all paid for by money from Madoff's firm. What is their defense, and is Madoff going to testify against them?
HENRIQUES: Well, first off, I have no indication from any of the defense lawyers I've been in touch with that they intend to call Bernie Madoff. I think he would be willing to testify. I think everybody knows that it would be perhaps a two-edge sword to put him in front of a jury as this trial is unfolding.
Their defense is that they were largely unsophisticated people about Wall Street, and in many cases that's true. This was their first Wall Street job in some cases, they joined Bernie right out of high school. And all they knew about how this was supposed to operate was what he told them. So there's going to be some of this, you know, I didn't know better defense.
And then there's going to be the, you know, I always believed he really had the assets defense. So these are, it should be said, mostly very low-level employees.
HOBSON: But the whole time that this story was unfolding, I think I had the reaction that a lot of people did, which is there's no way he could have been doing it all by himself.
HENRIQUES: And indeed he wasn't doing it all by himself. We know he had the skilled help of his right-hand man, Frank DiPascali, who has pleaded guilty. Frank DiPascali clearly knew about the fraud, helped with the fraud, organized a lot of the software that enabled Madoff to scale up his fraud.
It's kind of ironic, you know, Jeremy, that Madoff's legitimate firm was one of the trailblazers on Wall Street in adding automation to the process of trading stocks. Unfortunately, he was also one of the trailblazers in adding automation to conducting a Ponzi scheme. So he didn't do it alone, and - although he stood in court when he pleaded guilty and obviously perjured himself, claiming that he did it alone.
HOBSON: Diana Henriques, what about the victims? What do we know about some of the people who were hurt by Mr. Madoff and lost everything?
HENRIQUES: Well, the claims process has been a rollercoaster over the past five years. Looking back, it looked much brighter two years out. Certainly when I was writing about the second and third anniversaries of Madoff's arrest, the prospects for a substantial recovery by the eligible victims looked very good.
The fact is that recovery hasn't budged one penny, just about, since then. The trustee who is trying to gather assets to repay those victims has hit some real setbacks, many of them this year. There was a ruling out of London, the one that affected Madoff's son Andy, that was a scorching dismissal of the trustee's claims for damages there.
He is entangled in a real wrestling match with the New York state attorney general over about a half a billion dollars in assets controlled by Ezra Merkin, one of the big feeder fund, hedge fund managers. So it's not been a good year, not been a good couple of years for the trustee's efforts to recover money.
However, he has begun distributing several billion dollars out to victims who have been - who are eligible for it. There's another $2 billion that's the big - kind of a wildcard in this situation. It's controlled by a special master appointed by the Department of Justice. And that special master's mandate is to distribute it to victims.
Now, the bankruptcy trustee, who has already been distributing money, is servicing Bernie's customers under securities laws. Victims is more broadly defined, and there's a little uncertainty whether or not some of the investors who are not eligible to recover through the bankruptcy process might somehow be compensated from that pool of money. That will be the big story for the coming year in the Madoff litigation.
HOBSON: Well, Diana, here we are five years later. Could anything like this happen again? Could there be a Ponzi scheme this big that goes undetected for so long and ends up hurting so many people?
HENRIQUES: I wish I could tell you the answer is no, but unfortunately, absent enormous growth in awareness among investors, I'm afraid the answer is yes. One of the things that made this easy for Bernie was that he had custody of all the assets he was supposed to own, so no one could check and see whether they were actually there. That's still the case. Investor managers are allowed to have custody of their assets. Now, they are required to submit to spot audits. I think that makes things a little safer from the standpoint of a Ponzi scheme not being able to tumble on for years and years and years. At some point, hopefully soon, an auditor would step in and say where are your stocks and bonds?
But in the regulatory landscape, Jeremy, I don't think enough has changed. And certainly in this very low interest rate environment, I think investors are increasingly desperate to find some meaningful return on their savings and are going to be increasingly vulnerable to the plausible-sounding wizard who shows up with some slightly better than money market returns.
HOBSON: Diana Henriques is a contributing writer at The New York Times, author of the book "The Wizard of Lies: Bernie Madoff and the Death of Trust." Diana, thank you so much for joining us.
HENRIQUES: It was a pleasure, Jeremy. Transcript provided by NPR, Copyright NPR.
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