Bernie Madoff: World’s Most Honest Fraudster

The most shocking aspect of the Madoff saga isn’t the crimes he’s accused of—it’s the lack of a cover-up.

I’ve made my living in the peculiar art of crisis management for more than a quarter century, so I’m rarely surprised when I read about disasters such as the alleged geothermal fraud of investor Bernard Madoff.

Specifically, what floored me about the Madoff coverage were the reports that he had conceded to his sons and associates that “it was all just one big lie.” My experience with these affairs is that the accused uber-gonif tells everyone who will listen, including his legal and damage control team, that the charges against him are “total bullshit.” Not that some of the allegations are wrong; rather Virtually Every Negative Thing Being Said About Me Is 100% Certified Grade-A Imported Bullshit.

No sane attorney would sanction an out-of-the-gate mea culpa if there was any chance their client might secure his liberty (or his house in Southampton).

While Madoff’s reported confession is cold comfort to those investors, and, monstrously, the charities that invested with him, it is, nevertheless, an interesting clinical development in the science of crisis management.

For decades – I trace it back to Watergate – pundits and journalists have trafficked in the twin canards: “Fess up and the problem will go away” and “It’s the cover up that nails you.”

The truth is more banal and depressing. The reasons scandal figures don’t fess up is that they don’t believe they did anything wrong, and, perhaps most tactically, confessions and expressions of remorse are usually admissible in criminal and civil court. Enough rapscallions have been acquitted, or negotiated attractive pleas, that no sane attorney would sanction an out-of-the-gate mea culpa if there was any chance their client might secure his liberty (or his house in Southampton).

A similar logic applies to the “it’s the cover-up that gets you” bromide. As the late George Carlin once observed, “People in Washington say it’s not the initial offense that gets you into trouble, it’s the cover-up. They say you should admit what you did, get the story out and move on. What this overlooks is the fact that most of the time the cover-up works just fine, and nobody finds out a damned thing.”

Implicit in Carlin’s message is that admissions don’t make your victims and the public want to forgive you, they make them want to kill you. Furthermore, not all cover-ups are cover-ups in the criminal sense. The same kind of breathtaking confidence and lack of self-awareness that it takes to tell one’s associates that “it’s all bullshit” also enables charismatic thieves to build Potemkin Villages in the first place.

This brings us to the subtext of most of these financial scandals: Why do smart people who instinctively hang up on telemarketers believe in self-promoting gurus promising geometric returns? Greed and naiveté are the convenient explanations, and I expect that most of the charities that lost money with Madoff had the noblest motives.

Still, there is another pathology operating here: The need to believe in shamans and gurus is often tied to the aspiration of the successful for the cross-validation that comes from inclusion in an ultra-elite club. Put differently, to invest with a wizard is to be among the Wizard Class, to be one of The Chosen elected to benefit from inside shibboleths.

Perhaps the most diabolically clever aspect of Madoff’s pitch was not his promise of outrageous returns, but his promise of exclusivity – the notion that he actively rejected unworthy clients in the manner that the Ivy League rejects second-tier applicants. It is of no small consequence that Madoff conducted much of his business at highly selective country clubs.

Nobody wants to be the rube that listens to a Madoffian pitch only to raise his hand and say, “I don’t get it.” Better to fork over your life savings to a top-drawer shuck-and-jive artist than announce you’ve decided just to pay off your mortgage instead (to the sniggering of financial sophisticates about how you’re pissing away a tax deduction, you community college nimrod). As Professor Marvel admonishes Dorothy in The Wizard of Oz, “Professor Marvel never guesses. He knows!” The good professor, of course, is played by the same actor who demands that Dorothy and her cohort “pay no attention to the man behind the curtain,” who turns out to be nothing but the fraudulent Wizard of Oz himself.

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I routinely see this desire for wizards in my crisis management work. When mega-successful companies or individuals get in trouble they seek attorneys and PR people whom they believe will throw pixie dust in the eyes of the judge, jury and the New York Times, resulting in acquittal and, perhaps, a comeback cover of Fortune.

There is, of course, no pixie dust, just good and bad facts, good and bad laws, and plausible narratives and laughable whoppers. If Madoff’s reputed confession turns out to be true, it will be a lousy legal strategy. But I would like to think it could represent a turning point in our culture’s ethical and spiritual management of malfeasance. Might would-be felons realize that the consequences of swindle won’t be the successful obfuscation of a magician, but the abject surrender of a petty thief?

I am not optimistic. I see no evidence that people learn from the mistakes of fallen icons, which one would think are self-evident—Ivan Boesky, Dennis Kozlowski, et al. Alas, these guys were different.

I suspect that Madoff’s confession is an aberration borne out of the visceral catharsis that occurs when the Joker in the deck suddenly turns up -- the Joker that precedes a catastrophic depression.

Trust me. Like Professor Marvel, I know.

Eric Dezenhall co-founded the high-stakes communications firm Dezenhall Resources, Ltd., and serves as its CEO. Eric's first book, Nail 'em!: Confronting High-Profile Attacks on Celebrities and Business, pioneered techniques for understanding and defusing crises.