01.27.09 11:25 AM ET
Partners in Crime?
In a Daily Beast exclusive, Lucinda Franks says key investigators now believe Ruth Madoff played a larger role than previously assumed in her husband’s Ponzi scheme, and that the fraud began far earlier than other reports have indicated. Plus, she reports, 20 million Madoff documents have been unearthed in a Queens warehouse.
Since the Bernard Madoff scandal broke in December, two overarching questions have been raised. What if anything did other family members know about the Ponzi scheme? And when did it begin—was he a legitimate investor who ran into trouble or was it all a ruse from the beginning? Now, key players I spoke to in the multipronged investigation into the Madoff scheme say they are beginning to piece together answers to those questions.
While she has not been charged with any wrongdoing, authorities now believe Ruth Madoff, Bernard's wife of almost half a century, played a larger role than previously thought. Until now, the assumption has been—as Madoff himself told FBI agents—that his investment-advisory business was separate from other, legitimate Madoff businesses; it was housed on a different floor and operated, he has said, without knowledge of others in his family.
But investigators have discovered, according to a person close to the case, that the funds from the advisory business were in fact comingled with Madoff’s personal funds and with a market-making fund in which he, as a broker-dealer, executed orders for customers. It was Ruth Madoff who oversaw the books on all three of these accounts, and it was the comingling of money from them—contrary to regulations that require such accounts to be kept separate—that enabled the elaborate shell game. It also meant that some investors' money was not invested for their own benefit but went into Madoff's personal assets.
This is why investigators are increasingly focused on Ruth Madoff’s role. While the businesses were operated separately, the money generated by them was mixed under Ruth Madoff’s watch, investigators now believe. What isn’t clear yet is whether she knew the full extent of what she was doing.
But, says one highly placed person involved in the inquiries: “If Ruth Madoff had an office there for 37 years and kept the books of this account, wouldn’t she have had some inkling that something was wrong? She’s there all the time and her husband just blows it by her? They are a really tight couple, did he really keep this secret from her every day of their marriage?” Ira Sorkin, the lawyer for both Madoffs, said he had no comment.
Others involved in the case point to the fact that Mrs. Madoff has not hired her own lawyer as an indication that she knows more than she has previously revealed. A close business associate of Madoff’s shares that skepticism: “If she knew nothing, wouldn’t her husband, who was so protective of his family, insist she have a different lawyer?”
Questions remain about whether still others may have played a role in the scheme. Investigators are exploring whether the statements Madoff investors received were false —indeed whether there were any trades at all. The Financial Industry Regulatory Authority has reported that there is no record of Mr. Madoff’s investment-advisory firm placing any trades. “What did all those people do on the secretive 17th floor if they weren’t executing trades?” a source close to the investigation told The Daily Beast, “What did they think they were doing?”
In another key development, a person close to the case says Madoff has admitted to law-enforcement officials that the Ponzi scheme began more than 40 years ago—much earlier than previously believed. Another law-enforcement official says authorities speculate that Madoff’s role as a pioneer of electronic trading, early in his career, may have aided the scheme. It revolutionized the way stocks were traded, and also removed a physical paper trail. Order slips were no longer issued to “runners” who would take them to the floor. Now with the push of a button, a broker could confirm a transaction—or at least give the appearance that he had. Investigators say this could have easily led to a game of electronic hide and seek.
Madoff himself has told authorities that he acted alone, and while no hard evidence has emerged to refute that, many members of his extended family are targets of irate victims whose savings have evaporated. Some of those family members have gone to authorities and are talking to them about letters they have received that threaten their lives.
Another indication that bolsters federal investigators’ certainty that Mr. Madoff did not conduct this massive fraud alone is the recent discovery of as many as 20 million documents from the firm that are stored in a warehouse in Queens, many of which shed light on the scheme. No one could create that amount of paper without considerable help. “It gives you a sense of the enormity of the problem in solving and settling this case,” a source close to the investigation says. “This will go on for decades.”
Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of The New York Times and has written for several publications including The New Yorker and The New York Times Book Review and Magazine. Her latest book is My Father's Secret War, about her father, who was a spy for the OSS during World War II.