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03.15.09

Ruth's Secret Stash

Media reports since Friday have put Madoff's net worth at $826 million. The Daily Beast's Allan Dodds Frank on why the true value is likely a tiny fraction of that—and other absurdities of the Madoff family finances.

UPDATE: Prosecutors filed a petition this morning in New York for the forfeiture of various Madoff assets, including $100 million in homes, cars, boats, and stocks.

Media reports since Friday have put Madoff's net worth at $826 million. The Daily Beast's Allan Dodds Frank on why the true value is likely a tiny fraction of thatand other absurdities of the Madoff family finances.

Bernard Madoff's “statement of financial condition,” made public Friday in an appeals court filing, is a comic book from a criminal. Has it been any help to investigators as they try to unravel his machinations by marching down the paper trail? Or is it just a document that could back up another perjury charge, as if that were needed?

Like Bernie's promises to investors, much of his net worth statement may be fiction. To my eyes, it is a vague road map to the distant contours of his giant fraud, a blind man's guide to feeling the elephant. Yet Madoff asserts, under oath sworn Dec. 31, 2008, to the Securities and Exchange Commission, that it is a true and correct certification of the assets he and his conspirator-in-marriage, Ruth Alpern Madoff, hold separately and together, in sickness and in health, till death...or a life sentence in prison…do them part.

Maybe Bernie's mind was fogged by the inhalation of salt air aboard the Bull, a $7 million Leopard yacht bought by a company in Ruth's name and docked in France at a $1.5 million slip she purchased.

When made public Friday as part of Bernie's bail appeal, mainstream press accounts, in headlines and lead paragraphs, dutifully noted $823 million to $826 million as Bernard and Ruth Madoff's net worth. (On Sunday the New York Post reported that Ruth has some $93 million her name.) Of course, that number declared by Bernie is total nonsense, since $700 million of that total is alleged to be the value of his company, Bernard L. Madoff Investment Securities. There is no source for that valuation beyond Bernie, no appraiser's opinion attached. The document said the estimate was “based on remaining capital.” That's other people's money the firm held in bank accounts. Daniel Horwitz, one of Madoff's legal team from Dickstein Shapiro, declined to comment on the document.

The Wall Street Journal and Bloomberg did point out the $700 million high in their stories, and Bloomberg even quoted an expert saying the firm may be worth $10 million at auction. Yet no account I read challenged the numbers or raised the notion that it is no longer fair to assume the firm ever had real value as a market maker or a proprietary trader. My guess is the firm is worthless, except for its leases, the value of the furniture, and the art on the walls in the Lipstick building offices on Third Avenue in Midtown Manhattan. The financial-condition statement puts the value of the furniture, household goods, and art in Madoff's three floors of offices at 885 Third Ave. at $886,900.

In his guilty plea March 12, the 70-year-old Madoff told Judge Denny Chin that two-thirds of his company--proprietary trading and market-making--were legitimate, profitable, and successful. Bernie would have the court believe his criminality was confined to his fake investment-advisory service, even though prosecutor Marc Litt said the illegal proceeds from the “investment advisory” scam kept the rest of the company afloat during a financial crisis.

The rest of Bernie's numbers in the 15-page statement, titled “Exhibit F” in the appeals request filed by his lawyer Ira Lee Sorkin, shows that Ruth Madoff was prescient. I mean, for a devoted housewife who supposedly had nothing to do with anything, Ruth sure was smart not to have any accounts, at least as declared on this statement, at Bernard L. Madoff Investment Securities.

And how wise, in 1994, to take sole ownership of that pile on North Lake Way in Palm Beach, now listed at $11 million? Maybe you are wondering where she got the money to pay for it on her own? Or maybe, as all fraudsters know, she and Bernie were thinking about that homestead exception that Florida and Texas offer criminals, allowing their families to hang on to lavish homes when the man of the house is in the penitentiary? (Bloomberg now reports Ruth has declared the Palm Beach pile her primary residence.)

For that matter, you might think Bernie handed her a duffel bag full of unmarked bills in 1984, when she was smart enough to buy Penthouse 12A at 133 E. 64th Street, now valued at $7 million. Maybe Bernie was too busy at the office to attend the real-estate closing. Then again, when this statement was filed, he could not remember whether it was 2000 or 2001 that Ruth bought the $1 million apartment in the south of France, at Cap d'Antibes. Maybe Bernie's mind was fogged by the inhalation of salt air aboard the Bull, a $7 million Leopard yacht bought by a company in Ruth's name and docked in France at a $1.5 million slip she purchased.

Only once, for the purchase of their Montauk, New York beach house, listed at $3 million, did Bernie seem to have time to co-sign a legitimate real-estate transaction. Still, Ruth had to buy a boat there too, the Sitting Bull, valued at $320,000. Only their Palm Beach vessel, a Rybovich fishing boat also called Bull, was supposedly paid for by Bernie. Was it Bernie's idea to pay off the $151,000 tax obligation due in January 2009 on the Palm Beach property, or was that at the direction of the bankruptcy trustee?

With no mortgage listed on any of the real estate, the Madoffs must have figured they did not need any tax deductions on interest.

Ruth also showed she could move the money around. She had around $45 million in municipal bonds held at Cohmad Securities, a firm with offices in Boston and New York named for its owners, Maurice Cohn and Bernard Madoff. Funny that the Massachusetts secretary of state, William Galvin, thinks that account may be part of the larger Bernie badness. That could explain why, as Massachusetts' top securities regulator, he filed a complaint on February 11 that said Ruth Madoff had made two transfers totaling $15.5 million out of the account shortly before Bernie was arrested.

Finally, among the big to medium numbers, Ruth had $17.01 million on hand in cash in a solo account at Wachovia, while the Ruth and Bernie's joint account at Bank of New York had “approximately $21,717,” not much for a couple that has been together since meeting at Far Rockaway High School in the late 1950s.

Still, it is the small numbers that amuse me the most...and make me wonder. Was Bernie the victim of all those art forgery salesmen who patrol his favorite venues in New York, the Hamptons, Palm Beach, and the south of France? Did he have fake Salvador Dalis or Picassos hanging over that $39,000 Steinway piano Ruth bought for their New York penthouse? Is it really possible that all the art, furniture, and household goods they had there was worth only $4 million? Or the Palm Beach pad was worth $2.46 million, a number barely eclipsed by the $2.62 million in jewelry?

On their list of average monthly expenses over the last 12 months, the $800 for food got me. Maybe he was not a big tipper at Primola, the East Side bistro where the tabloids say the couple dined at least once a month since it was only two blocks east of their apartment. But being New Yorkers, it is hard to believe they did not spend that much a month on takeout.

Finally, their $70 a month budget for entertainment is a hoot. Is that their Netflix bill? Was Bernie so absorbed that they never went out? Or was Bernie always willing to let all those close friends who hungered to invest with him pick up the check? Or maybe all that money is buried on his company credit cards, since he had a debit balance of $78,500 on his corporate American Express card versus $20,000 on the Visa card he and Ruth shared. Meanwhile, if you have more time to waste, look at the document and see how Bernie's cable-TV bills compare to yours.

The net worth statement was submitted just 20 days after he was arrested, so it is understandable that at that time it might have been incomplete. Indeed, a series of questions about any asset transfers Madoff had made since 1972 all carry the answer “To be resolved with Commission staff.” We do not yet know whether that means the questions have been answered in the interim or whether Madoff's cooperation, mentioned by Sorkin, was actually complete. Certainly The Daily Beast and others have reported on a series of offshore accounts that have been uncovered. Whether they are in the ambit covered by Madoff's alleged help to the SEC is not publicly known.

My hunch is the investigators are swarming around the world's money havens, confident that a con man like Bernie was constitutionally incapable of worrying that “material misstatements or omissions” on his net worth statement “may constitute criminal violations.”

Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime.