12.11.10

Madoff's Devilish Female Partner in Crime

Sonja Kohn is a multi-lingual European who suckered more than $9.1 billion from investors into the Ponzi scheme. Allan Dodds Frank reports she's still stealing while Madoff is behind bars.

Mark Madoff, son of infamous Ponzi schemer Bernie Madoff, was found hanged in his New York City apartment Saturday, dead from an apparent suicide. Both Mark and his brother Andrew have been the focus of investigators regarding their possible roles in their father’s Ponzi scheme. Click here for more.

The Daily Beast’s Allan Dodds Frank reports on Bernie Madoff’s devilish female partner in crime: Sonja Kohn is a multi-lingual European who suckered more than $9.1 billion from investors into the Ponzi scheme and is still stealing.

At first glance, Sonja Kohn, a short, stout, red wig-wearing 62-year-old grandmother and banker from Vienna, Austria hardly appears to be one of the greatest financial crooks ever, let alone the repeated recipient of a “big hug and a kiss” from her “ criminal soul mate,” Bernie Madoff.

Kohn, according to bankruptcy trustee Irving Picard, may be even worse than the now-jailed Madoff. He claims she and her family continue to steal with impunity and hide millions of dollars taken from Madoff victims, in spite of the ongoing U.S. criminal investigation.

As a co-conspirator with Madoff for 23 years, Kohn allegedly raised more than $9.1 billion of the $19.6 billion in cash actually invested with—and lost by—the Ponzi king. That means, according to calculations by Picard, she raised 46 cents of every dollar Bernie stole.

The allegations made against Kohn and her 55 co-defendants in the 160-page complaint could invigorate or trigger criminal investigations in Austria, Great Britain, Israel, Italy, Lichtenstein, Switzerland, and the U.S.

“In Sonja Kohn, Madoff found a criminal soul mate, whose greed and dishonest inventiveness equaled his own,” Picard said in a statement. “We believe that even more information regarding the full scope of this criminal enterprise will be revealed through discovery.”

Already, the lawyers know Kohn was a chameleon. “Sonja Kohn went by many names and operated under many guises, creating an international network of spurious investment entities and masterminding an illegal scheme,” said Timothy S. Pfeifer, who supervised the suit for Picard.

Kohn runs her family as a criminal enterprise, according to the complaint filed in U.S. Bankruptcy Court in Manhattan that seeks treble damages ($58.8 billion) on a claim of $19.6 billion.

Cloaked in secrecy and lies, she operates like a Mafia family chief, engaging and enriching her husband Erwin, her children, her in-laws and her mother in her vast web of fraud, the papers say.

When Picard’s legal team from Baker & Hostetler deposed Kohn’s daughter Rina Hartstein, who resides in New York State, she took the Fifth Amendment “more than 500 times.” Her husband Moishe took the Fifth “at least 135 times.”

Many of the questions were about the days leading up to Madoff’s arrest on Dec. 11, 2008 and what the Kohns already knew about the fraud’s imminent collapse.

When Picard’s legal team deposed Kohn’s daughter Rina Hartstein, she took the Fifth Amendment “more than 500 times.”

Mark Madoff’s AgonyIn the six weeks before Madoff “confessed” to his crimes and was arrested, Kohn extracted $536 million from Madoff company accounts at JPMorgan Chase. Her connection to Bernie was so strong, the suit reveals, that before Madoff was turned over by his sons to federal authorities, Madoff tried to destroy the records of his dealings with Kohn and her Bank Medici. Did she know about the fraud? The trustee says “yes,” while noting that neither Kohn nor anyone else in her family had a direct account at Bernard L. Madoff Investment Securities.

The international discovery hunt has turned up other nuggets.

“Kohn introduced wealthy international investors to Madoff as early as 1991,” the suit says. “When Kohn brought these investors to BLMIS (Bernard L. Madoff Investment Securities), Madoff would greet Kohn ‘with a big hug and a kiss’.”

For her efforts, Kohn allegedly pocketed hundreds of millions of dollars, which she funneled through a “deliberately byzantine” empire of crooked hedge funds in Europe and New York, offshore corporations in the Caribbean and her lawyers in Gibraltar. She also had an office on Park Avenue in New York and accounts at JPMorgan Chase into which Madoff often transferred millions from his accounts at the same bank.

Kohn built her racketeering empire in stages, says the bankruptcy trustee.

First in the United States beginning in the mid-1980s, she established hedge funds and a secret deal with Madoff; then she returned to her native Austria to cultivate wealthy European investors.

The fall of the Berlin Wall in 1989 created opportunities for hedge funds she was marketing, which promised access through her to the incredibly successful American stock picker, Bernie Madoff.

“To potential investors, Kohn held herself out as a close friend of Madoff and intimated that this relationship would yield special returns for investors she referred,” said David J. Sheehan, Picard’s chief counsel.

She had some contacts from her early days in Austria and Italy in the import-export business and used them to curry favor. By the early 1990s, she had succeeded in enticing top Austrian bankers and two Austrian economic and finance ministers to join her companies’ boards and bring in customers. She even convinced “entities affiliated with the city of Vienna to invest.”

In 1994, the country’s largest bank, Bank Austria, sold her the company that she transformed into Bank Medici, named after the ancient Italian family renowned as financiers and patrons of the arts.

In fact, Bank Medici amounted to a “rogue branch” of Bank Austria, which also was a minority owner. Picard says Bank Medici and more than 30 hedge funds controlled by Kohn actually did nothing but funnel money to Madoff. She got hedge fund sales support from the chairmen of Bank Austria and Unicredit, the large Italian bank that bought out Bank Austria and its interest in Bank Medici.

So how did Sonja meet Bernie?

By 1985, she was living in an Orthodox Jewish community in Monsey, New York and working as a retail broker at Merrill Lynch. She met Sonny Cohn, a partner of Bernie’s in a brokerage known as Cohmad Securities, and told him she was looking for a partner because she was “the biggest producer” at Merrill. He introduced Kohn to Bernie and by 1987 she had a secret deal with Madoff that paid her a flat fee of $6.5 million a year to recruit investors.

Picard’s team says there is no doubt Sonja knew from the start she was a partner in a Ponzi scheme. They found the very first customer Kohn ever brought to Bernie was Howard Gottlieb, a Chicago businessman who had once been her partner and invested $3 million in April, 1989. Even though he allegedly earned 50 percent in four years and took a $1.4 million profit, Gottlieb cashed out after his accountant told him that Madoff’s “stated returns were impossible.”

Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime stories. He also is the former president of the Overseas Press Club of America, one of the many journalism organizations that protests the arrests of journalists abroad and repression of freedom of speech.