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Feds Zero In on Bernie's Inner Circle
From Top: Ruth Madoff, Shana Madoff Swanson, Peter Madoff (Photos: Splash, Patrick McMullan, Redux)
In a Daily Beast exclusive, Lucinda Franks reports that investigators are focused on suspiciously exorbitant salaries of Madoff family members and evidence about who minded the store when Bernie was away. Plus, the millions of dollars Madoff salted away around the world, mounting tension over whether recovered money should in fact go to victims, and the surprising fact that investigators haven’t interviewed Ruth yet.
With Bernie Madoff locked away, the next big challenge for investigators is to continue piecing together how he pulled off the massive fraud—and who helped him. As they examine the inner workings of his firm and attempt to trace his assets, according to sources from various investigative agencies, their focus is now on the following:
• The exorbitant salaries Madoff paid to family members and employees of Bernard L. Madoff Investment Securities LLC, creating rich incentives not to question the firm’s procedures. Bernie’s brother Peter, as chief compliance officer, was paid "millions" for a job that usually commands a salary of $150,000- $250,000, according to a source who worked in payroll. A compliance lawyer often earns even less, but Peter’s daughter Shana received more than half a million dollars a year with that title. "Back office" staff in the fraudulent investment-advisory wing on the 17th floor had salaries in the hundreds of thousands of dollars, according to the employee, although the criminal complaint against Madoff notes they had little or no prior pertinent training or experience in the securities industry.
Ruth claims a house in Montauk was given to her by her father in the early 80s, according to a federal source: "This is one of her recent fabrications. "
• Investigators say there is mounting circumstantial evidence that Peter, Shana, and Ruth, who was the bookkeeper, minded the store when Bernie was away and oversaw the generation of false trades. Just as the teller who is bilking the bank comes in early, leaves late, and doesn't take vacations because he can't afford to have a replacement scrutinize his activities, investigators say they believe Madoff must have had a small inner circle who could keep the scheme running in his absence.
• Ruth Madoff has not yet been questioned by investigators, according to sources on the defense team. A source close to the case says "they are going after family and associates with a vengeance, but in their own way, by indirection." The many assets put in her name over the years—including real estate, yachts, jewelry and cash—have been frozen, but now the government is moving to try to seize the $69 million worth of real estate and cash and bonds in Ruth’s name that she says are unrelated to the Ponzi scheme. For example, Ruth claims a house in Montauk was given to her by her father in the early '80s, according to a federal source: "This is one of her recent fabrications. She darn well knows her father had no money. He didn't give it to her, Bernie did." The US Attorney's office will find it quite a hurdle to seize these assets. They will have to go to trial; both sides will require depositions and discovery; and the whole thing could take months. It will also be difficult to convince foreign governments to turn over the multi-million dollar houses that Ruth owns in Europe. "Many of them would just laugh at a US court order," declares a Gibraltar observer of the case.
• The millions of dollars that Madoff salted away in banks around the world. "He lied so blatantly about his financial assets, in addition to the fiction that he carried out this ruse alone, I thought that he was going to come into court and enter an insanity plea," said a federal investigator. A money-laundering investigation that is being conducted jointly by British and US authorities has found that investors’ capital was moved from international bank to international bank so that it couldn't be traced. So far, at least six banks are involved in the scheme, in Luxembourg, Gibraltar, Switzerland, Ireland, England, and Chile, and probably Austria and Italy.
• The possibility that Madoff, an innovator when electronic trading came to Wall Street in the ‘60s, created special software to generate false trading data and client statements.
• Meanwhile, some in the New York US attorney's office are lobbying to give any recovered assets to the US Treasury rather than to the fund for victims of the Ponzi scheme. By law, forfeiture money collected from a federal crime can be seized by the Department of Justice, but the trustee charged with returning capital to the duped investors strongly argues that all Madoff monies should be given to them.
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Lloyd Grove is editor at large for The Daily Beast. He is also a frequent contributor to New York magazine and was a contributing editor for Condé Nast Portfolio. He wrote a gossip column for the New York Daily News from 2003 to 2006. Prior to that, he wrote the Reliable Source column for the Washington Post, where he spent 23 years covering politics, the media, and other subjects.
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Jacob Bernstein is a senior reporter at The Daily Beast. Previously, he was a features writer at WWD and W Magazine. He has also written for New York magazine, Paper, and The Huffington Post.
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Jeff Madrick is a contributor to the New York Review of Books and a former economics columnist for the New York Times. He is editor of Challenge Magazine, visiting professor of humanities at Cooper Union, and senior fellow at the New School's Schwartz Center for Economic Policy Analysis. He is the author of Taking America, The End of Affluence (Random House) and The Case for Big Government.
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Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for 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.
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Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for 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.
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Allan Dodds Frank is a business investigative correspondent who specializes in white collar crime. He also is 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.
Lucinda Franks is a Pulitzer Prize-winning journalist and author who was on the staff of the New York Times and has written for 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.
loving your coverage of this story that continues to boggle the mind!
She belongs in the slammer along with the rest of the thieving family!!!!!!!
This whole thing is stunning in its scope and complicity in the deceit, but unfortunately, not at all surprising. It's been a free-for-all for the greedy for the last decade or so. Unbelievable.
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So disappointed in the US Attorney's office. How can they request the money that so many people lost?
Please tell me that the Feds have all the Madoff passports. It's bad enough that these people are 'free', but they also have the resources to flee. Get them behind bars as fast as possible. This whole saga is a disgrace.
The entire family is rotten I don't care what he says or said the entire family needs to go to jail TODAY.
The sad part is how could the entire family steal from people they knew for years.
What kind of "balls" does this entire family have that they could face their "friends".
When jews say that they are so picked on and hated look at what their own kind did to them without even thinking?
This story only has so many that lose nobody wins and that is a fact.
Complex issues abound when it comes to restitution:
If the profit/loss statements issued to investors were phony, how much was real profit and how much was principle? How many years contributions can be realized as principle?
How much phony captital gains was taxed and aren't those taxes refundable with an amended return?
If some capital gains were true gains (minus principle invested) and taxed, were those gains from account-to-account transfers and therefore illegal, illusory gains? Should they be taken back from the investors that kept the money before Madoff's guilt was admitted?
So much of the paper trail involves automatically and electronically generating statements and confirmation sheets. How do the authorities track the person(s) who took part in providing the numbers and math to the IRS and investors? The numbers had to be derived from actual stock quotes on the days of the trades. If Bernie was skiing in Switzerland, someone in the inner circle had to know the trades were bogus.
Seems to me, the SEC had very few experienced personel or effective safeguards to prevent the theft and, at present, few who will be able to investigate and prosecute those in Madoff's circle.
Wonder if Bernie will have visitors?
Wonder if my investment counselor is legit.
Investing has truly become a gambler's game with the odd stacked in the house's favor.
These people have money stashed in banks around the world and buried and who know what else. It's a negotiation. Fight for what they think you have and keep the rest and live happily ever after.
Of course the Feds aren't playing ball w/ anyone else. Failure to share information is how 9/11 happened. This is a 9/11 for those people and charities who lost everything because of this family of crooks. Take every one of them to the cleaners, and give the money back to the people it was stolen from! The gov't has no stake in the money. Besides, the gov't is not everyone's favorite these days, what with their handing out money to AIG so they can pay bonuses to their corporate idiots instead of giving the money to homeowners and businesses who really need the help. Watch it, Feds, or you'll have another revolution on your hands!
FOR THOSE OF US WHO REALLY CARE?
Write, call all you know and tell them this------BERNIE MADCOM has a plan to fake his death while in jail------or prison. Remember how ENRON big fish KEN LAY got away? Well for him to be dead right now is just a HOAX of all HOAXS. The judge did that bunch a favor and the same can happen for BERNIE and his BUNCH of BANDITS if we allow it. DEATH WATCH of ole BERNIE by three Navy Seals will stop it.
If this proves out to be true, t the Us Attorney's Office is just as greedy and dishonest as the Madoff Gang.
And yes - Ruth and Peter need to be tried in a US Court of Law ASAP. There is already ample evidence of conspiracy to defraud and sharing in the proceeds of that felony.
Who is the US Attorney in NY? Would love to know that one.I just read my new Vanity Fair, which has several articles about the Madoff's. It almost sounds like Ruth could be the brains behind this.
I'm sorry Madoff is going to jail - I'd like to see him have to walk around free - never knowing when or if one of his victims would retaliate. I'd like to see him living on Social Security and trying to find a place to live.....
carolhill814--why are you surprised that Jews prayed upon Jews. Italians pray upon their own, Christians, Muslims, you get the picture. You aren't racist or biased are you?
So far the IRS says "gains" from Madoff investments over the years will not be returned or even writen off now the US attorney wants to keep any money recovered.It's strange but it feels better being screwed by Bernie & Ruth than the SEC and the so called upholders of our constitution.
Thank you, Ms Franks, Thank you Ms Brown for employing Ms Franks.
An opera about Mr Madoff & associates could feature a singers billed as The Rey Gonif Singers. Ms Franks would be ideal to review & advise the composers & writers as they create this opera. An opera about Bernie Madoff could be compared to "Nixon in China". Who will be the Kissinger in a Madoff opera? There are bound to be interesting charaters in a Madoff opera.
How will the Federal Investigators be handled? Will they be 21st Century Keystone Kops or get a more serious treatment? Opera is difficult to create. Playing the Feds as fools could work. There is room for stereotypes in both serious & comic opera.
I would bet money (if I had any) that Ruthie has accounts and maybe a passport or two under fictitious names, just incase. With all that money and motivation; there's no telling with these Agents of Evil. I would also submit, that the reason Ruthie has yet to be charged, is that the attorneys are working their 'magic' to keep Ruthie's money flowing, so that they will be certain to be paid a nice 'upfront' sum.
It times like these we need Elliot Spitzer to dig us out of this mess!
I think people are jumping to conclusions about the U.S. Attorneys office wanting to "keep the money." First off all, there is no attribution to that claim so its credibility is questionable. Second, who knows the full context. Its going to cost US TAXPAYERS hundreds of millions of dollars to investigate and prosecute all the Madoff-related investigations and criminal actions. Maybe they want to make sure that us taxpayers are made whole for our investment in fixing this mess before the remaining money goes to the pool of victims. Is that so unreasonable or should taxpayers effectively be subsidizing the victims efforts at restitution, even more than we already are to the tune of up to $500,000 a piece.
Nice piece, Ms. Franks. Keep 'em coming!
As the net gets wider, I just get sicker and madder because, like so many others, we have lost over half of our retirement savings due to the greed of people like the Madoffs who intentionally frauded thousands of people, robbing them of a decent future. All of them need to be stripped of every asset they accumulated.
A source close to the case says "they are going after family and associates with a vengeance, but in their own way, by indirection." How strange! Is there a method to this "indirection" or have they been paid off by the Madoff familiy to investigate inefficiently? Oh, they wouldn't themselves be corrupt, would these feds?
If Ruth had any decency she would voluntarily do everythig possible to make restitution to the people her family's business defrauded, whether she knew it was happening or not.
It is possibly she didn't know, though it is hard to believe. She has the right be presumed innocent til proven beyond a reasonable doubt she is guilty.
At least people are now asking questions, instead of pretending to know how Madoff made his money through split-strike conversion theories that were impossible to recreate.
People are asking the questions, that should have been asked decades ago, which will lead to the most important question, how could this be possible.
There is no way 2 or three people or an army even, could have really done this, if they hadn't duped SEC.
So the answer is free food gift certificates (tax deductible), for everyone in America who is taking accounting, cause if everyone did accounting better, it would be a better world. And as the Enron guy would say "ask why".
I agree with Nancyre.
Thank you.
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