Chip East / Reuters In a Daily Beast exclusive, one of the fraudster’s employees tells Lucinda Franks that the supposedly legitimate brokerage operations were in fact just money-losing fronts for the fraudster's scheme. Plus, what Madoff’s sons told staff the day after Bernie’s arrest, trips to the company’s secretive 17th floor, Bernie’s obsession with the color black and employee neatness, the roles of other family members, and visits to the founder’s Montauk home.

An employee of Bernard Madoff’s legitmate brokerage operations, which were described by the fraudster in his plea agreement as being “successful and profitable,” has told The Daily Beast that they were in fact money-losers that acted as a front for his Ponzi scheme.

He said that these businesses, the proprietary and market-making arms on the 18th and 19th floors of Madoff Securities, were designed to lure investors in, especially highly placed figures in society, and to fool the SEC into thinking that he had a large and impressive galaxy of businesses.

But behind the façade, these businesses were a shambles. They were excessively staffed with grossly overpaid people, and run with marked inefficiency, he said.

“I keep thinking about the 90-year-old man who lost even his house and is bagging groceries. Then I think of the fact that I may have gotten paid with his money."

The employee, who did not want to be identified because of possible lawsuits or threats by victims, was a member of an elite group that designed sophisticated computer-trading programs. His identity was verified by consulting the Madoff employment roster, where he was listed. He also has an employment confirmation letter and a letter of reference from the Madoff firm.

His description of how the legitimate arms of Madoff Securities were run sounds like a skit out of Monty Python. “The three managers who ran parts of the businesses were getting $500,000 to $750,000 a year and they didn’t even know anything about modern computerized trading,” the employee said. They knew only the antiquated methods of talking to clients and trading in the stock market by phone. They mostly socialized, read the news. They would have been unemployable on the outside.”

The employee learned the salaries of his colleagues when he secretly obtained a document listing them. “A senior computer programmer would make $350,000, where in most comparable firms they would be getting $200,000 to $250,000. The customer-relations people, who just handled complaints from clients, were making six figures. There wasn’t anyone who wasn’t paid in the hundreds of thousands,” he said, adding: “There were twice as many people as were needed and there was rampant inefficiency.

"The company could have been profitable but the Madoffs didn’t seem to care. The business model made no sense,” said the employee. "In actuality the trading groups were generating profits and the company had enormous potential."

The employee was part of a trading group, which was able to break a security code that he says led them to a site that was supposed to be seen only by the Madoff family. It showed the profits and losses of the legitimate businesses. Even in years when they grossed $25 to $50 million, they calculated in the outlandish costs and thus concluded that the firm barely broke even and some years lost money.

Sources in the Madoff investigation confirm the losses that the employee described to me. We sat across from each other at a long black table in the house of an intermediary who arranged the interview. He was nervous, swallowing, hesitating, reluctant to talk. But when we got started, he spoke freely and even eagerly about his strange experiences with the Madoffs.

ANDREW AND MARK MADOFF’S ROLE
In contrast to most Wall Street trading firms, where traders work hard and the atmosphere is intense, tumultuous, and fast-paced, Andrew and Mark Madoff, Bernie’s sons, ran the operation “like a peaceful valley,” he said. “Cursing or shows of emotion were not allowed. Once, this guy slammed down the phone and after he was reprimanded, the brothers called everyone together and said such behavior would not be tolerated and anyone who damaged equipment would have to pay for it themselves."

"The sons were not around a lot," he continued, "but when they were, they were nice guys, good to their staff.” This employee worked there for four and a half years, and left in mid-2007, before the Ponzi scheme was revealed. Why did he leave? “I wanted more freedom, but also I just didn’t like being part of a firm that didn’t make sense.”

Employees who had lost money complained to him and Andrew said: "I’ve been advised by my lawyer not to make any statements." Then he added "You're not the only victim here."

The day after Bernie was arrested, Andrew and Mark came to work, surprising everyone. Staffers who had lost money complained to him and Mark said, according to a friend of the employee: "I’ve been advised by my lawyer not to make any statements." Then he added "You're not the only victim here." (Noteworthy, as it suggests the brothers must have gotten a lawyer right away.)

Regulations require a company to preserve all emails and firms normally archive them in the hard drives of their computers. But Madoff, the employee said, had ordered that all emails be printed out and then deleted.

‘NEVER DAWNED ON ME’
Did he think something was fishy? “It never dawned on me that Bernie was running a criminal operation down on the 17th floor. I thought he was just a quirky guy. Now, in hindsight there are a lot of things that point to illegal activities. The emails, for instance, were clearly handled that way so that nobody could access them. They didn’t want any record if someone got suspicious and wrote so to a colleague, for instance, or you pressed the search bar and the word Ponzi came up.”

The salaries, said the employee, also in hindsight, were so large because Madoff wanted to keep people happy; he wanted allies in case they found out what was really happening. “Nobody left because they could never get another job that paid as well as this one. Some people, after his arrest, speculated that it was kind of like hush money; nobody asked any questions because the Madoffs were nice, protective, generous.

"The Madoffs had all of us out to Montauk for yearly weekends. We didn't go to their houses but they put us up in hotels. They had a barbecue lunch on the sand and a formal dinner under a tent at the yacht club. On Sunday they took a small subset of employees on a fishing trip.

"It was a family affair, everyone brought their spouses and children, but on the beach, the Madoffs socialized with themselves. The employees stood apart.

THE SECRETIVE 17TH FLOOR
The employee says he only saw the 17th floor, where the fraudulent Investment Advisory operation was located, about two times. He noticed the out-of-date computers and the old-fashioned dot-matrix printers that printed out paper with green and white stripes. The computers he saw were about 15 years old, including one system that “is not even around anymore—miles away from modern Windows technology. And the statements I've seen from victims don’t look like my statements from Fidelity. They had primitive typefaces, as though they had been typed on a typewriter. Nobody sends statement like that, so maybe it was done to create the illusion of old-fashioned transparency.”

He learned that those who staffed the 17th floor were less than knowledgeable, often uneducated, often appeared incompetent. “There was this one guy, who had worked there his whole life who generated the statements but he would often not get them out on time.”

Looking back, he speculates that the faked statements were essentially done manually. He thinks two people did research as to what a blue-chip stock historically traded for and a similar price was chosen and the fake trades entered into a computer, the statements printed out and sent to unsuspecting clients. “I wonder whether everyone’s statements were basically the same, just varied a bit, because if they weren’t that would be a lot of work for the employees down there.”

Annette Buongiorno’s unit was in a separate part of the office. Two assistants who worked for her have reportedly told investigators that they were told to help generate the false trades.

“Everything had to be black. The computers, the tables, even the picture frames. If he saw a kid’s picture in a silver frame, for instance, he would order the offender to get a black frame.”

The firm’s odd way of being run was chalked up to Bernie’s quirkiness. “We just thought he was a brilliant eccentric man.” The 17th floor, for instance, to the shock of the employee, was messy. Papers strewn on desks, people in jeans, a sense of organized chaos.

BERNIE, ‘OBSESSIVE COMPULSIVE’
“Yet take the 18th-and 19th-floors: Bernie was obsessive compulsive about the floors where the legitimate businesses were,” he said. “Everything had to be black. The computers, the tables, even the picture frames. If he saw a kid’s picture in a silver frame, for instance, he would order the offender to get a black frame. If you had a jacket over the back of your chair, he would take it off. He went down the row of windows and made sure that the slats were all at the exact same angle. You couldn’t have any paper on your desk.“

“I had these huge cheap gray headphones and Mark said to me ‘Those headphones are gray and you can’t wear them.' So he bought me these expensive pair of Bose.”

“Now that I look back on it, I wonder whether he wanted the proprietary and market-making businesses to appear perfect, to create the impression that they was really profitable and legitimate.”

Why was the messy 17th floor so antithetical to Bernie’s weird passion for neatness and uniformity? "Maybe he just didn’t care,” said the employee, “as long as they did their job. He let Frank Di Pascali run it.” Di Pascali, a longtime Madoff employee, has reportedly refused to talk to investigators. “He was a very off-putting man,” the employee said. “Rough, not very friendly. He had a thick New York accent, not a very cultured manner. When we were at one of the Montauk beach parties, his son was there and he used the word ‘Guinea’ to describe him.”

Bernie was only around about half the year, according to the employee: “The other half he spent at his houses in France, Palm Beach, wherever he and Ruth landed.”

The 19th floor, where the employee worked, was where the proprietary-trading business was located. The 18th-floor stored all the trades and the emails, and of course the 17th floor was the nexus of the Ponzi scheme. “But the three businesses seemed comingled. There were two men on the 18th floor offices who I think knew what was happening,” said the employee. “They made huge salaries. The 17th floor not only produced the falsified statements, they did the accounting for our office on 19. Emails of both the legitimate and illegitimate businesses were handled and stored on the 18th floor.

What should have been a red flag, the employee said, was that the 17th floor’s statements detailing the financial output of his four-man computer unit often did not match what they calculated for themselves. “They screwed up a lot and were not technically sophisticated. And in that business, you have to be accurate, you have to know what you are doing.”

ROLE OF OTHER MADOFFS
When Bernie was away, were members of the family the ultimate bosses who oversaw the illegal operations that Di Pascali allegedly ran? Some employees are wondering now whether they were because, outside of Mark and Andrew, none of them seemed to do what they were ostensibly hired to do. “I didn’t even know that Peter (Madoff’s brother) was the firm’s compliance officer,” the employee said. “I never saw him doing compliance. He was more concerned with making sure that the firm could run business out of their office in the Bulova building if a disaster occurred.” The building, near La Guardia airport, where Madoff had offices, had office systems that were duplicates to those in their offices in the Lipstick Building. We had these drills where we had to drop everything and rush to the Bulova building. A lot of money was spent on this duplicate office.”

“Shana Madoff , the compliance legal counsel, Peter’s daughter who was married to an SEC compliance officer, only spent half time in the office. When she was here, she seemed to work on human resources rather than compliance.”

Ruth was the firm’s bookkeeper: “But I only saw her walk through once or twice,” Some friends of the employee, in hindsight, have said that Andrew and Mark must have known or suspected that things were not kosher. “They were educated guys, one of them had gone to Wharton, I think. They saw the balance sheets. We were making no money, some years losing it, and the brothers, I heard, were getting $4 million annually. That just didn’t track.”

“But I don’t want to believe that they knew or were involved,” the employee said. “I believe they're innocent. They were really nice guys, they looked very straight. They treated me well even though as a computer programmer, I didn’t command the respect the hotshot traders did. When I told them I wanted to leave, Andrew tried to persuade me to stay and when I declined, he let me work only four days a week so I could start up my computer business.

‘IT WAS GOOD TO WORK FOR BERNIE’
“We all joked that the motto of the place was that ‘it was good to work for Bernie.'

“We assumed Bernie was a billionaire and we didn’t understand why he didn’t leave his money in safe investments and just collect interest. Why did he support this lousy business? It didn't seem worth it for a billionaire.” In court, Madoff admitted that at one point he put $250 million of clients’ money into the legitimate businesses.

“But it was drummed into us that Bernie was into positions for the long haul, that he believed the stock market was cyclical and that eventually what was down would come up. So I thought that Andrew and Mark just believed what their father said and followed his philosophy. If he wasn’t bothered, why should they be?”

When asked how he felt when the Ponzi scheme was revealed, the employee became silent. "At first I was detached. I didn’t have relationships with the Madoffs like lots of others did. I had no emotional connection."

He looked down. "But now, I keep thinking about the 90-year-old man who lost even his house and is bagging groceries. Then I think of the fact that I may have gotten paid with his money."

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Correction: A previous version of this story incorrectly attributed a statement to Andrew Madoff; it should have been Mark Madoff.

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.