Diana B. Henriques, author of The Wizard of Lies: Bernie Madoff and the Death of Trust, expands on why Madoff decided to grant her two interviews from prison, whether his family knew about the Ponzi scheme before it unraveled, and what question she wished she had asked him.
Question: Why do you think Madoff agreed to speak with you?
Henriques: I have questioned myself about that a million times. One thing, I think — and I’m just playing armchair psychologist here — I knew of him before you had ever heard of him. I covered a number of stories for The New York Times, and even before that for Barron’s, where our paths crossed. I knew him when he was genuinely a respected statesman on Wall Street, and perhaps he felt that if he talked with me, I would see something more than just Bernie Madoff, the crook. I also had a long 25-year acquaintanceship with his defense lawyer, Ira “Ike” Sorkin. Ike had represented many earlier Ponzi schemers I had written about, and he had confidence in my fairness. I also think I owe a debt to my colleagues at The New York Times. Our covering of the Madoff case, especially our coverage of the role of Ruth, Mark and Andrew — Madoff’s immediate family — was fair. It was restrained, and it was founded on that principle of innocent until proven guilty. I think that gave him some confidence in talking with me.
But it is just the luck of the draw. The lesson for young journalists is never give up. I wrote my first letter requesting an interview to Madoff when he was held in jail in Manhattan before his sentencing. I just kept writing and never gave up. It took 18 months to arrange the first interview in August 2010. Obviously I didn’t wait on the book. I assumed that I would have to complete that book without Madoff’s help. So, I continued to work on it, which turned out to be a great boon for me. I think if he agreed to see me when I first asked him to, it would have been far less helpful to me. But because I had to do the 360-degree interviews and dig up every piece of paper and every acquaintance I could ever find — assuming I wouldn’t talk to him — when I finally could talk to him, I was better armed against his lies than I might have been otherwise.
Question: What do you think he thinks of your book?
Henriques: I actually know what he thinks of my book, or at least I know what he says he thinks of my book. You always have to make that distinction. What he says he thinks of my book is that he liked the vivid detail. He found it painful to read. He was grateful for the fairness I showed to his family. But he absolutely, positively disputes my conclusions about when his fraud began. I believe it started at least seven to eight years earlier than he claims it did. He claims it started in 1992, and I just do not think that’s credible. I explain in the book why I feel that way. You will draw your conclusions about whether Madoff is right to disagree with me. But he has remained in touch with me since he read the book, so it has not been so offensive to him that he has banned me to the outer darkness.
Question: You mentioned that Madoff was particularly good at exploiting fear and recognized all of our vulnerabilities. Do you also have a judgment as to whether he was particularly good at creating and exploiting social networks? If so, how?
Henriques: Well, in the old-fashioned sense of social networks, I would say he was a second-derivative user, if that makes sense. He cultivated people who were cultivated by others. The four big investors who really were the most salient magnets for peoples’ interest in Madoff were all relatively quiet people. Only one of them was involved in bringing in other investments. He did it sub rosa. That would be the late Beverly Hills investor Stanley Chais who set up the first feeder funds. But his investors thought he was managing their money. They did not realize Madoff was. Stanley Chais had his own widespread circle of followers in Hollywood and attracted people by word of mouth.
Similarly, each of the other three — Jeffrey Picower, a very private investor; Carl Shapiro, a philanthropist; and Norman Levy, a giant in the New York City real estate industry — near as we can tell, brought nobody into Madoff’s camp. They were all the pinnacles of a striving social network that wished to get close to them and emulate them. Madoff himself was not a particularly social man. Neither he nor his wife, nor his sons, maintained any high social profile at all. He was a late comer to the Palm Beach Country Club. He was a quiet golfer, didn’t hang around in the club much and didn’t party much. He didn’t use the social network — he got you to use the social network on his behalf, if that makes sense.
Question: You have seen many Ponzi schemers over the years. In your opinion, does Madoff [care] about injuring so many people, so many lives? Or is he more of a sociopath who really doesn’t care? Does he feel a little bit guilty or not really?
Henriques: As I say in the book, you must remember the peculiar nature of a Ponzi scheme. It is not like most other financial frauds, and it is far unlike most other wealth-transferring crimes. I stick a gun in your face and take your wallet; that’s an immediate transfer of wealth from you to me, and you know you have been robbed. But with a Ponzi scheme, there aren’t really any victims until the music stops. So throughout the life of this scam, until December 11, 2008, there weren’t any victims. As long as Madoff could keep enough money coming in the door to pay the withdrawals that were going out the other end — a Ponzi scheme, after all, is nothing but a liar with a bank account — and as long as there was enough cash coming in to cover the cash going out, there were no victims. It is the crime of the egotist, not the sadist. You don’t have to be dead to people’s pain to operate a Ponzi scheme because there isn’t any pain until it’s over. Then, of course, the wreckage is far and wide. I think there is evidence that he is beginning to acknowledge that.
When I met him in August, I did not get that sense. If you had asked me that question right after that August visit, my answer would be somewhat different. I would have said he is in complete denial about the pain he caused. Absolute denial. He is focused on the dollars and cents. He actually told me in that August interview that he was convinced that with the money they were going to get from the bankruptcy process and the money they “made with him” before the fraud was exposed, his investors were probably going to come out better than people who had invested legitimately in the market during the meltdown of 2008. Now that is just ludicrous, but he was focused on the dollars and cents. I, of course, looked at him, and said, “Do you know people committed suicide because of the losses that they experienced? A French money manager and a retired British major who was bankrupted by his losses. You can’t put that together again with money: the shattered families, the beloved homes that had to be sold, college educations that had to be interrupted. You can’t put that back together again.” It just had not occurred to him that way.
I visited him again in February, almost exactly two months after his older son, Mark Madoff, committed suicide on the second anniversary of his father’s arrest. I would not have recognized him as the same man. He had lost weight. He was grayer, he was shattered, with no hint of humor in his manner now. I believe he has at least begun the first steps of the journey toward some recognition of the pain he has caused. I do not think he was at all prepared for the way this crime would emotionally destroy his own family. He knew they were going to be financially ruined. He knew that. But I don’t think he ever dreamed that Ruth, Mark and Andrew would become the targets of such intense public vilification and that the emotional damage that they would incur would be so severe that it would drive Mark to suicide. I think he’s beginning to gain that understanding.
But I’m impatient with terms like psychopath and sociopath because they don’t really tell us anything. There are people with very similar character traits to a successful Ponzi schemer who merely become successful entrepreneurs. There’s a wonderful Swedish study from many decades ago that overlays the primary points of view and belief systems of successful thieves and successful entrepreneurs, and there’s almost a complete overlap. Madoff built a very successful wholesale stock trading business, a legitimate business that was known on the street as one of the pioneers in the modernization of the stock market. He was clearly a successful entrepreneur — and equally successful at running this fraud.
Question: How much knowledge of the scheme do you think his family had?
Henriques: My conclusion in the book, and I will ask you only to approach it with an open mind because I explain to you why I reached it, is that neither Ruth, Mark nor Andrew knew anything about his fraud until he confessed it to them. One of the bits of evidence I rely on for that conclusion is a cash crisis that Madoff experienced in the fall of 2005 where he was facing redemption demands of about $105 million from three investors and had $13 million left in his cash account. He was $92 million in the red and three days away from his fraud blowing up. He managed to forestall disaster by borrowing money through his legitimate brokerage firm, moving money through bank accounts and limping through the next eight months. But it wasn’t until June of 2006 that he actually was fully back in the black in terms of the fraud.
Yet during that period of time, members of his family continued to take out loans from the company, to cash out some deferred compensation from the company, and in general, to use the company as the private piggy bank it had always been for the Madoff family. If they were his accomplices, those were cash drains he absolutely could have prevented. You just call everybody around the dining table, and say, “Family, hold back, we are about to go under here.” But he didn’t. Also, on the day he confessed to his wife and his sons, he still had about $300 million in the bank. Nobody grabbed the keys to the private jet, emptied the bank accounts, packed the bags and flew off to some jurisdiction without an extradition treaty. Yet the alternative to doing that was to live in constant fear that you would be arrested and locked up for the rest of your life, as he was.
While his families members acted like people who were stunned by their overnight financial ruin, they did not act like people who expected the FBI to knock on their door any minute, which I found telling. Now, two and a half years later, we have to simply accept the evidence of the dog that didn’t bark. Neither Mark nor Andrew nor Ruth were ever notified that they were the subjects of criminal investigation by the prosecutors. Prosecutors have reached a civil forfeiture agreement with Ruth. Mark and Andrew, throughout the life of this investigation until Mark’s suicide, were represented by a single defense attorney. If they had been separately at peril in a criminal investigation, it would have been unethical in the extreme for their lawyer, Martin Flumenbaum, to represent them both. And you can just figure out the reasons yourself.
Question: Do you think he had an endgame plan as to how he could cash some of these people out?
Henriques: I asked him that because the Ponzi scheme, as a lovely reviewer put it, is the exact opposite of the perfect crime. It inevitably ends. It is a self-limiting crime. I said to him, “Bernie, it was a Ponzi scheme. How on earth did you think it would end?” I’ll leave you to the book for his full answer. But the short answer was, “I kind of thought something would happen.” Now I think we have to accept that the criminal mind that could conceive of a Ponzi scheme is not really tethered to logic and can possibly conceive getting away with it. But he said it never occurred to him to flee. It never occurred to him to try to cash out early and escape. He somehow thought he would get away with it — or the world would end, and everybody would be gone and he would never have to face the reckoning.
Question: What’s the one question you didn’t ask him that you wish you had?
Henriques: Well, I had more than four hours of interview time with him and five months of email exchanges. The one thing I wish I had pressed him on further, I don’t think he would have answered because he didn’t when I attempted it in February. I wish I had pressed him further on that emotional component, how he felt about things. Now, having said that, I should say this is a very un-self-reflective man. No one given to great introspection can carry out a crime like this and stay sane for the 20 years or so that he was conducting it.
But in that February interview I began to sense that we were getting closer to a time when you might get something fruitful by asking him those questions. But I just didn’t feel like we were there yet. I don’t think he knew why he did it, except he was beginning to see that he had this almost pathological fear of admitting failure. In fact, he did not even admit failure in his Ponzi scheme to me. In that August meeting, he insisted that he could have kept it all going despite the meltdown in 2008. There were people who wanted to give him money. There were people who wanted to continue to invest.
It wasn’t that he was defeated by the market and that he failed at running this massive Ponzi scheme. He just got tired and quit. It’s like the employee who says, “I wasn’t fired, I resigned.” Well, that was Madoff’s explanation for why his crime finally ended. Not that he had failed at anything, but that he had just gotten tired of the tap dance and had quit. I wish I had thought he was more self-reflective, and I would have liked to have explored some of those topics with him. But as to the factual material, I pretty much got all of the questions out that I believed he would answer me with any degree of honesty, or whose answer would be instructive whether it was honest or not.