House Arrest
THE MAÎTRE D’ HEARD SCREAMS, THEN SOBBING.
It was late afternoon on Thursday, December 11, and lunch in the main dining room of the Palm Beach Country Club came to an abrupt halt. Bridge games were abandoned, meals were forgotten.
The news of Bernard Madoff’s arrest had begun to spread among his thousands of investors. There had not yet been any public announcement from the FBI, and the news had not yet hit the wires or cable TV, but whispered phone conversations that began from inside Madoff’s New York offices quickly spread the story to Wall Street, across the country, and around the world. The whispers turned to cries of disbelief and then to shouts of anger and then tears born of fear.
The members of the Palm Beach Country Club were in a panic. Bernie and Ruth were prominent members of the club. It had been considered a sign of status to be “accepted” by Bernie as an investor. They had entrusted their fortunes to him and now he was under arrest for securities fraud.
At Madoff’s office, the phone lines were jammed as investors tried to find out what had happened.
Eleanor Squillari had come into the office around 7 a.m. that morning. She liked to be in early to get a jump on the day and organize her boss’s daily calendar. His schedule for this day appeared to be completely free.
At 7:30, there was a strange phone call from Ruth about her sons, Mark and Andy. Eleanor says that Ruth asked her “if I saw the boys yet. And the hairs on my neck went up. She can call them on their portables, but she asked me.”
Mark and Andy had not attended the previous evening’s office Christmas party, and that had also struck Eleanor as strange. She had no idea that Mark and Andy had gone to the FBI to turn in their father.
Now their mother seemed desperate to know where they were. Eleanor looked into the trading room on the nineteenth floor where Mark and Andy normally were stationed by 7:30 a.m. She told Ruth she didn’t see them.
“And then I heard her say to who I think was Bernie, ‘They’re not there.’ I knew something was wrong,” Eleanor recalled.
A short time later, Eleanor went down one flight to see her friend Jean, the receptionist on the eighteenth floor, the firm’s main entrance. The nineteenth floor was the location of Bernie’s office and the seventeenth floor that was the legitimate arm of the business. The seventeenth floor was the center of the Ponzi scheme in a room with highly restricted access.
She saw Bernie’s brother, Peter, in the conference room with men she did not recognize. “What’s he doing here?” she wondered. “Because Peter never gets in that early.”
Jean told her, “They’re lawyers.”
“And then a man comes storming in,” Eleanor recalled. “He’s in a trench coat and he flashed his badge, typical FBI look.” It was Ted Cacioppi, the agent who would arrest Madoff half an hour later.
“I went running to Peter, who never looked up. And one of the men just said, ‘We’re expecting him.’”
Eleanor returned to the nineteenth floor. “I just sat at my desk, knowing something horrible was happening. I thought it was an extortion, I thought it was kidnapping.” As the morning went on, Annette Bongiorno called Eleanor “an unusual amount of times” looking to talk to Bernie. She was one of the people regarded by investigators as part of the inner circle that carried out the criminal scheme. She seemed desperate to find Madoff.
Eleanor placed several calls to her boss on his cell phone, but there was no answer. She did not know that he was already in handcuffs, placed under arrest by the FBI.
She finally found out what was happening when Peter’s secretary, Elaine, overheard her boss talking.
“Peter’s telling people that Bernie was arrested for securities fraud,” Elaine reported.
“I was like, no, it can’t be, it just can’t be. What are you talking about?” Eleanor said.
Peter looked like a defeated man. “Peter did not seem surprised,” Eleanor recalled. “The shoulders slumping, he just looked beat. I saw Peter at his worst after this happened and he was just a basket case.”
Peter had seemed fragile to people in his office since the death of his son, Roger, from leukemia in 2006. Now his brother was under arrest, and he was left in charge to explain the situation, even while he must have been pondering his own fate. Peter was the firm’s compliance officer, and his daughter, Shana, was a compliance lawyer for the firm. Their job was to make sure that all business conducted at the family firm was legitimate. Many firms prohibit the family members of top executives from serving as compliance officers because of possible conflicts of interest, but not Madoff. Peter spent hours in his office that day sobbing, with his head in his hands.
Annette arrived on the nineteenth floor, still looking for Bernie after all her phone calls.
“I told her to go see Peter,” Eleanor remembered. After a brief conversation with Peter, Annette “made a beeline for the elevator, never looked at me. I never spoke to her again. She just left. That was it.”
For Eleanor, Annette’s reaction spoke volumes. “How do you not be in shock and say, ‘What the hell is going on?’ I’d known her for twenty-five years. How do you just walk right past me and leave?” It was a reaction that would make sense if you’re afraid you might be the next one to be arrested.
Then Madoff’s other right-hand person on the seventeenth floor, Frank DiPascali, arrived outside the executive offices. Madoff had apparently spent much of the previous afternoon on the seventeenth floor with DiPascali, in one of two rooms marked DO NOT ENTER and DO NOT CLEAN.
DiPascali’s reaction to the news was different, but just as strange as Annette’s, according to Eleanor. “His hands were shaking and he walked up to Peter. He goes, ‘Uh, so what’s going on?’ And Peter said, ‘Bernie was arrested for securities fraud.’ And he went, ‘Oh, yeah?’ and turned around and left. Just nothing seemed right. But then, nothing was right.”
DiPascali returned to the seventeenth floor, the operational headquarters of the scheme, where the documents and incriminating files were kept. The phones were already ringing off the hook, but he ordered that “no one answer,” according to a former employee. Later he and Annette prepared a “script” for seventeenth-floor employees to use in dealing with worried clients. Soon, most other employees left, and for the remainder of the day of the arrest, and early on the next day, Friday, DiPascali would be free to do whatever he wanted on the seventeenth floor. According to a former employee, the FBI had sealed off the premises and shut down the computers by Friday morning and all employees “were herded to the eighteenth floor.”
As the day went on, the volume of phone calls from distraught clients overwhelmed Eleanor, Elaine, and others trying to help. “And we were all taking turns because you would get sick after fifteen minutes,” Eleanor remembered.
As they called in, seeking reassurance that the news was wrong, that their money was safe, Eleanor did not know what to say. She still believed there had been some “paperwork mistake” and that everything would be sorted out. She couldn’t reach Madoff and finally decided to ask DiPascali. He was by himself on the seventeenth floor talking on his cell phone.
“Frank, what are we gonna do? What am I supposed to be telling people?” she asked.
He looked at her for a moment and then said, “Tell them nobody’s available,” and went back to his cell phone conversation.
Calls were coming in from around the world. One of the first calls was from Jeff Tucker, whose investment firm, Fairfield Greenwich, had steered billions of dollars of its clients’ money to Madoff. On the day of the arrest, Fairfield Greenwich clients thought they had $7.2 billion invested with Madoff.
Some friends called to support Madoff. James Davin of Davin Capital Corp. sent a fax addressed to Ruth and Bernie. “If there is anything we can do to be of help, it will be done.” It was signed, “Jim and Tina.”
By early evening, the initial, sketchy reports about the arrest were beginning to show up. The Wall Street Journal published its first report about Madoff’s arrest at 4:25 p.m.
At Elaine’s, the legendary Manhattan restaurant and club, then ABC News reporter Rich Esposito stared at his BlackBerry. There was little that happened in the criminal world that wasn’t known to Esposito and the other reporters, cops, private investigators, and defense lawyers who were part of the regular crowd. There was no talk yet about the Madoff case and the owner, Elaine Kaufman, who knew almost anyone worth knowing in the city, had never even heard of Madoff. Nor had Esposito, a veteran police beat reporter, until a cryptic message from the FBI came through on his BlackBerry announcing Madoff’s arrest in a $50 billion investment scam.
“Must be a typo,” said one of Esposito’s colleagues. “Maybe they forgot the decimal point. Must be $5 billion, couldn’t be $50 billion.”
Esposito sent a message back to get the real figure.
No, the reply came, $50 billion was correct. The man under arrest had given the FBI the number himself. And he was the former chairman of the NASDAQ exchange.
“If all that’s true,” said Esposito, “it would be the biggest financial scam ever. Ever.”
It was well into the evening, but Esposito and reporters all over New York were beginning to scramble.
Later that Thursday night, ninety-five-year-old Carl Shapiro was at home in Palm Beach, in his luxury condominium next to The Breakers hotel, when his son-in-law, Robert Jaffe, called and told him to turn on CNN. Shapiro had just given Madoff $250 million in cash for what was to be a “nice, short-term investment” to help Bernie through the financial crisis.
The news about Madoff from Anderson Cooper was not reassuring. He was speaking over “Just In” news footage of Carl’s old friend Bernie coming out of the federal courthouse in New York City in a driving rain.
“Some late news, very strange and troubling news out of Wall Street tonight. Former NASDAQ stock exchange chairman, Bernard Madoff, out on a ten-million-dollar bond tonight; there he is. He was charged today with securities fraud,” said Cooper.
It got worse.
“The federal complaint accusing him of conning clients in his investment firm out of billions of dollars; what’s more, the complaint alleges that yesterday Mr. Madoff told senior employees that the company was, quote, all just one big lie. And, quote, basically, a giant Ponzi scheme. No immediate comment from him or his attorneys.”
By Friday morning, it was clear that Bernie Madoff was under arrest for a lot more than some vague “securities fraud” or paperwork problem. This was no “failure to file SEC reports” or “failure to register.”
There were no more calls and faxes in support of Madoff at his office. It was getting ugly, and Eleanor Squillari was now starting to have doubts about her boss of twenty years.
She was in early again from her home on Staten Island, and the first call came from Ruth Madoff. Ruth said she urgently needed the PIN number of her husband’s cell phone so she could divert the phone bills from the office to the apartment. The company would not change the billing address without the PIN number. Eleanor immediately knew that Ruth and Bernie were up to something.
“Bernie lived by his phone. He always had to have his phone,” she recalled. In fact, even when he was in the office, he would use the cell phone for the most sensitive calls. Now he wanted to make sure the bill and the records of who he had been talking to over the last month came to him at his apartment.
“I didn’t know the PIN number, and the person who did know the PIN had just lost their entire fortune,” Eleanor noted. She couldn’t bring herself to call the employee, Amy Joel, for the PIN number even though Ruth was pushing hard. “And Ruth called again, and again, and she was very insistent about getting the PIN number. This was a big deal for her.”
Eleanor was getting a bad feeling. She had tried to be optimistic. She had tried to deny the growing doubts. She still didn’t believe what was being said about Bernie on television. She did not realize the truth until she finally talked with Madoff later that Friday. It was a conversation she still could not recount without breaking down in tears.
“How are you? How’s Ruth?” was the first thing she asked him. “It was a very short conversation. I didn’t know what to say.” She did not ask him if the allegations were true. “At that point I didn’t believe it and I just felt so horrible for them, and scared.”
Madoff talked in a low voice, but seemed to be eerily calm. “He even called me ‘sweetie,’ which he never does.”
But then as he began to speak, the pieces started to fall together for Eleanor.
“He didn’t say, ‘Eleanor, how are you? What’s going on with the clients? Eleanor, we’re gonna straighten this out,’” she said.
Instead, Madoff was solely concerned with what the FBI had found in his office.
“All he said was, ‘Anybody been in my office? Have they gone in my briefcase? Have they gone in my diary?’ That’s all he wanted to know. That was it.”
Now Eleanor was in tears. She knew her boss and knew what he had done. The briefcase he always took with him was missing. It was a black leather file case with a long handle and wheels, like the kind used by lawyers and pilots. Bernie kept files on the accounts and the “feeder funds” in the case and traveled with it everywhere. In its place that morning, said Eleanor, was a vinyl substitute that looked like, but was not, the original. Other items left in his office seemed conspicuous by their presence.
“He planted things for them to find,” she said. Eleanor said Madoff was pleased to hear that the agents had gone through his office and his desk.
Among the discoveries were signed checks for $173 million that Madoff had made out for employees and certain investors. His secretary is convinced that Madoff never intended to send them out and that he just wanted them to be discovered so it would reflect well on him. Madoff told someone later that he wanted “to take care of the poor bastards” who he knew would soon be unemployed. Madoff’s lawyers told the FBI where to find the checks in Madoff’s desk.
“It was all just part of the setup. He had to convince his sons that he was having a nervous breakdown or that something was not right and he was gonna do a good thing.
I think he wanted to look better. He needed sympathy, he needed everyone to say, okay, he was gonna try to take care of them.
“I told the FBI, if he’s trying to convince anybody that he’s losing it, come and talk to me because I know he was [as] calm a cucumber up until the day of the arrest,” she said. “He is so good, we know now, at manipulating everybody. In the entire world.”
It was during that brief phone conversation that Eleanor says she came to believe her boss was a crook. She is no expert, but her perspective about her boss’s behavior is remarkably similar to the analysis by former FBI agent Brad Garrett.
“If you are as egocentric as people like Mr. Madoff are, then you’re going to think you can control the court and control the prosecutors and control the whole situation by getting out in front of them and starting to manipulate,” explained Garrett.
Madoff remained in control, reading the morning papers and watching the news at his nearby penthouse apartment. His visitors over the next few weeks saw “absolutely no sign of emotion” from Madoff. “He was just somebody who had stepped back from his inner soul,” said Nick Casale, a former New York City police detective whose firm was hired to provide security for Madoff and make sure he lived up to the terms of his bail. “He was almost blank, he didn’t show emotion. A serial killer type.” Madoff methodically made a list of the school and charity boards from which he would now have to resign.
He continued to enjoy his favorite cigars from Davidoff and spent his evenings at his computer or watching old movies with Ruth in one of two dens in the duplex apartment. Madoff and his wife were accustomed to walking around at night naked but they had to adjust once Casale’s firm installed surveillance cameras in the apartment. The arrest was barely mentioned in Casale’s presence and Ruth tried her best to act normally. “I never saw her get angry with him,” said Casale. “She was not only losing her husband to prison, but she was losing her status in the community and her wealth and her position, her lifestyle.”
As he waited for his lawyers and federal prosecutors to negotiate a plea deal, Madoff remained an arrogant, aloof, heartless man who, to many, seemed to actually take pride in this monumental fraud that had fooled so many on Wall Street. “He did not seem like the most contrite person I ever met,” said Casale, who spent hours with Madoff in the apartment. There was no sense of shame. Bernie might have come from the outer borough of Queens, but he had played with the big boys in Manhattan.
“One of the key points with him is that he wanted to be king of the mountain. That’s extremely important to people with antisocial personality problems because it’s a control, it’s an ego thing,” said former FBI agent Garrett.
Similarly, Ruth didn’t seem to be affected by the extraordinary amount of pain Bernie had caused so many people. Instead, she spoke with disdain of “the gentiles” she felt were enjoying her husband’s downfall. She complained to another member of the family that the courts freezing the Madoff family assets on behalf of the victims were unfair because the judges were elected and had a bias for their constituents.
Some legal system, Ruth said, as if she and Bernie were the aggrieved victims.
At the same time, Ruth asked Bernie’s secretary, Eleanor, to help her pay a bill for the family yacht, the $7 million Bull, moored at Cap d’Antibes on the French Riviera. Ruth told Eleanor the authorities and the bankruptcy trustees “don’t have to know about this,” Eleanor recalled. She ignored Ruth’s request.
“I just went to the FBI and I said, I think they’re trying to escape. I told them about the boat thing. I just didn’t get back to her,” Eleanor recalled. She was through being conned by the Madoffs.
While they didn’t talk much about the people Bernie had hurt, the Madoffs did seem obsessed about the photographers waiting outside their apartment. Until he pleaded guilty, the only apology issued by Bernie Madoff was a note to other residents in the Sixty-fourth Street apartment building, regretting the disruption caused by the photographers, reporters, and satellite trucks that surrounded the building. Bernie thought that people who had paid $5 million to $10 million for an apartment certainly shouldn’t have to put up with that.
Please accept my profound apologies for the terrible inconvenience that I have caused over the past weeks. Ruth and I appreciate the support we have received.
Best regards,
BERNARD MADOFF
His investors never received any such written apology from Madoff.
He ignored all requests for interviews, including one hand-delivered by the doorman from fellow building resident Matt Lauer.
And Madoff went to great lengths to dodge photographers as he went to and from court, peppering Casale and his security team with thoughts on how to get a van with black windows to block the photographers, “and then they can’t snap my picture in the car,” and also “discouraging them from blocking the entrance to the building.”
His house arrest had been part of Madoff’s plan as he had orchestrated his confession to his sons back in December. At first, prosecutors thought Madoff would be a fully cooperating witness who would help them understand what happened to the money. To the outrage of his victims, the government did not object to him being released on bond. He was required to pay for twenty-four-hour coverage by Casale’s private security firm.
On Christmas Eve, at about 5:30 p.m., right after Casale and the court-ordered security guards had left the apartment, Bernie and Ruth had another trick up their sleeves: Ruth went to a nearby post office jammed with last-minute holiday business. Paying in cash, she mailed five large white envelopes, uninsured, with no return address, to the Madoffs’ two sons, Andy and Mark; Madoff’s brother, Peter; Madoff’s sister-in-law; and one to old friends. Inside the envelopes were some of the family’s precious jewelry, bought and paid for with money stolen from clients. One package contained thirteen watches, one diamond necklace, an emerald ring, and two sets of cuff links, altogether valued at approximately $1 million.
Bernie enclosed a note to his sons.
Dear Mark and Andy,
If you can bear to keep these watches, they are given with my love. If not, give them to someone who might.
Love, Dad.
When their sons received the jewelry and the note, they called their lawyers, who called the FBI.
Ruth and Bernie maintained they were just sending “sentimental personal items” as gifts. Investigators and agents took a different view. Prosecutors began to realize they, like so many others, had made a mistake trusting Madoff. It appeared that the Madoffs had violated court orders and were trying to furtively distribute some of their wealth into the hands of relatives before the victims or the government could get it.
But there was another theory. Some investigators believe they sent the jewelry to the sons so they could turn it in and further establish their credentials as the “good guys” in the scandal, not at all in league with their father. One veteran investigator likened it to how a spy who knew he had been compromised would arrange for another spy in his cell to turn him in to deflect attention.
A federal magistrate accepted Madoff’s innocent version of events—that it was just some small trinkets, personal items. The magistrate concluded that Madoff had not acted to hide his wealth, and that his sons had done the right thing by reporting the episode to the FBI. Prosecutors got nowhere when they attempted to cite the Christmas Eve mailings as proof that Madoff should be locked up.
Prosecutors had already begun to realize that Madoff had no plan to cooperate fully. After the first “confession” in December, Madoff was never again permitted by his lawyers to speak with FBI agents. He was sticking to his story that he did it “alone,” which, given the enormity and complexity of the fraud scheme, the FBI was discovering could not possibly be true.
“He gave the FBI a sack of shit,” said one investigator familiar with Madoff’s apparent strategy. “It was Bernie saying, ‘I stole fifty billion dollars, now you can go figure out what you want to do.’ This will take years to unravel.”
When prosecutors moved to have Madoff jailed, his lawyers arranged for Casale’s security firm to come up with a plan to persuade the judge Madoff could be kept safely guarded under house arrest at his apartment.
Casale was paid $250,000 by Madoff for his efforts, with the prosecutors’ approval. Casale reported directly to Madoff’s lawyer, Ira Sorkin, and Madoff himself. It was a huge conflict of interest that even Casale acknowledged. He said that “if Bernie took off, I would certainly make a phone call, but it would not have been my job to tackle him on the street.”
Given that prosecutors say that all of Madoff’s money was stolen from his clients, this meant that his clients were, essentially, paying for the guards so Madoff could avoid jail and stay in his $7.5 million penthouse, which also was paid for with their money.