Issue # 17: "He became a lightning rod for all that anger that nobody else was going to pay for"
A conversation with award-winning financial journalist and author, Diana Henriques.
On this day one month ago, the memory of a painful chapter in financial history resurfaced with the news of Wall Street fraudster Bernie Madoff’s passing. He was 82. Once one of America’s most powerful and respected financiers, Madoff’s legacy would be defined by the vicious 17-year Ponzi scheme he orchestrated—the largest in history—that resulted in paper losses totalling $64.8-billion and ruined the lives of thousands of people. His actions also left a devastating toll on his closest family members including his sons Andrew and Mark, and his wife Ruth—none of whom were privy to his crimes but whose reputations were destroyed nevertheless. Madoff, in turn, was handed a 150-year prison sentence. Diana Henriques is an award-winning financial journalist who, as a staff writer for The New York Times, covered Madoff during the height of his success and also documented his dramatic fall which began with his arrest on December 11 of 2008. Her reporting, which included extensive in-person interviews with the investment advisor during his prison sentence, would eventually turn into the critically-acclaimed book entitled, Wizard of Lies. A few years later a movie, based on the book and with the same title, came out starring Robert de Niro as Madoff. For the latest issue of perspectivves, Ziv Haddi connected with Diana to figure out why a man with so much power and success would feel compelled to betray the trust of so many; how the justice system determined his punishment, and the journalistic considerations she had to make while telling his story.
Ziv: What were the circumstances that led you to cross paths with Bernie Madoff?
Diana: This was a real-life Dr. Jekyll and Mr. Hyde story. The Bernie Madoff I first met, and first knew about, was not the guy that ran the world’s biggest Ponzi scheme; he was the guy that helped start the Nasdaq market in 1971 when it was a dream in some computer engineers’ eyes. He was the guy who helped pull the Nasdaq market back together again after the 1987 crash when people couldn’t even get their phones answered. He helped write the post-crash rulebook for Nasdaq and pioneered the after-hours trading of listed stocks—what became known as the third market—which was the precursor for 24-hour trading. I’d like to remind you that there was a time in this country’s life when stock exchanges would close at 4 pm and they wouldn’t open until 9:30 the next morning. Bernie pioneered the round-the-clock trading of those stocks. He could start trading NYSE stocks the minute the closing bell rang and reporters came to rely on third market firms like his to track the trading of stocks around the globe. Then came the 90s and, during this time, Wall Street completely reinvented itself through computers and the privatization of the stock markets. Bernie understood that and, better than that, he could explain it to people who didn’t understand. He could translate the increasingly complex, arcane, and technical elements of how markets work into language that lay people (read: journalists) could understand. I was covering these market structure changes for The New York Times as part of my regulatory beat and, at conferences and at panel discussions, Bernie was explaining it all to us. So that was the Bernie in my Rolodex; that was the Bernie I knew. He always had cutting-edge trading technology and software that still had value even after his fraud was discovered and his company was put into bankruptcy. That was the man he was proud of being and that was the man I knew on the day that he was arrested. I remember checking with a regulatory source to get an idea of the scale of the fraud, and was told that it was huge so I ran up to my editor at The Times, Larry Ingrassia, and said that I think it’s a big story. He's an important figure on Wall Street—he’s been an advisor to regulators, he’s testified at congressional hearings—and so Larry told me to go for it. I had a big advantage, having been first on the story, to continue to lead our coverage of it through the nine months that followed that were just a nightmare for his investors and a fascinating experience for me. Bernie was arrested in December of 2008 and went to prison down in North Carolina in June. In the spring of 2009, I was offered a book contract to write about the Madoff scandal on the basis of the work I had done with the New York Times and, with the newspaper’s permission required under our code of ethics, I accepted the book offer.
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Ziv: Why do you think Bernie chose to specifically talk to you?
Diana: In my worst nightmares, I imagined that he decided to talk to me because he thought I would be the most gullible reporter he could talk to. We’re talking about a con man. You don’t want to be the guy that the con man thinks he can con or the gal that the con man thinks he can con. But I think it was that he felt like I knew his world and he knew that I knew what he’d done. I mean, I knew the Bernie Madoff that he was proud of being so I could assure him that that was part of my story too and indeed it was. That’s part of the drama of this story: how did Dr. Jekyll become Mr. Hyde? How did he live those two lives parallel to one another for so many years? I had to tell the story of the good Bernie to contrast the bad Bernie. And if you go back and analyze the previous books and the previous coverage of him you don’t see that in most of that coverage; you don’t see the historical perspective of how Bernie came to be and as a result, too many journalists fail to understand why he was trusted so much. Journalists would say that people should have known this was too good to be true and that he was a con artist. They’d question why anybody would believe Bernie Madoff. Well, if you didn’t know who this man had been for 30 years on Wall Street, then you couldn’t put yourself in the shoes of his investors. These were not greedy people who just walked up to some flashy charlatan on the street corner and gave him their money; these were people who thought they were dealing with one of the most credible men on the street.
Ziv: Bernie Madoff committed a corporate crime for which he received 150-years behind bars. In contrast, someone who takes another person’s life might only get a life sentence. What do you think this says about the American justice system?
Diana: Judge Denny Chin, who imposed that sentence, described it as a symbolic sentence; one that recognized the vast damage Madoff had done to tens of thousands of people. You called it a corporate crime, but these were individual lives that were destroyed. Two investors killed themselves when they learned of their losses (two suicides that we know of). Among his victims were elderly Holocaust survivors and elderly family patriarchs who had put all of their family money with Madoff. Not only were these people now broke, their kids were broke and their grandkids were broke. Kids had to drop out of college because their tuition money had gone up in smoke. Family homes had to be sold. A Ponzi scheme is a vicious, personal crime and you don’t realize that you’re being held up by knifepoint until the knife goes in. This wasn’t a case of embezzling money from a giant corporation; this was taking money out of peoples’ lives. At least 20-percent of the Madoff victims had claims of less than a million dollars but it was all they had. One out of five of his clients were modest investors who had lost everything, including all of their retirement savings. I remember the story of an 85-year-old who was still working full-time because he had lost his entire savings and he was still furious and felt personally damaged by Madoff. So his crime caused vast personal harm, which his victims had testified to in the pre-sentencing reports. And then there was the moment in financial history that we were in at that point. This was after that meltdown of 2008 when the economy had gone into an absolute tailspin and tens of thousands, if not millions, of people had lost their jobs. People had discovered that all these mortgage-backed securities that they put into their retirement funds were crap and the people who sold it to them knew that they were crap. The entire country felt betrayed by a recklessly indifferent Wall Street and Bernie became the face of that betrayal.
“He inherited the rage and the fury that was kind of free-floating among the American public.”
Ziv: How many of those investment firms, bank executives, and government officials were held responsible for the massive losses and misrepresentations of defaulted investments during the credit crisis of 2008?
Diana: Too few. And so, in a way, it was unfair to hold Madoff as the poster child of a reckless and selfish Wall Street that was indifferent to the harm it was doing. Madoff was reckless, he was selfish and he was indifferent to the harm that he was doing, but he had nothing to do with the meltdown. Mind you, his fraud had survived several previous meltdowns and it almost survived this one. He had nothing to do with the actual events that nearly brought our financial system down in 2008. Nevertheless, he inherited the rage and the fury that was kind of free-floating among the American public. And, as it happens, when a Ponzi scheme falls apart, it’s pretty easy to prove that it was a Ponzi scheme unlike some of the instances that you mentioned like badly structured mortgage-backed securities, which are harder to prove to be crimes. Being stupid is not a crime and there were a lot of stupid people on Wall Street who took a lot of risks that they shouldn’t have taken but it’s hard to put that before a jury. However, there was no question that Bernie Madoff was guilty. He became a lightning rod for all that anger that nobody else was going to pay for, hence, a 150-year sentence. Let’s say Bernie had been arrested and nothing else had happened (the money market funds hadn’t melted down and the Fed didn’t have to rescue five of the investment banks on Wall Street) and all that had happened was that, on December 11, Bernie Madoff got arrested for running a gigantic—the largest-ever—Ponzi scheme. He’s not going to get five years and he’s not going to get 150 years. He probably would have gotten 15 or 20 years, which means he would have died in prison just as he did. It would not have made any material difference to him. Actually, the prosecutors were requesting 20 years based on their calculation of the severity of his crime. His lawyer was pleading for 8 to 10—maybe 12 years—based on the history of white-collar crime and understanding that he’s going to be at the upper limit of those sentences. I think Judge Chin knew that he was going to be imposing a 20-year sentence on a 70-year-old guy so it was, in effect, going to be a life sentence. Now, there’s a chance that he might live longer but, nevertheless, it was likely going to be a life sentence. As he said in his sentencing remarks, the damage that Madoff had done to society and the trust that he had destroyed among the public had a cost and he had to recognize that. Therefore, I think the 150-year sentence was symbolic, but it was based on an understanding that the practical effect of it would not be that different.
Ziv: Bernie betrayed thousands of investors and, at the same time, he went as far as to seriously betray his very own family. How did he deal with what he had done to his own wife, sons, and brother?
Diana: I think Bernie was completely blindsided by how his family was affected. He repeatedly told me that he had been so careful to keep his sons and his brother out of the fraud. It was almost like Andrew and Mark Madoff were Dr. Jekyll’s sons and Frank DiPascali (Bernie’s lieutenant who helped him run the fraud) was Mr. Hyde’s son on the 17th floor where the fraud took place. And never the two shall meet. He was so convinced that he had protected his family from ever bearing any consequences from what he had done which, you know, makes no sense. I would even tell him that. I’d say, “Bernie, what if you were walking down Lexington Avenue one day and you had been hit by a bus? What was going to happen?” He responded to that by suggesting that Frank would have unwound everything and that he probably would have faced the music. I said, “Bernie, your sons would have inherited the firm according to the way your will was set up. You know they were going to discover the fraud and bear the responsibility for it.” He absolutely refused to admit that he had ever put them at risk. The way they wrote it in the script, and I didn’t have the sense to ask this in real life, but I said, “You let your family—your sons, your brother and your wife—build their lives on the top of an active volcano that only you knew was there. What were you thinking? That you’d be able to get them to safety when it looked like it was going to blow?” And Andrew wanted to leave the firm! He wanted to set off on his own, but Bernie wouldn’t let him. He was also always making fun of his brother, Peter. He’d say, “Peter the nerd, Peter the computer jockey” and, “Peter the lawyer who got the law degree but ended up working for me.” He was always kind of scornful of Peter. Ruth worshiped Bernie, as did Mark. How Bernie thought that they were going to get through the collapse of this fraud? God only knows. I was never able to get an adequate answer from him. But your question was whether he ever showed remorse about that damage? He absolutely did. It was the only sincere remorse I felt that he had expressed. His statement in the courtroom felt rehearsed and stilted, and the comments that he made to me in my interview with him felt rehearsed and stilted. He said remorseful things about having stolen all of this money and hurting all these people and, over the years, he backed away from that. In subsequent emails and phone calls he would say things like, “[my clients] should have been grateful for the money they made on me; all these years they led very nice lives thanks to me.” He started to express, more openly, the contempt for his victims that every con man has, but he was blindsided by the damage he did to his family. He hadn’t expected them to suffer and they suffered massively. You know, Ruth Madoff was given a harder time than John Gotti’s wife. I mean, there are mobsters’ wives and sons who get less of a beating in the press than the Madoff family got. There was not a scintilla of evidence against any of those three people and they were hounded within an inch of their lives. For Mark, it went beyond that point of endurance (Mark would commit suicide on the second anniversary of his father’s arrest on December 11 of 2010). Bernie could never have predicted that and I didn’t predict that because of the long history of white-collar crime. For example, nobody followed Michael Milken’s wife to the grocery store. That kind of thing didn’t happen. So Bernie had no reason to think it would be any different this time. I think he expected he would be pilloried, and that he would face the music as he would put it. Maybe he thought his brother, Peter, would be in trouble because he worked for him as the firm’s long-time chief compliance officer, but he never dreamed that Ruth would become a pariah; that her hairdresser would fire her and that no one would rent her an apartment in New York City. He never dreamed that his family would suffer to the extent that they did. It would have destroyed him if he hadn’t been so incredibly adept at compartmentalizing the uncomfortable aspects of his life.
“There was a lot of pressure to get in front of the investigation and it was a little moral pop quiz that none of us saw coming. ”
Ziv: Finally, how would you describe the general media coverage of this story and the specific journalistic considerations you had to make while reporting it.
Diana: I am an investigative reporter. I spent 80-percent of my career doing investigative reporting and this was not that. I came up with a few scoops and I dug up a few stories about deals that Wall Street banks had made with Bernie or with the feeder funds that hadn’t been known and that didn't look good. But, by and large, I was covering an unfolding story. I also didn’t write the story that led to Bernie being arrested; I simply covered a moving story and was able to explain it, and put it into context. You know, around the edges, I was proud of doing some investigative journalism about ancillary players who wound up making big settlements as a result. My mainline career work has been investigative reporting where I uncover stuff and we print it and someone goes to jail. That’s kind of what an investigative reporter dreams of doing, right? That wasn’t this story. In this story, others—Bernie’s two sons and the FBI—had uncovered something. My job was to cover the Bernie Madoff story as a breaking news story. But I do think that the fact that I had been covering white-collar criminals for so long and I had been covering the market in which this particular white-collar criminal had made his name and had committed his crime, played a role in helping to shape how I covered the story. The Madoff family, overnight, became libel-proof and the real test of journalism ethics is how you cover people who can’t sue you for libel because they have no reputation left to lose. Their father and their husband had destroyed their reputation so you can really write anything you want to about them without fear of being held to account and that is what happened. Coverage of the Madoff case was not the media’s finest hour. There was a sensationalism and hyperbole to the way the scandal was covered with respect especially to Mark, Andrew and Ruth that I felt I was pushing back against constantly. Mark and Andrew still had the same lawyer. One lawyer for two potential defendants violates every rule of ethics if they were under investigation. If they had genuinely been subjects or targets of a criminal investigation, the first thing that you would have seen was separate lawyers because it might be in one brother’s best interest to roll over on the other brother. Only separate lawyers could have adequately protected the interest of the individual sons. They had one lawyer for them both which told me and everybody who knew anything about legal ethics that one of two things was true. Either, the lawyer knew they were not facing any criminal investigation and was absolutely certain of it or the prosecutors were lying to that lawyer about whether they were facing a criminal investigation, which could have gotten them disbarred. So you do the math in your head: what are the odds that Mark and Andrew are about to be arrested? Nill, zero, zilch. They would have separate lawyers by now if that were the case. But it was a constant pushback against wild stories. One very well-known TV personality referred to them as an organized crime family. Bernie and Ruth were likened to Bonnie and Clyde. That was part of what I was up against and I think it’s a good journalistic lesson to know that you can never predict when your moral compass is going to get hit with magnetic waves. I never would have predicted that on this story I was going to be confronting the kind of ethical issues that I did confront in trying to make sure that our coverage at The Times was fair to every member of the Madoff family. And I can look back and say that it absolutely was. And I have to think that that is at least part of the reason that Bernie agreed to talk with me and not to the fifteen other journalists from fifteen other publications that were trying to get him to talk. I know he had followed our coverage and I felt that he would have felt that we were fair to his family. So it was a disappointing time for me in some ways as a journalist. I was disappointed that my profession didn’t stand up better to the forces of the time and didn’t push back more against this mob of pitchforks and torches that were going after the Madoff family. But it’s useful to remember times like that; to remember when the pitchforks and torches are out, that's when we need to be most careful that we are being fair to people who don’t have a prayer of suing us if we are not. When those people have no chance of protesting, that’s when you find out who’s swimming naked in the ethics department and that’s when you find out who really walks the walk. When you can write anything you want to about Ruth Madoff, what do you write? When you can listen to any conspiratorial FBI gossip you want to about the sons, do you print it? Some people did and I didn’t. It was a tough call. There was a lot of pressure to break news on Bernie. There was a lot of pressure to get in front of the investigation and it was a little moral pop quiz that none of us saw coming.
This interview was edited for brevity and clarity.
About the creators:
Yarden Haddi: Graduate of the Image Arts Centre at Ryerson University.
Ziv Haddi: Graduate of the Master of Media in Journalism and Communication program at Western University and a former intern at 680 News and q on CBC Radio. He currently produces a current affairs program on Zoomer Radio.