By Keith B. Richburg and Tomoeh Murakami Tse
Washington Post Staff Writers
Friday, March 13, 2009
NEW YORK, March 12 -- Some of Bernard L. Madoff's victims came to Lower Manhattan on Thursday to catch a glimpse of the man who had taken away their life savings, robbing them of their kids' college funds and of their pride.
On a clear but bitterly cold morning outside U.S. District Court, they wanted more answers about how the massive Ponzi scheme was perpetrated, who was involved and what was left. They wanted to tell the judge he should show no mercy. They wanted to vent their rage.
"To see him for the first time, I'm just very emotional and close to falling apart," Sharon Lissauer said as she stood in the chill, biting back tears. "I lost all my savings. I don't have anything else. If only he could reveal where [the assets] are and help make the investors whole."
As television helicopters circled overhead and hundreds of cameramen and photographers from around the world crowded around, Madoff walked briskly into the courthouse. He would not reemerge. He pleaded guilty to 11 felony charges, including securities fraud, mail fraud and money laundering. At 11:13 a.m., a little more than an hour after the proceedings began, an expressionless Madoff was led away to jail.
Madoff and his once-exclusive investment club were in many ways emblematic of the get-rich-quick ethos that defined the last decade and a half of a stratospheric stock market and booming home values. And while the number of victims may be relatively small -- several thousand, plus pension funds and charities -- Madoff's exposure as a fraud, and the audacity of his $65 billion scam, has equally come to define a nationwide economic meltdown that has seen some venerable investment firms shuttered and once-prominent banks hobbled.
If the nation's current economic crisis needed a face, Madoff supplied it. And if average citizens watching their 401(k)s sink needed to see a Wall Street villain hauled off in handcuffs, Madoff on Thursday supplied that, too.
Standing before a packed courtroom in a charcoal gray suit, Madoff, 70, said that he was "deeply sorry and ashamed" for what he had done. In a prepared statement lasting about 10 minutes, he said he was driven by a desire to meet clients' expectations of above-market returns "at any cost."
Madoff had told his clients he was using what he called a "split-strike conversion strategy," timing the purchase and sale of stocks to garner the remarkable returns that investors believed were flowing from his Midtown Manhattan offices. The account statements he issued were false. Some other financial institutions confided to investors that his approach made no sense. But as long as the returns kept coming, his marks suspended their disbelief.
"As I engaged in my fraud, I knew what I was doing was wrong, indeed criminal," Madoff told the court. "When I began the Ponzi scheme, I believed it would end shortly and I would be able to extricate myself and my clients from the scheme. However, this proved difficult, and ultimately impossible, and as the years went by, I realized that my arrest and this day would inevitably come."
After U.S. District Judge Denny Chin accepted the guilty plea, Madoff's attorney, Ira Sorkin, argued that his client should be allowed to await his sentencing in his Upper East Side penthouse. Chin refused, saying Madoff posed a flight risk, and ordered him jailed immediately. Chin set the sentencing for June 16.
"I don't need to hear from the government," Chin said, referring to prosecutors. "It is my intention to remand Mr. Madoff."
With that, some members of the audience erupted into applause.
Several victims who attended the hearing said they were glad to see him go to jail. But many expressed frustration about unanswered questions that have been swirling in their minds since his arrest Dec. 11. Who else, if anyone, was involved? Where did all the money go?
Chin responded that the guilty plea does not preclude the government from continuing its investigation. Marc Litt, the lead prosecutor, said the government's investigation continues and "a lot of resources and efforts are being expended to both find assets and to find anyone else who may be responsible for this fraud."
Madoff had traded in exclusivity. As he built the sprawling but fraudulent investment service, he was able to lure in increasing numbers of clients by seeming to turn away many more.
His was a private fund, some of his victims said. He never advertised, but his clients spread the word: Madoff was a "guru" and a "genius." He wasn't taking any new individual clients, but with a good word and a high-up connection, you, too, might be able to get in. It was a closed club, and that made everybody want to get in.
Richard Friedman was classic bait for the smooth-talking Madoff. Friedman, an accountant from Jericho, N.Y., had clients who had been investing with Madoff since 1985, and he could see from their tax returns that they were all enjoying healthy profits. With a private word to the guru, they told Friedman, they could possibly get him in, too.
Friedman started investing with Madoff in 1991 and lost his entire life savings, about $3 million.
"He didn't accept all the money that he could have taken from investors," Friedman said. "The fact that he turned away people gave people a greater incentive to want to invest with him," Friedman said outside the federal courthouse. "Word of mouth was his greatest advertisement. . . . That was the mystique Bernard Madoff had, that you were lucky to get in."
Other duped investors agreed with the accountant's view and offered their own, similar stories of how they were invited in, and felt fortunate that they had been.
"It was word of mouth," said Ilene Kent, who was outside the courthouse both as a victim -- her family lost money -- and representing a group of about 300 other investors who she said no longer had the means to come to New York.
"People thought it was fantastic to be able to invest with him," Kent said. Now, she said: "They cannot afford a plane ticket. They cannot even afford a train ticket at this point." Speaking of her Madoff Survivors Group, Kent said: "We're just ordinary Americans. We're doctors and lawyers and bankers, but we're also schoolteachers and retirees."
Henry Backee, an orthopedic surgeon who lost 15 years of savings in the scam, said Madoff's jailing was just the first step. "It gives some of the victims some comfort that justice will finally be served," Backee said.
But echoing other victims, he said he wants the investigation to turn now to the role of the "feeder funds" and others that diverted cash to Madoff. Many of Madoff's clients came to him through investment funds that forwarded money, often without their clients' knowledge, and prosecutors are now looking at those funds to see what they knew, and when, about Madoff's fraud.
Several investors said they believed Madoff had received the seal of approval from the Securities and Exchange Commission, after the Wall Street Journal in December 1992 called him "the broker with the Midas touch." The article reported that the SEC had probed two Florida accountants who had tried to mimic Madoff's outsize profits by forming their own investment pools but that Madoff himself was apparently the real deal.
And besides the hefty annual returns, Madoff's firm offered something else that appealed to his loyal smaller investors -- a kind of small-time, personal touch. Any time investors called, sometimes needing a little cash, the women who answered the telephone were always friendly -- and prompt.
"It was like a small-town deal -- it really was," said DeWitt Baker, who came to the courthouse from New York's Battery Park neighborhood. "When my wife needed $25,000, she just called the ladies there" and the money was deposited the next day," Baker said.
Baker said he invested with Madoff on the advice of his mother-in-law back in 1994, and he has now lost "over a million."
Trying to restore to investors some portion of the billions of dollars lost could prove challenging. Madoff has given authorities a list of assets owned by him and his company, but investigators fear that many more may have been transferred to his wife or children or may be held overseas. For example, his wife is claiming that the couple's $7 million Upper East Side apartment is hers alone.
The job of tracing those assets has fallen to a government-appointed trustee, Irving Picard, who would have to prove that the assets, like the apartment, came from Madoff's Ponzi scheme.
"You have to show that it's traceable to the fraudulent scheme," said Irv Pollack, a former senior SEC official who has served as a trustee for defrauded investors in past cases. "The burden is on the person attempting to get those funds back. The chances for people to recover at this time are not so great."
Staff writer Zachary A. Goldfarb in Washington contributed to this report.