By Adam LeBor | Weidenfeld & Nicolson | 280 pages | £18.99
the spring of 2007, at the Lipstick Building in midtown Manhattan,
financier and philanthropist Bernard Madoff, chairman of the board of
Yeshiva University's School of Business, convened a meeting of the
committee searching for a new dean. A gentleman, soft-spoken, friendly
and charismatic, Madoff commanded the respect of faculty as well as his
fellow trustees. They didn't suspect that two floors below the pioneer
of electronic trading and founding father of the NASDAQ was conducting
the biggest investment fraud in modern history. Or that in 2009, Madoff
would be inmate No. 61727-054, a "planetary pariah" serving a 150-year
sentence at the Butner Federal Correctional Complex in North Carolina.
In The Believers
Adam LeBor, a journalist based in Budapest, provides a clear and
concise account of Madoff's scam. A master of the art of "affinity
fraud," LeBor reminds us, Madoff targeted his fellow Jews. He enlisted
respected religious and community leaders to spread the word about
Bernard L. Madoff Investment Securities, played hard to get,
"reluctantly" accepted new investors and (reversing the usual appeal of
the Ponzi scheme) delivered steady, above average returns of 10 percent
to 12% a year, instead of spectacular profits.
philanthropy enhanced his credibility. A mensch, giving his time and
money to charitable institutions, Madoff acquired a reputation as
someone interested in the betterment of the Jewish people and society
in general. His clients included Nobel Laureate Elie Wiesel and Mort
Zuckerman, the real estate magnate and publisher of the New York Daily News
"split-strike" conversion strategy, which involved simultaneous
purchases of "put" and "call" options on shares, seemed plausible to
novice investors. Savvy clients who knew better, LeBor suggests, simply
suspected that he didn't want to reveal how he "really" did it.
Reassured by the market-beating returns he generated, year in and year
out, and his policy of charging no fee for money management (because he
made "enough" from commissions on share trades), they looked the other
way. "There was a mystique around him," one professional told LeBor. He
seemed to know everybody who was anybody on Wall Street, in the Fifth
Avenue Synagogue in New York City and at the Palm Beach Country Club in
Florida. And to exude - and induce - confidence.
reputation may have prevented the Securities and Exchange Commission
from investigating his operations in the 1990s. Along with many other
critics, however, LeBor makes a compelling case that the scandal is
evidence of systematic failures in the US governmental agencies charged
with regulating financial institutions. The SEC, he points out, is
understaffed and underfunded. An enforcement division of 1,000 SEC
officers is responsible for monitoring 11,300 investment advisers,
4,600 mutual funds, more than 5,500 broker dealers and 676,000
registered representatives (in 174,000 branch offices) and 12,000
public companies. Little wonder, then, "that some frauds will
inevitably fall through the cracks."
But "none of the above"
explains the lack of due diligence by the SEC in the Madoff case.
After all, the commission received several complaints about Madoff's
operations from Harry Markopolos, a portfolio and certified fraud
examiner, who listed 29 red flags, including evidence that the
split-strike strategy, to which only family members were privy, was
mathematically impossible. Despite a tendency to overdramatize and a
prickly personality, Markopolos had provided a specific road map to
Riven by turf wars, however, and burdened by
obsolete regulations, SEC officers in Boston and New York did not
welcome advice from outsiders. They talked with Madoff, failed to
discover that he produced tens of thousands of fake trading slips to
record transactions that had never occurred and took no action.
so, Bernie Madoff got away with it. For decades. When he was caught,
LeBor writes, he became the most vilified man in America, a poster
boy for the crimes and misdemeanors of financial institutions that
caused the greatest economic crisis since the Great Depression.
Zuckerman's newspaper proclaimed that "Madoff will get
punishment only when he is in hell."
of Madoff with Slobodan Milosevic, the former president of Serbia,
seems over the top, but he's probably right to characterize both men
as sociopaths, with no shred of human empathy for their
Wiesel, LeBor reveals, remains enraged at Madoff. For
violating key tenets of Judaism, including honesty in business, and
for preying on his own people. The punishment he recommends is a form
of psychological torture somewhat similar to the flow of faces of
victims of the Nazis at Yad Vashem. Confined to a solitary cell,
Madoff would have no alternative but to stare at a screen, and on
that screen, every day and every night, there should appear men and
women who lost everything, or almost everything, because of him. And
they would say, "Look, look what you have done to this poor
lady, look what you have done to this child, look what you have
But, alas, as the shock wears off, LeBor predicts,
Americans will resume their love affair with money and acquisition:
They'll "await the next Shabbetai Zvi, who will marry not the
Torah, but an investment prospectus, and lead them dancing into a
bright new world."The writer is the Thomas and
Dorothy Litwin Professor of American Studies at Cornell University.