Frontline: The Madoff Affair

We were never pigs.

— Michael Bienes

Of course it bothered you. I mean, those are kind of things that it would bother you. But that was one of the conditions of doing business.

— Susan Manzke

“It was almost like a…,” says Nader Ibrahim, “It was almost like you would work there and, you know, the only way that you would get fired is unless you did something… incredibly wrong.” Ibrahim worked at Madoff Securities from 2000 to 2003. When he describes the environment in Frontline: The Madoff Affair, he seems both brave and vague, rueful and tentative. His uncertainty is probably apt, given that he’s agreed to be interviewed as an employee of the largest stock fraud in history. Even if Ibrahim was never fired or never did anything “incredibly wrong,” he sounds like he has something like a moral conscience.

This is more than might be said of several other interview subjects in The Madoff Affair, which premieres 12 May on PBS. As correspondent Martin Smith speaks to people who knew or investigated “Bernie,” what is most striking is their capacity for judgment and dissociation. After Madoff confessed to the Ponzi scheme, back on 11 December 2008, his associates, clients, and friends expressed disbelief and indignation. As Madoff investor Bette Greenfield tells Smith, when she read the news, “I was like in shock, like, non-believing shock. And I thought, ‘He couldn’t, he couldn’t possibly have. This isn’t true, it’s impossible to be true.'”

Such surprise characterizes many responses to Madoff. As Smith reports, his clients and colleagues didn’t attend to details, didn’t read annual reports or think much about how their profits were so consistent over years. Instead, they took their money and trusted in Madoff. According to Bertrand de la Villehuchet, his brother Thierry Magon de la Villehuchet “believed completely.” As Bertrand puts it, “He had such high professional regard for Madoff, that he invested the totality of his wealth, his assets with him.” A founding member in Access International Advisors, Thierry has been dubbed the first “Madoff suicide,” after he cut open his arm in December. The New York Times‘ Alex Berenson and Matthew Saltmarsh write, “The fraud weighed heavily on him.”

Again, in the context of The Madoff Affair, de la Villehuchet’s seeming sense of guilt or shame is striking. It is certainly unlike the attitude presented by Michael Bienes, CPA, Avellino & Bienes, whose colorful self-defense provides the show with a lively “Act One.” With his accounting partner Frank Avellino (who refused to speak with Frontline), Bienes worked on Madoff’s first investing scheme, which had “only about two million in the account.” Their take was small, Bienes says, if not exactly legal: “We were only taking a small clip off the top… Couldn’t take more, we thought that was the rule.”

This notion that they were operating according to some “rule” is typical of Madoff workers and investors. Sandra Manzke, founder of the hedge fund giant Tremont, then president of Maxam Capital, has “publicly advocated for more transparency in the hedge fund industry.” Smith notes the irony of her association with Madoff, whom she met in the ’90s. Smith asks how she accepted Madoff’s terms, that his name not show up in company prospectuses. “Do you think that’s appropriate?” asks Smith, “Um, I don’t know,” she says. “Every one of my clients knew that this was a Madoff feeder fund.”

Smith appears rightly perplexed and at times incredulous when he hears such answers. When Manzke insists that secrecy was “one of the conditions of doing business” with Madoff, that it sustained his “proprietary trading model, the black box that he used,” Frontline turns to Stuart Singer, of Boies, Schiller & Flexner, LLP. Asked about this rationale, he smiles, barely. “That’s hogwash, and anyone with any sophistication should know that. No one could’ve credibly believed that Bernard Madoff had to use a couple people in a little accounting firm because he was concerned that his secret sauce, his secret investment philosophy, was going to get out.”

Most of those who knew or reported on Madoff explain his success in familiar terms. He “was driven,” says The Daily Beast‘s Lucinda Franks. “He has the kind of personality that is extremely proud of the incredibly intricate and complex web that he’s woven.” While Frontline adds that its “own investigation of a small sampling of statements [at Madoff Securities] found unusual accounting of cash balances,” interviewees tend to excuse their faith as a function of “business,” however odd.

“Outsiders,” Smith says, began to have and also express doubts as profits and numbers of clients increased. While the show implies that Madoff’s first “side business” as an investment advisor in New York in the 1960s wasn’t quite straight, it leaves open the moment of when the operation became outright illegal. In part, this has to do with the general shadiness of “Wall Street,” the willingness of shareholders, employees, and associates to ignore how money is made. This posits Madoff as a “poster boy” for what’s gone so wrong recently, the too-big-to-fail presumptions and the ensuing bailouts and contracted bonuses. But Frontline suggests that even if his profits were extraordinary, his essential business was not. “The question of when it became a fraud is fundamental to the Bernie Madoff mystery,” says the New York Times‘ Diana Henriques. But the “when” has to do with how fraud is defined, by whom and to whose benefit.

The Madoff Affair submits that Madoff’s deceptions — in rationales and in business models — were not his invention. Harry Markopolos, “the now famous whistleblower,” sent repeated letters to the SEC, over years, beginning in 2000. But, as Frank Casey of Rampart Investments (1998-01) observes, the Commission didn’t step in even when it had information. The reluctance, Casey says, may have been premised on trust and hopeful awe (“There’s always that potential, that one little potential that you’ve got a rocket scientist, an Einstein here,” he says). But, he concludes, the SEC didn’t act when it should have. Harvey Pitt, Chairman of the SEC from 2001 to 2003, sputters through a response to Smith’s question. “I think,” he says, “that it is clear that there were letters, and it is also clear that the SEC did look at him. What is not clear is why the SEC was unable to conclude that he was conducting the Ponzi scheme we now know he was conducting.”

Such hedging seems almost self-explanatory as well self-evident, an example on camera of how this happened. Where Madoff investor Burt Ross calls Madoff a “monster,” another investor, Arnold Sinkin makes a more incisive point. “I blame the government,” he says. “That red flags went up over the years and nothing was done about it. It’s just, it’s mindboggling.” Or, a little too believable, after all.