This post has been corrected.
Perhaps the only individual more qualified than veteran New York Times financial reporter Diana Henriques to write the book on Bernard Madoff’s epic Ponzi scheme is Madoff himself. Hardly a stranger to the devastation wrought by white-collar crime, Henriques covered the Enron aftermath and a host of financial misdeeds and foul-ups and twice has been a Pulitzer Prize finalist.
Henriques was born in Texas, grew up in Virginia and has lived in Hoboken, N.J. with her husband since 1988. Over tea in the study of her Hoboken brownstone, she discussed her experience writing “The Wizard of Lies.” She said the book, for which she interviewed over 100 sources, was the most difficult project she’s ever undertaken. Unflinchingly cordial, Henriques speaks with a measured, authoritative tone, occasionally pausing to contemplate her answers. Every now and then, for a fleeting syllable or two, the remnants of a southern accent make their presence known.
In “Wizard of Lies,” out today, she describes her prison meetings with the disgraced financier in detail, identifying what she calls the “Madoff magic,” and attempts to uncover what Madoff's wife Ruth and his two sons knew about his decades-old scheme. She said the family made characters “straight out of Shakespeare.”
You were the first reporter to visit Madoff at Butner Federal Correctional Complex and interview him face-to-face.
I was. The Financial Times reporters visited him in March, but I was the first. It took about 18 months to set it up.
Tell me about how you got the interview.
Well, I started asking for the interview when he was at MCC [Metropolitan Correctional Center] in Manhattan, right after he pleaded guilty. I had a mailing address for him. I wrote him my first letter requesting it and I just kept after it. Note to young reporters: never give up.
I kept asking and then he was moved to North Carolina, and I kept asking again. I didn’t even get an answer back for months. Then, I got a letter in September ’09, handwritten from the prison, full of flattery, saying that he’d followed my career, admired my professionalism -- all this stuff. He wasn’t free to talk right now, he said. But when he was, I would be at the top of his list. So I folded that up and continued research on the book, assuming I was going to have to write this book without Bernie Madoff. So I interviewed everybody in the world that I could.
Finally, in the early summer of 2010, his lawyer reached out and suggested to me that it was looking a little more promising that he would talk to me. He eventually agreed and then it took a month to get the prison paperwork done because the warden has to approve any media visit.
Eventually the warden approved it; I got a call that gave me six days notice to be down there on the particular day. That was in August 2010 and that was my first visit. It was a little over two hours and I still had pages of questions. And he volunteered -- he said, “Write them out and I’ll answer them by letter.” And he did. I exchanged letters and then emails and a phone call or two between that visit and my visit in February, which was my second visit. And we continue to trade emails. I just got one from him yesterday.
Have you given him an advance copy of the book?
So he has no idea.
He hasn’t seen it yet.
And do you expect that he’ll read it?
He says he wants to. He’s asked if the publisher can ship him one. They have restrictions in prison on what they can receive through the mail. But he certainly wants to get one. He didn’t like the title, though. He did tell me after the interview in February he thought the title was “too sensationalistic.” [Laughs]
Come on? A Times reporter sensationalizing the title?
I didn’t pick the title, but, you know, we changed the title actually, after the first visit. It was originally going to be called “A World of Lies” to reflect this global Ponzi scheme, this web that he had stretched from Palm Beach to the Persian Gulf.
But after I visited him that first time and really got a taste of the Madoff magic, and began to see how he tried to manipulate people and how he dealt with selling his story, it was clear to me and my editor that he belonged at the center of the title, because he kind of shifted the center of gravity for the book. So that’s when we changed the title to “The Wizard of Lies.” And once I heard it, I knew it was the right one. I like it even if he doesn’t.
How did he strike you at first as a human being?
Well, I had known him slightly, before he was arrested. He had been a middling prominent figure in a topic I covered for the Times back in the 1990s, when stock exchanges were going through this great upheaval, similar to what newspapers are going through now -- where technology was radically changing the way of doing business, the cost of doing business. And Madoff was quite visionary and quite a pioneer in the effort to computerize stock trading. And I covered a number of conferences where he was on the panel or he was a keynote speaker. I talked to him. I got to know his firm because they were pioneers in after-hours trading. When he was first arrested, the name instantly rang a bell with me and I immediately went to the [Times] business editor and said, "We’ve got something big here. Bernie Madoff’s just been arrested for fraud.” So, I knew him before. And then I thought of him as a very down-to-earth, plainspoken, very approachable person. A typical trader, a typical roll-up-your-sleeves, up-from-the-neighborhood kind of guy.
When I first met him in prison, my first impression was how polished he had become since I had known him 15 years earlier, even in his prison uniform. Every crease is crisp, every button is buttoned. His belt is shiny, his shoes gleam. Very much the dandy, even in prison. And very much in control of our conversation. He had a very engaging, low-key style. Never took his eyes off of me. [He] leaned forward and was very interested in everything I had to say. A few little jokes, a little bit of flattery. But very much on-message.
When I saw him the second time, after his son’s suicide, I was stunned at the change in him. From across the room, I would not have recognized him as the same man. So much thinner. In fact, the uniform involves one of the those web belts and he had the belt pulled so tight that the end of it was folded under to keep it from flopping. One of his buttons on his shirt was undone and he didn’t notice it until about halfway through. He buttoned it up. This had been an immaculately groomed, crisp, confident man back in August. In February, he seemed to holding on to his control with both hands. Fiercely. No jokes. No humor. Barely a smile. And this was two months after his son’s suicide. He was clearly devastated by that.
I want to come back to that, but you mentioned a minute ago the "Madoff magic." Can you elaborate on that? Is he a charming guy?
You know, he isn’t. And that makes him a very unusual Ponzi schemer. I’ve covered at least half a dozen Ponzi schemers during my career. Unfortunately, there are a lot of them around. Nothing on this scale, of course. But they are typically bon vivant, swashbuckling, charismatic guys. They’re the guy over in the corner telling the funny stories that everybody wants to hear.
Madoff was never the most charming man in the room. But, he could make you feel like you were the most charming person in the room. That was the magic. He could reflect back on you a very attractive image of yourself that made you feel good. I felt it. I’m sitting there interviewing him in this prison and I’m feeling like I’m one of the best reporters he’s ever known. He bounces it back -- that feeling of, “Oh, you’re so interesting, you’re so competent, you’re so professional.” It’s an amazing gift. And I’ve never before met a Ponzi schemer who’s so low-key in terms of his gregariousness and yet able to sprinkle that pixie dust on you and make you feel like, suddenly, you were so special. It’s an amazing gift.
And he is so believable. I did not ask him to grant me an exclusive interview. But when he asked that the interview in August and emails and conversations be embargoed for use in the book, and his lawyer explained why, I agreed to that. But I also explained to him that an embargo is a two-way street. If he broke it, then I’m off the hook. He repeatedly assured me that he would not talk to any other reporters, that he would not let any other interviews get ahead of my book. Well, of course he was lying. But you know, he had me for just a little while. Here I know he’s the biggest liar in North America, but for just a little while, I said, "Phew, there’s one less thing I have to worry about. Good. That’s fantastic. Thank you, Bernie!" And, of course, it wasn’t true and I realized the next morning, you wake up and say, “Oh yeah, that’s Bernie Madoff giving me this promise. I can’t rely on it too heavily.” He is a fascinating character.
Do you like him? Did you find that you built a rapport with him after the meetings and emails and phone calls?
No, I did not. To be candid, he frightened me a little because he was so unpredictable and so untrustworthy. Absolutely no predictability. And he’s extremely intense. When he seizes on a topic, it’s hard to pry him away. But, I didn’t expect to like him. It was relatively easy to work with him, but I was always uneasy about it because he was so unpredictable and untrustworthy.
I owe it to him to say that he’s an extremely bright man, he’s extremely intelligent. So there’s a level at which you can converse with him about things that is satisfying. He knows an enormous amount about financial history, which is one of my favorite topics, so we had that in common. He is smart and engaging to talk to. On that level, I felt we found a little common ground. But just in terms of dealing with him as a human being, [there was] something uncomfortable about him.
Were you able to interview any of his immediate family members -- Ruth and his kids -- for the book?
Everyone I interviewed on the record is identified by name in the book. People who are not identified by name in the book -- and the immediate family members are not -- either did not talk to me or spoke with me in confidence and it would not be fair to either group to start playing guessing games like that.
But my research about the family was pretty intense and pretty broad. And I feel confident that I have a fairly clear picture of the family dynamics. There’s no doubt the family has been shattered by this crime. It’s almost a blinding glimpse of the obvious to say so.
Madoff’s sons were deeply upset that Ruth did not walk out on him. I worked very hard to try to understand, through as many confidential sources as I could, why she didn’t go. And I asked Madoff himself why she stayed. That’s the one point in the first interview where he broke down and cried. And I do think it was genuine. He didn’t even have a Kleenex with him. His lawyer had to find some little paper napkins in the snack bar area. But he said all her friends told her she should leave, which I knew to be true. He told her she should leave, that she didn’t have to stay. As the firestorm of criticism and vitriol was growing, he could see that it was hurting her to stay with him. But she would not walk out on him. And, as I understand it, how she has explained it, is that she had a love affair with this man for 50 years and she just felt she couldn’t abandon him at this time of his near destruction.
You know Larry and I have been married for 42 years and I can sort of understand it. I don’t think younger couples can. She met and fell in love with Bernie when she was 13 years old. He was a lifeguard, she wasn’t even in high school yet. Pretty girl. And he was handsome, sun-bleached hair. She fell in love the first time she met him and married him at 18. You have to keep that in mind when you weigh the decisions she made after his arrest. It was a lifelong love affair. Everybody who knew them agreed that they were still like sweethearts. One person said that the only person who thought more of Bernie than Ruth was Bernie. She really worshipped him.
Do you believe the story that she had no idea about the Ponzi scheme?
What about his sons?
I do not believe they knew and I explain in the book my reasoning. My goal with “The Wizard of Lies” was to assemble the available evidence, offer my analysis of it and let the reader make the decision. My starting point was: innocent until proven guilty. Fairness requires that. And then as a reporter, I began looking for the evidence that would change that verdict, if you will. I couldn’t find it. I couldn’t find one victim that could ever remember talking to Ruth, Mark or Andrew about their investments. And there are some pretty strong and, to me, convincing bits of evidence that argue in the opposite direction. For example, Frank DiPascali, Madoff’s key lieutenant, is facing a 125-year sentence, having pleaded guilty. He has given grand jury testimony that has resulted in five indictments of people who worked at the firm, none of them are Madoff family members. None of the employees who have been indicted have made any move to try to get leniency or to cut a deal to make a plea bargain by providing evidence implicating the Madoff family members.
But even more telling to me, there’s a scene in the book where Bernie is notifying Ruth, Mark and Andrew that it’s all falling apart, that the firm in insolvent, that he is ruined, that it is all a fraud. Now, if they’re his accomplices, what happens next? They pack their bags, they empty the bank accounts, they take the keys to the private jet, they fly off to the ocean-going yacht in the Mediterranean and they wind up in some country with no extradition treaty with the United States and live the life of the comfortable fugitive. I mean, it’s worked for [indicted commodities trader] Marc Rich for decades. That didn’t happen. They had the means to flee. They had the time to flee. And if they were his accomplices, they certainly had the motive to flee. Nobody fled. That’s pretty telling to me. After he confessed to his sons and his wife, they acted like people who suddenly learned they were financially ruined. They did not act like people who expected to be arrested and locked up for the rest of their lives any minute. And if they were his accomplices, it’s hard to believe that would not have been their fear. Frank DiPascali was in a lawyer’s office within less than 24 hours of Madoff’s arrest. Everybody on the staff was hiring lawyers and looking out for themselves. The reader will make their own decisions. I could not find any convincing evidence, really almost no evidence at all, that they knew. I pored through every lawsuit that’s been filed against them, both by the Madoff trustee and by the private litigants. There’s not an email, not a conversation, there’s nothing presented in any of that litigation that casts any doubt on them at all.
My conclusion is the odds-on likelihood is that they didn’t know.
How does that speak to the pressure he was under, not being able to share the secret with his wife, his kids, who worked for him? Did you sense a really strong individual when speaking with him?
He is a strong-minded man. Even after Mark’s death, in the first few emails we exchanged, there was no mention of it. There were things he wanted to talk to me about, questions he wanted answered, research he wanted me to do about something he remembered reading that he thought was significant for his case.
He’s operating on this completely cerebral level and only about the third email after Mark’s death did he even acknowledge that I’d sent a condolence note. He is what psychiatrists call a very well-defended mind. He has defended himself against that which with he cannot cope. I think that defense -- his ability to lock things away and not acknowledge them -- which I’ve seen dealing with him in prison, is the same quality that enabled him to live with what he was doing on a daily basis.
Were you able to interview Harry Markopolos, who repeatedly tried to notify the SEC that something was up with Madoff.
I know Harry. In fact, I attended Harry’s book party when his book came out. Harry was helpful to my research. I think that’s as much as I can say.
After being brushed off by the SEC many times, why do you think he didn't seek out a reporter? Or did he?
It’s a wonderful question and I put it to his lawyer and everyone who knew him.
It almost seems like you’d want to do something like that just to stick it to the SEC for rebuffing him so many times.
There are any number of places that might’ve taken his accusations, if acted on. But he didn’t, and I have never found his explanations particularly satisfying. He claimed that he and his investigative friends were in fear for their lives. That Madoff had so much to lose that he would think nothing of snuffing them out in order to avoid detection. And yet he kept reporting this allegedly murderous criminal to a civil regulatory agency that doesn’t even carry handcuffs.
The explanations never made any sense to me. He publicly acknowledges that he’s a failed whistleblower.
What’s the state of the SEC today? Have they improved since the Madoff scandal broke?
Certainly they’ve addressed many of the management problems that the Madoff case exposed. It’s a much flatter management pyramid. More boots on the ground, fewer people behind desks. They have recruited some very impressive talent. Trying to hire top-flight accountants, forensic lawyers and investment experts at a time when the economy is so bad is pretty easy. They were able to pull in some talent they might not have been able to get in an earlier age. They have really amplified their technology, their computer analysis, their ability to use data analysis. They certainly have become far more aggressive about the cases they’re taking on. If you look at the cases they’ve brought in the two years since Madoff, look at who’s been sued and settled: Goldman Sachs, UBS -- I could go on and on.
I think the foundation is there to rebuild, but the SEC wasn’t undermined in a day and it won’t be rebuilt in a day. It’s going to be a process that’s going to take time and continued budget commitment. And that’s what I’m not sure we’re seeing -- a continued commitment by Congress to provide the SEC with the money everyone thought it should have in the aftermath of the financial meltdown and the Madoff scandal. Stay tuned to see whether the promises of reform at the SEC get financed.
Do you think there’s another similar type of fraud out there the SEC doesn’t know about, but is kind of under their nose like Madoff was?
I would be surprised for this reason: A whistleblower like Harry Markopolos knocking on the door of any SEC office in this country today is going to get a very different reception. One of the things the SEC did was to completely revamp how it deals with incoming tips, whistleblowers, anonymous letters. It has created a new structure for incoming tips and whistleblowers so that they don’t get lost and don’t fall off the table. Fool me once, shame on you. Fool me twice, shame on me.
I can guarantee you that there is another Ponzi scheme out there that we haven’t heard about yet. Ponzi schemes are, to me, one of the most fascinating crimes on Wall Street, one of the most fascinating financial crimes that there is.
The air they breathe is trust. A Ponzi scheme cannot grow in an environment that’s devoid of trust. Nothing else can either, so in order to eliminate Ponzi schemes, you’d have to create a world completely devoid of trust. And when you’ve got a world like that, number one, none of us wants to live in it. And, number two: You can’t run a modern economy without a minimal level of trust. But that level of trust is exactly the level of trust a Ponzi schemer needs to get away with it. Now, Ponzi schemes are a peculiar crime in that you don’t feel any pain until the very end.
I think the Madoff story introduces a new species of Ponzi scheme. Traditionally, we’ve thought of Ponzi schemes as the classic, too-good-to-be-true fraud. Fifty percent returns a month. Double your money in 10 days. The classic Ponzi scheme, all the way back to the first one in the 1920s, appealed to our greed. The get-rich-quick itch. The Madoff scheme did not appeal to people’s greed; it appealed to their fear. Through most of the Madoff scam, you could’ve made more money somewhere else. There were years when the Magellan Fund at Fidelity was producing much better results that Madoff’s investors were getting. It wasn’t that they were greedy: He was so consistent. He was so safe. They felt safe with Bernie in an increasingly volatile, scary, complicated market. If a Ponzi scheme appeals to your greed, a Madoff scheme appeals to your fears. I can’t tell you how many people told me, “He made me feel safe.”
Those are the kinds of frauds I worry we’re going to see more of.
Should the SEC just hire Bernie Madoff to help investigate tips that come in?
No, I don’t think we would go there.
Why not? When they finally caught up with him after all those years, the FBI hired Frank Abagnale, Jr. to help it investigate forfeiting crimes. Could Madoff do the same for the SEC?
That’s an intriguing question. No one’s ever asked me that.
I guess it’s a two-part question. Would he want to do something like that and would the SEC ever entertain something like that?
I think he would. In fact, some academics have written to him in prison and asked him to contribute his thoughts on Wall Street ethics. They essentially are asking him, “What do you think would have helped alert people to what you were doing?” And Madoff has told me he’s interested in talking to them, corresponding with them. So, I do think he feels like he’s got something to teach. But I don’t think he understands himself well enough yet to teach people how to avoid con artists like him. Would the SEC ever entertain the idea? Not in this universe.
Is there any way he can redeem himself, even in the smallest sense? Is that something he’s expressed to you that he’s interested in doing?
He does. He certainly says he wants to. He claims he’s tried to help the bankruptcy trustee recover assets for Madoff victims.
Would that amount to a form of redemption?
Well I think Irving Picard could say, “Thanks, but no thanks.” Picard and his legal staff are doing a pretty remarkable job of going after assets without much help from Madoff, although I think that Madoff has provided them with some information. I know that Picard’s lawyers have met with him and spent 16 hours interviewing him in prison a couple of weeks before I was down there. And I’m told he was a confirmatory source, as lawyers say. He confirmed much of what they thought they knew, confirmed that, in some cases, they were on the right track. But he has subsequently said things that in many cases contradict the allegations they are making in the lawsuit they’re filing.
He told me in the very first visit something that shocked me so that I included it in the prologue of the book: He said that with the money that investors had already gotten out of the Ponzi scheme and with the money that the bankruptcy trustee was going to be able to raise for them and return to them, his victims were probably going to make out better than people who were legitimately invested in the stock market during the meltdown of 2008.
He thinks that about all of them?
Not the ones who committed suicide and their families. Not the ones who’ve had to uproot their entire lives and sell their beloved homes. The human cost of the crime is part of the equation that he just doesn’t see. He’s utterly in denial about that.
And what should the finance industry, lawmakers and America at large take away from this story? A moral if there is one?
Self-deception is an extremely dangerous practice. Lying to ourselves is how we get in the most trouble. If there is a lesson, it is the oldest human lesson. To thine own self be true.
If people take nothing else away from the book, I hope they take that. Lying to yourself is a luxury that you just can’t afford.
How’s it feel to get this project done?
I’ve never worked harder on any project. This is my fourth book, but without a doubt the most laborious, most fascinating. This is like a novel, but it’s true. Bernie had four near-death experiences before he was finally caught, some of which people will read about for the first time in the book. I fell in love with the story. At the beginning of this process, I kind of flippantly said that to do this story justice would take a collaboration between Shakespeare and Woody Allen, without the jokes. But it truly is such a timeless drama. I felt kind of humbled at the challenge of trying to live up to the potential.
A previous version of this post misspelled Frank DiPascali's name.