Writer Erin Arvedlund, who first exposed Bernie Madoff’s Ponzi scheme in Barrons in 2001 (and was ignored, of course), spoke in Palm Beach Saturday to promote her new book.”Too Good to be true”.
Financial journalist Erin Arvedlund was working for Barron’s in the spring of 2001 when she started hearing things about a hedge-fund manager name Bernard Madoff.
He supposedly ran a billion-dollar-plus fund and used a very exotic strategy called “split-strike conversion.”
She found it “very strange” that no one on the trading floor knew him or did business with him, yet he traded billions of dollars of options and made money every year.
Through one of her expert sources — whom she describes as a “turbo nerd” — Arvedlund found that Madoff’s returns seemed to be manufactured.
After further investigation, she discovered several red flags, including Madoff telling investors to keep quiet about him managing their money.
“As in any business, someone who’s doing well wants to brag about it,” Arvedlund said. “I found this very odd that he didn’t want anyone to know that he was running their money. This guy was running one of the biggest hedge funds on Wall Street. That didn’t make any sense.”
In her May 2001 article “Don’t Ask, Don’t Tell,” Arvedlund was the first financial journalist to question the mystery surrounding Madoff’s investment practices.
After Madoff’s arrest, Arvedlund wrote the book Too Good to Be True: The Rise and Fall of Bernie Madoff (Penguin/August 2009).
Arvedlund spoke Thursday night to more than 60 people at the North Palm Beach home of Georgie Duber.
Fast forward eight years. Arvedlund left journalism in 2005, went to work at a hedge fund and was laid off in early December.
On Dec. 11, she was sitting in her Philadelphia apartment, wearing sweat pants and wondering what she was going to do with the rest of her life, when she heard on CNBC that Madoff had been arrested.
“I thought, ‘Holy s—-, they finally got him,’” she said.
“I didn’t know it was a Ponzi scheme. I didn’t know that it had grown to what he said was $65 billion in assets. All I had known all along was he wasn’t doing what he said he was doing.”
Arvedlund predicts there will be more indictments in the next couple of months.
“I think Peter Madoff (his brother) is most likely to get indicted, possibly before the end of the year,” she said. “He was signing off on phony statements, so right there he could go to jail.
“And then there’s the sons. … I think the Madoffs were a family built on theater, a huge Kabuki Theater. Bernie Madoff would bring in potential clients and they would see this bustling brokerage firm and they would think, ‘Wow, this guy’s doing great. I’m going to plunk down my life savings.’ And why wouldn’t they? Who do you ask for referrals? You ask your friend. You ask your family. On the other hand, there were some basic red flags and, sadly, the SEC didn’t pick up on those. I liken them to CSI meets The Office.”
Arvedlund: “Did Ruth (Madoff) know? I think Ruth was a very smart lady. She had a degree from college in an era when it was unusual for women to go to college. She ran the business with Bernie from day one. She kept the books for the legitimate brokerage firm. Bernie didn’t even need the (phony hedge fund). He was wealthy already (from the legitimate business). So why did he bother?”
Arvedlund:“There’ve been rumors around the last couple of weeks that the sons may be indicted. I think the reason that Frank DiPascali will not be sentenced until May is they’re trying to get as much information out of him as possible and that probably includes giving up family members.”
Arvedlund: “There’s some evidence that some of the bigger investors who were also fundraisers were using Madoff as a tax shelter. I think the reason they haven’t been indicted is because they don’t know what to charge them with yet. It might be a case like how they got Al Capone on tax evasion. Robert Jaffe was not a registered investment adviser, but it wasn’t illegal to raise money.”
Arthur K. Salomon, retired partner of Salomon Brothers and Citigroup: “I knew Bernie Madoff the day he started business … I knew Bernie and his wife … These people couldn’t cross the street by themselves. Your next book is to find out who did all this. His wife was smart, but she couldn’t have run it herself. Bernie couldn’t have run it. His friend, Walter Noel, he couldn’t cross the street either.”
Keep it up, Walter – if you’ve got Solomon fooled, surely the SEC will fall for the ruse too.