11:00am

Tue April 26, 2011
Author Interviews

Examining Bernie Madoff, 'The Wizard Of Lies'

New York Times financial writer Diana Henriques was the first journalist to interview Bernie Madoff after the money manager was sentenced to 150 years in prison for swindling investors in a massive $65 billon Ponzi scheme.

But even behind bars, she says, Madoff was a "fluent liar."

"The magic of his personality is how easy it is to believe him — almost how much you want to believe him," she tells Fresh Air's Terry Gross. "For example, he assured me in that first interview — and in emails subsequently that we exchanged — that he wasn't going to talk to other writers ... of course, it wasn't true, he was talking to others. It was all a lie."

Henriques, who led the Times' coverage of the Madoff scandal, is the author of The Wizard of Lies: Bernie Madoff and the Death of Trust. Her book describes how Madoff created the biggest Ponzi scheme in history, contrasting his downfall with the prominent role he played in shaping the modern markets.

Henriques was not duped by Madoff financially, but she did know him in the 1990s on Wall Street as one of the key figures reshaping the American stock market through automation and computerization. In late 2008, when news of his massive Ponzi scheme broke, Henriques — like many people who knew Madoff — was understandably shocked.

"I was stunned," she says. "Here was a man who seemed to have built a legitimate business with a legitimate reputation that had made him both very wealthy and very admired, respected and trusted. The notion that for so many years, behind the scenes, there was this dark parallel universe of this fraud was really staggering to me."

Visiting Madoff

In February, Henriques traveled to the prison where Madoff is serving a 150 year sentence to conduct a two-hour interview. It was her second interview with Madoff, who maintained that his wife and two sons knew nothing about the Ponzi scheme.

"In many ways," she wrote in The New York Times, "Madoff seemed unchanged. He spoke with great intensity and fluency about his dealings with various banks and hedge funds, point to their 'willful blindness' and their failure to examine discrepancies between his regulatory filings and other information available to them."

But Madoff, she says, reached that opinion somewhat late.

"He did not make that statement in my first visit with him," she says. "In my first visit, I asked him directly, 'Who else knew?' The only person, he conceded, might have suspected was this large private investor, Jeffery Picower, who drowned in his swimming pool [several] months after Madoff was arrested. But he did not identity anyone else as likely having known."

In her second interview with Madoff, she says, he raised the idea that banks and hedge funds had to have known what he was up to.

"But the banks, of course, insist that he fooled them just as effectively as he fooled everybody else," she says. "And those are going to be epic lawsuits ... Let me say this thought: Did they suspect that he was cutting corners, maybe bending the rules a little bit? Probably. But remember the times. Everybody was, as we now know. This was a time of very shabby behavior on Wall Street as we look back on it now. So if Bernie wasn't scrupulously crossing every t and dotting every i, that would not have looked that unusual to the Wall Street of that day [and] it would not have automatically suggested to suspicious bankers that he was running a Ponzi scheme."


Interview Highlights

On his personality

"He inspired trust in a very unusual way. He really was not like any Ponzi schemer I've ever met before and unfortunately, I've met more than a few over the years. Most of them are kind of swashbuckling characters — you know, the bon vivant, the most charming guy in the room. He would never be the most charming person in the room. He would make you feel like you were the most charming person in the room."

On interviewing him the first time

"He made me feel like I was the most interesting reporter he had ever met and certainly the best — the most proficient, the most professional. It was quite amazing to see the Madoff act up close and in person."

On creating a Ponzi scheme

"You have to remember this: Bernie Madoff helped write the rule book. He knew what it was to be a regulated entity. He ran a regulated broker dealer, a wholesale trading house. So he knew what regulators would look for. And when it came to his Ponzi scheme, he made sure that what they would be looking for was there. So the deceptions were all designed were all designed with a regulator or an auditor in mind because he knew what that experience was like."

On the difference between Madoff's Ponzi scheme and the traditional Ponzi scheme

"The traditional Ponzi scheme exploited investors' greed. Madoff didn't do that. A Madoff scheme is different. It exploits not investors' greed but investors' fear — their fear of volatility, their fear of losing what they have. In fact, through many of the years of Madoff's fraud, investors could have made a lot more money even in some of the very prominent mutual funds. ... But they were willing to give up those greater returns in exchange for the consistency of Madoff's returns. He made them feel safe. They all thought they were taking a conservative step."

On how Madoff knew his time was up

"Money was flowing out, in part, because he had left himself so vulnerable by accepting very liquid accounts. Other hedge fund managers around the world were being faced with demands from their investors who wanted their money back. Some of their money was locked up in [not] liquid investments or stocks that had suddenly taken a nosedive, but if you had money with Madoff, you thought, 'That's pretty liquid money. That's almost like my money market fund.' So that was the first money [people and hedge funds investing in many places] started to tap to repay their investors and it became this deadly game of dominos falling where they would take money out to pay their investors and that would require their feeder fund to take money out of Madoff — and Madoff kept paying those redemptions but he could see far more money was flowing than was flowing in. He told me that by about Thanksgiving of 2008, he was pretty sure he just wasn't going to keep this going."


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