How Bernie Madoff made off with billions

A 700-page dossier on the self-confessed fraudster shows the €50 billion scam was anything but a surprise to some, writes JAMES DORANin New York

SENIOR EXECUTIVES at some of Wall Streets biggest firms were convinced Bernie Madoff was a fraud as early as 2005, yet none of them alerted the authorities, documents filed with the US Securities and Exchange Commission (SEC) reveal.

Leon Gross, the former managing director in charge of worldwide equity derivatives research for Citigroup, told friends and colleagues on Wall Street in 2005 that he thought Madoff was being less than honest about the returns he could make for investors but did nothing to prevent the fraud.

Likewise, Joanne Hill, Goldman Sachs global head of equity derivatives research, believed there was something wrong with Madoff’s investment scheme because the returns he boasted in marketing materials seemed too good to be true.

Like Gross, Hill did not alert her superiors nor the regulatory authorities about her concerns. She did tell friends and colleagues on Wall Street about her suspicions, however.

Bud Haslett of Write Capital Management, an investment firm that specalises in the kind of complex options-related strategies Madoff claimed to use, also suspected something fishy was going on. But, again, Haslett told no one of his concerns.

What is more, a number of options traders at the Chicago Board Options Exchange (CBOE) were so angry about Madoffs scheme, that they wanted the world to know he did not use their trading platforms.

They did not tell regulators about their suspicions, though.

The comments made by the bankers and options traders came to light in a 700-plus page dossier of e-mails, letters and analysis filed with the SEC by Harry Markopolos, the fraud investigator who tried to blow the whistle on Madoff for eight years.

To make matters worse, Gross, Hill and Haslett were in contact with Markopolos, who claimed that each of them would give evidence to the SEC so long as they were never required to speak in an official capacity. In other words, they were not prepared to put their heads above the parapet.

If the Wall Street executives had spoken up back in 2005, when they were in discussions with Markopolos, many believe Madoff could have been stopped in his tracks before most of the damage he wrought was done.

“If those Wall Street executives had even the smallest reason to believe Bernard Madoff was a fraud they should have considered it their duty to shout it from the mountain top,” said Jake Zamansky, a lawyer representing several Madoff victims. “Back in 2005, according to Markopolos’s testimony, the Madoff fraud was about $7 billion (€5 billion) and there were few small time individual investors. When he turned himself in three years later, the fraud was $50 billion and dozens of retirees, charities and others had been bankrupted.”

Citigroup confirmed that Gross had been an employee but left the bank some months ago.

The company declined to comment about his views on Madoff. A source close to Citi said Gross should not be singled out as his views about Madoff were commonplace on Wall Street.

CBOE said that Matt Moran, one of the board’s marketing staff named in the dossier, spoke to Markopolis many times over the years but doesn’t recall having a conversation with him about Madoff.

Goldman Sachs did not return calls seeking comment while Write Capital Management has not filed records with the SEC since 2006.

Madoff, meanwhile, is still holed up in his luxury penthouse apartment on Manhattan’s 63rd Street where he has been photographed drinking red wine and watching the news on TV, while wearing a blue bathrobe.

The case against him becomes more complicated by the day with lawsuits by the dozen piling up on all sides.

Prosecutors were last week set to file an indictment against the self-confessed fraudster until it was revealed Madoff’s wife, Ruth, had withdrawn some $15.5 million from a company established by her husband.

Court documents show Mrs Madoff withdrew $5.5 million on November 25th and $10 million on December 10th, the day authorities say her husband confessed the alleged scheme to his sons and the day before his arrest.

This week it is expected that more Madoff employees will be questioned on what has become the most audacious Ponzi scheme ever perpetrated on Wall Street.