Ten years ago today – a little after 7:30 on the morning of Thursday, December 11, 2008 – two FBI agents were admitted to the foyer of a palatial duplex penthouse at the top of one of Manhattan’s classic residential buildings.
FBI special agent Ted Cacioppi said to the apartment’s owner, “We’re here to find out if there’s an innocent explanation.” Bernard L. Madoff famously replied, “There is no innocent explanation.” Thus came crashing down the greatest Ponzi scheme – involving the most massive securities fraud – of all time. In that moment, fifty billion dollars disappeared.
The best book about the Madoff affair and its bitter aftermath is New York Times reporter Diana B. Henriques’s Wizard of Lies, written in 2012 – after the deaths of both of Madoff’s sons, and deep into the Gordian knot of international prosecution and litigation which was ongoing in the quest to recover assets.
The book is authoritative not merely for the depth of the research but for the fact that Ms. Henriques was the first journalist to whom Madoff spoke, after he began serving his 150-year prison sentence. (Wizard of Lies was subsequently turned into an HBO movie with Robert De Niro and Michelle Pfeiffer which is quite good of its kind, but no substitute for the book.)
This is not to say that Ms. Henriques is any more successful than anyone else has been – or ever will be – in illuminating the gothic architecture of Madoff’s sociopathy. But she is particularly good at recounting the extent of his groundbreaking achievements in electronic trading, and his contributions to the growth of NASDAQ.
Perversely, it was Madoff’s legitimate standing as a senior statesman of the industry which helped render him so attractive to investors, and gave him cover for so long. (But of course, that only deepens the unfathomable mystery of why he would need or even want to run what metastasized into an epic fraud.)
It was, finally, not his reputation but the very nature of his totally fictitious returns which drew billions of dollars to him, and this is the great lesson of the Madoff saga for advisors. Madoff’s putative rates of return were never showy; the attraction was their consistency – the way he seemed to have achieved immunity to even the most mundane market zigs and zags. From beginning to end, his record was entirely too good to be true – and investors around the globe rushed to suspend disbelief for upwards of two decades.
The chimera which Madoff peddled so successfully – smooth, consistent returns decoupled not just from risk but from volatility itself – was irresistible to his victims. It always will be; it’s a fundament of human nature. Thus there will always be a Ponzi scheme (nay, schemes) operating out there in the darkness somewhere, if never again on Madoff’s scale.
Which serves to remind us of why we advisors were sent into the world: to try as best we can to save people not from a Madoff, but from themselves.
© 2018 Nick Murray. All rights reserved. Reprinted by permission. Nick reviews current books, articles and research findings for advisors in his monthly newsletter, Nick Murray Interactive, now entering its nineteenth year of publication (www.nickmurraynewsletters.com).