Bernie Madoff ran quite the little family business. Back in the happier, headier days of 2000, son Mark is quoted as saying:
All of his family members grew up with this being our lives. When it is a family operated business you don’t go home at night and shut everything off, so you take things home with you, which is how all of us grew up.
Madoff practiced nepotism to a degree I assume is somewhat unusual in the world of investment firms, employing not only sons Mark and Andrew, but a host of other relatives: brother Peter, niece Shana, nephews Charles and Roger (the role of wife Ruth in recent years remains unclear).
But Madoff insists that he, and he alone, knew of the fraudulent nature of his hedge fund operations. His sons, not surprisingly, agree.
Of course, Madoff is a liar. So why should we believe him on this one point? The answer is: we shouldn’t. But neither should we automatically assume that his sons absolutely had to be in the know.
I say this not through excess of naivete, although it may sound that way. No, I am fully aware that it is highly possible, not to mention likely, that the sons were cognizant of the Ponzi nature of the operations, and are part of the coverup.
But at the same time I think anyone who assumes Madoff himself could not have been clever enough, secretive enough, and criminal enough to defraud and fool even his own family is suffering from a different sort of naivete (see this).
So, if they weren’t part of the swindle, just what might the sons have been doing all day in their large but perhaps spartan offices (Madoff favored black, white, and gray as a color scheme, and reportedly was so obsessive-compulsive that he had no tolerance for a stray scrap of paper on the desks of employees)? Madoff carefully kept the brockerage arm of the firm—which the sons ran—separate from the fraudulent hedge fund operation. The former was apparently a bona fide business.
This, of course, does not mean the sons were not taken into his confidence. Perhaps the whole structure was carefully arranged merely to give the appearance of separation in order for the sons to exercise plausible deniability later on.
This past weekend’s Wall Street Journal has this to say of what is known so far about their role:
While neither son has been implicated by prosecutors, the sons interacted with some who worked in the Madoff investment operation. As executives at the firm, they met regularly with their father and other senior officials of the firm in closed-door discussions in the company’s offices, according to former employees. They both gave their father some of their own money to manage and occasionally chatted with a key lieutenant who now is a focus of probes into the alleged fraud, and they defended their father’s investment operation against critics.
These associations hardly constitute smoking guns, although they make it clear that opportunities abounded for the sons to learn about the scheme, if Madoff so desired, or if they smelled a rat. But did he, and/or did they?
Son Mark, who once had personal money invested in dad’s hedge fund, pulled it out for undisclosed reasons prior to a divorce in 2000—the strongest evidence, in my opinion, of his possible knowledge. But son Andrew remained heavily invested right up until the revelations of December.
So, what is the likelihood the sons knew? I can’t say; no one can except the parties themselves. But my gut tells me that Madoff senior is the sort of person who likes to feel superior to everybody around. Part of that supreme sort of narcissism and criminality is that it tends to take no one else into its confidence. I agree with those who believe that:
…good old Bernie Madoff might have stolen simply for the fun of it, exploiting every relationship in his life for decades while studiously manipulating financial regulators.
And note that “every relationship in his life,” if true, would include sons Andrew and Mark.
Madoff may have much preferred to walk alone. In fact, that may have been the whole point:
[NOTE: One fact that contradicts my "loner" theory is that someone must have been generating those imaginary reports of transactions for the hedge fund. Could it have been Madoff himself? I submit that, until other evidence surfaces, the answer is "yes." The guy seems to have been obsessive-compulsive enough to have done so. Here's how:
Madoff made his reputation on building complex financial systems, covering the full range of investment management—accounts, trades, taxes, clearinghouses, balances.
All he had to do was switch the input signal from real accounts to simulated accounts. And every programmer knows what happens then: GIGO—Garbage In, Garbage Out.
Call it the Madoff Virtual Reality Trading Simulation Game.]