Ocrant said he’d like to pursue the story, but admitted it would be difficult for him to investigate Madoff, because he knew very little about the options business.
“That’s okay,” Frank said quickly. “We’ll educate you.” Mike Ocrant turned out to be the perfect person to become the fourth member of our team. Unlike the rest of us, he had grown up with a con man and had already exposed a major Ponzi scheme.
Mike Ocrant had been born in Chicago but had moved with his parents to a suburb of Denver, where they had decided to open what was probably the city’s first Jewish deli. Mike’s parents knew absolutely nothing about the restaurant business and their concept of Judaism was eating lox and bagels on Sunday, so naturally they opened a Jewish deli. It closed in less than a year and his parents lost everything.
Also living in Denver at that time was his father’s half-brother, a man who had one great similarity to Madoff—neither one of them had a conscience. “He was so smooth,” Mike remembered. “He had so much confidence. He was only five feet two but he insisted he was five feet ten. That was his skill; he had the ability to deny the undeniable.”
His uncle, while brilliant, was also ambitious and craved financial success to prove his own worth. On several occasions he was accused of unauthorized trading in customer accounts to generate commissions. In one instance he went into the account of a relative and lost her entire nest egg—and never showed the slightest remorse.
It was at the University of Colorado at Denver that Mike decided to become a business journalist. He had a professor, a Marine veteran named Greg Pearson, who taught him that whatever story he was working on, it would eventually come back to the money. Money linked everything together. Follow the money.
After working at several trade publications, among them Mass Market Retailers, he became a reporter at McGraw-Hill’s Securities Week— eventually rising to managing editor—covering the commodities markets. As he learned quickly, commodities is the contact sport of finance. “These are the elbow-in-the-face sort of guys, who came from the streets of New York and Chicago,” he explained. “A lot of them are without college educations. They’re very smart, most of them, just not book smart, and they know how to make trades. And nothing stands in their way, or if it does, it doesn’t remain standing. It’s a great place to learn about the ruthlessness of the financial industry.”
When he moved to MARHedge in 2000, he knew almost nothing about the hedge fund industry, but he learned quickly. In fact, at one point he got a tip about New Jersey currency traders who were regularly returning as much as 20 percent a month. It had all the hallmarks of a classic Ponzi scheme. After gathering evidence that this was indeed a scam, he phoned the company and requested an interview with either or both of the two principles running the firm. “I could tell immediately from the secretary’s reaction that something was very wrong,” Michael remembered. “There was a lot of nervousness in her voice, a lot of anxiety. At first she said they would call me back, but later they started making excuses, telling me they were going to be out of town for a while.”
Ocrant reported this company to the Commodity Futures Trading Commission, the regulator for the futures market, which almost immediately began an investigation and shut down the company. This company had cheated investors out of several hundred million dollars, making it one of the largest frauds in New Jersey history.
After this scheme had collapsed, several of the victims had contacted Ocrant to tell him their stories. An older woman who had been using the returns to care for her retarded brother had lost everything; she didn’t know where the two of them would live. A CPA on Long Island had lost both his and his wife’s retirement funds as well as their children’s college funds. “I just got those redemptions and kept investing more. After a while I never took anything out,” he said, casually defining the horror of a Ponzi scheme. There was nothing Ocrant could do but listen and sympathize.
So while I talked about Madoff’s Ponzi scheme in the abstract, Mike Ocrant knew what a real Ponzi scheme smelled like, and he knew the human damage it did.
To Ocrant, this just didn’t smell like a Ponzi scheme. He didn’t know exactly what it was, possibly front-running, but he just couldn’t believe the evidence. When he returned to New York he began his education, spending several hours on the phone with Frank, learning the language of options, and like any good reporter, trying to punch holes in our theory. But he also quietly initiated his own investigation of Madoff. If we were right and he could prove it, this was potentially a career-changing story.
He began by asking the managing editor, who reported to him, as well as the president of the company, if they’d ever heard any rumors about Bernie Madoff managing money. Madoff, the market maker? No, neither of them knew anything about it. They had been working in the industry for years, but had never heard a word about Bernie Madoff’s money management operation.
That’s sort of strange, he thought. Then he expanded his investigation, casually questioning several knowledgeable contacts in the business. And all the evidence he compiled seemed to confirm that Casey was right. One contact, a serious quant who had managed a billion-dollar portfolio for the Tiger Fund, explained to Ocrant that when he made a small trade, for example half a million dollars in a stock or option, that trade would cause the market to
