Finally, as for all the rumors in the industry about the way he conducts his business, he dismissed them completely: “[T]hose who believe there is something more to it and are seeking an answer beyond that are wasting their time.”
As Frank, Neil, and I read Ocrant’s article, we started high-fiving each other. We’d gotten him! We were certain there was no way SEC investigators could read it without opening an investigation. I was ecstatic, but Frank was exuberant because once Madoff was gone he had a clear path to Thierry’s $300 million. “This is it,” Frank said. “The SEC’s gonna ride into town with a posse and they’re gonna shut him down!”
Hidden within the story was even more evidence of Madoff’s deception. He had admitted for the first time that he was running as much as $7 billion, which meant he had to have an established line of credit from some bank, and there wasn’t a bank in the world that was going to give a multibillion-dollar line of credit to a single broker-dealer without equity and without completely revealing the nuts and bolts of the entire operation.
We waited expectantly for the response. It never came. Mike received more than a dozen phone calls from industry people who confirmed that their investigation of Madoff had shown that something strange was going on, and they were glad Mike had made it public, but he didn’t get a single phone call from any regulatory group interested in pursuing this story or from any investors who were dissuaded from giving Madoff their money because of it.
The silence from the SEC was particularly discouraging. It was difficult to believe that they could read this story and not open an investigation. As I later learned, the answer was that they didn’t read the story. Apparently the SEC does not have a publication budget, meaning staff members have to pay out of their own pockets for any industry material. They even have to pay for their own subscriptions to the Wall Street Journal, so obviously very few of them would be reading MARHedge, which cost more than a thousand dollars annually.
One phone call Ocrant did get the day after his story appeared was from a reporter at Barron’s magazine, Erin Arvedlund, who told him she had been working on a similar story about Madoff. To our surprise, amazement, and delight, her story was published six days after the MARHedge piece. Although Arvedlund later claimed she had been working on the story for months and had done her own research, in essence the story was little more than a summation of Mike’s. She did have a conversation with Madoff, though, presumably on the phone, in which he called claims that he was front-running, “ridiculous,” and she did interview at least one investment manager who refused to be identified. Arvedlund reported, “Madoff’s investors rave about his performance—even though they don’t understand how he does it. ‘Even knowledgeable people can’t really tell you what he’s doing,’ one very satisfied investor told Barron’s. ‘People who have all the trade confirmations and statements still can’t define it very well. The only thing I know is he’s often in cash’ when volatility levels get extreme.
“This investor declined to be quoted by name. Why? Because Madoff politely requests that his investors not reveal that he runs their money. ‘What Madoff told us was, if you invest with me, you must never tell anyone that you’re invested with me. It’s no one’s business what goes on here,’ says an investment manager who took over a pool of assets that included an investment in a Madoff fund. ‘When he couldn’t explain how they were up or down in a particular month,’ he added, ‘I pulled the money out.”’
Although Ocrant was justifiably upset by what appeared to be basically a rewrite of his reporting, we were elated. We knew there was no way Madoff could remain standing after two articles this devastating were published within a week of each other. While MARHedge had a limited and exclusive readership, Barron’s was a business magazine for the consumer. It had a large circulation. This was a double-barreled shotgun. We had reached the Wall Street insiders and the general public. We didn’t think there was any way he could survive it.
I remember speaking with Ed Manion’s wife, Mary Ann; we were both confident it was finally over. The SEC would have to take action. In fact, just to make sure that the SEC could connect the dots, the day Barron’s published Arvedlund’s article someone from the BDO, presumably Ed Manion, called the New York office and spoke to the director. The caller told him about the Barron’s article, reminded him that they had my second submission in their office, and volunteered to send the director a copy of the article. This was no longer just a road map; it wasn’t even a GPS. This was a guide dog leading a blind man to the Promised Land.
I believe that the director wasn’t interested, that he wouldn’t even reconsider initiating an investigation, and I know of no evidence that he ever read either Ocrant’s piece or the Barron’s article.
The two magazine stories together made as much impact as a single snowflake. We were astonished, shocked. It was like watching the monster march into the city and seeing the bullets bounce harmlessly off him. That’s when we first began to wonder exactly what we were dealing with. How powerful was Bernie Madoff? How could he have remained standing after these attacks? Who did he know? What strings was he pulling? It was a chilling thought.
Mike Ocrant spoke with Madoff once more. After the Barron’s article was published, he called Madoff’s office. This time Madoff was unavailable, out of town. But a few hours later Madoff returned the call. He was on a golf course in Europe, he said. Ocrant
