Bernie Madoff was a much bigger fish, but oddly enough not much more difficult to catch.
Actually, it was another fraud that first brought me into the financial industry. My father’s former banker, the man who got the family into fast food, was working as a registered representative, a salesman, at a firm called Yardley Financial Services. It was shut down after the CEO was caught selling fake London gold options. The former banker joined several other former Yardley employees and opened Makefield Securities. My dad bought a 25 percent interest in the firm, and I went to work there in 1987.
I began by doing oil and gas partnership accounting, completing depreciation schedules, matching trade confirms—all relatively basic and often very boring work. I probably was underpaid for the work I was doing, but whenever you work for family you’re going to be underpaid. Look at Bernie Madoff’s two sons. Their father was running the most successful fraud in history and—at least according to Bernie—he wouldn’t let them participate.
My first day as a licensed broker was October 19, 1987. I remember it well because that was the day the stock market crashed. Makefield was an over-the-counter market marker that traded between 12 and 25 stocks. We relied on Harris terminals—dumb terminals I called them because they did not automatically update prices. They simply provided the quote at the moment you hit the stock ticker. But they showed who was bidding and asking on shares at different prices. I came in to work that morning ready to begin my career as a broker, and instead walked into chaos.
We had only four phone lines coming in. They started ringing at 9 A.M. and never stopped. Not for a second. I knew that it was unusual, but I hadn’t been in the market long enough to understand it was unprecedented. I did know that it wasn’t good. We were one of the few companies buying that day, because we were short; we had been betting that the market would go down, and needed to cover our positions. For much of the time we didn’t even know where the market was—our computers couldn’t keep up with the price declines. The New York Stock Exchange tape was delayed about three hours, so at 1 o’clock in the afternoon we were still getting trades from 10 A.M. There wasn’t a moment of calm the entire day. Everybody in the office was shell-shocked. They were trading every step down. I had been trained, but I wasn’t ready to be thrown into the battle. I was so junior that they certainly weren’t going to trust me. I spent the day running errands and setting up trading calls so that our traders could handle their calls more efficiently. We knew the market was crashing, but we didn’t have enough information to understand how bad it was. The end of the day was the ugliest close anybody would ever want to see. We worked through much of the night processing trades, trying to get some understanding of where we were. The market had fallen almost 23 percent.
So much for my first day as a licensed broker.
What surprised me from the very beginning of my career was the level of corruption that was simply an accepted way of doing business. Bernie Madoff wasn’t a complete aberration; he was an extension of the cutthroat culture that was prevalent from the day I started. This is not an indictment of the whole industry. The great majority of people I’ve met in this industry are honest and ethical, but in a business where money is the scoreboard there is a certain level of ingrained dishonesty that is tolerated. I became disillusioned very quickly. I learned that the industry is based on predator-prey relationships. The equation is simple: If you don’t know who the predator is, then you are the prey. Frank Casey, who discovered Madoff for our team, referred to those elements on Wall Street that conduct their business for bottom-line profits rather than serving their clients as “rip your face off financing.” I don’t know where my education went wrong, but my brother and I had been taught that there was no such thing as a minor lapse of ethics. Either you were honest or you were not. It was not possible to be partly honest. I learned that at Cathedral Prep in Erie, Pennsylvania. It was the kind of Catholic school that had a very strict rule that every teacher followed: Once a teacher knocked you down he had to stop beating you.
I was one of the better-behaved students and was knocked out cold only once. At the beginning of the year we had to turn in two bars of soap to use in the showers after gym. I brought two bars of Pet‘um Dog Soap, which leaves your coat shiny, clean, and tick-free. It had a nice drawing of a Scottish terrier on the wrapper, which I showed to my classmates. That was my mistake. The teacher called us individually to drop our soap in a box at the front of the room. When my name was called, the rest of the class started laughing loudly. The teacher looked in the box and found my Pet’ums. “Come here, Meathead,” he commanded. He grabbed a thick textbook and beat me with it until I went down. He followed the rules! When I got a beating like that I couldn’t go home and tell my parents, because my father would then give me another beating for causing a problem in school.
A prank I did get away with was infesting the school with fruit flies. In 10th-grade biology class we were breeding fruit flies for a series of experiments. I managed to sneak a vial home and secretly bred two complete cycles, so I had tens of thousands of fruit flies in a five-gallon jar. I explained to my mother
