Madoff: The coolest guy in the room

What’s Bernie Madoff really like? Think of the coolest guy in high school — the one with a convertible, surrounded by cheerleaders.

What’s Bernie Madoff really like? Think of the coolest guy in high school — the one with a convertible, surrounded by cheerleaders.
That’s my image of Bernie.
I used to see him every year at the annual Securities Industry Association meeting in Boca Raton, Fla., when I headed public relations for Wall Street’s trade group (now known as the Securities Industry and Financial Markets Association of New York and Washington) and ran press events at the yearly December meeting.
He and his brother Peter were active on SIA committees and its board, and I can picture Bernie in very expensive casual attire — a pricier-than-Ralph Lauren peacock-colored polo shirt, $500 slacks and Italian loafers that cost two or three times more — strolling around during coffee breaks, talking to other securities executives.
Actually, his stroll verged on swagger. There was just something about the way he carried himself that proclaimed, “I’m one of the cool guys; you know it and I know it, and I know you know it.”
If he spoke to you, he was polite, but you got the sense of a king holding court.
At the time, I had no clue that Bernie Madoff managed money. He was a Nasdaq market maker, which meant his firm bought and sold stocks and made its profits on the spread.
In the Wall Street hierarchy, equity trading was as far removed in status from investment banking as a pushcart is from Neiman Marcus, but the Madoffs were fabulously successful. That’s the nice way of saying the Madoffs made a lot of money, and money makes you smart, handsome and witty, and gives you status.
So what if your big money came from the nickels and dimes chipped off every trade. And so what if everybody on Wall Street (and at the U.S. Securities and Exchange Commission) knew in their hearts that retail investors got the short end of the deal in most transactions.
So every year, there was tanned Bernie, strutting around and schmoozing with his friends in high places on Wall Street, and there were the regulators and legislators who love to schmooze and strut along with the other cool guys.
Over time, however, thanks to technology and journalist Gretchen Morgenson, who shone the light on the curious pricing of Nasdaq stocks, the nickels and dimes skimmed from trading shrunk to pennies and fractions of pennies. Apparently, that was about the time that Bernie Madoff discovered there was a lot more money to be made in managing other people’s money than merely acting as the card shuffler.
Now that Bernie’s Ponzi approach to investment management has been revealed and securities regulators are poring over his records, we may soon learn whether the Madoff money management business ever made any legitimate money, and if it did, when it veered off into fantasyland.
Then again, it’s quite possible that Bernie’s investment strategies never really worked.
I can see how Bernie’s swagger attracted clients. After all, if you weren’t the cool guy in high school (and believe me, I certainly wasn’t), wouldn’t you be honored and thrilled if Mr. Cool deigned to let you ride along in his convertible? I understand how investors were drawn in. And even if they thought Bernie may have been a little bit of a crook — after all, he was a big shot on crooked Wall Street — at least, in their minds, he seemed to be a crook looking out for his investors.
But two things baffle me:
Since the Madoff company was a small family business rife with Madoff children and relatives, doesn’t it strain credulity that no one other than Bernie knew what was going on? After all, we’re not talking about taking $10 from the till when no one was looking. How could one guy pull off something this big all by himself?
Second, it’s understandable that the SEC and the Financial Industry Regulatory Authority Inc. of New York and Washington look like morons for not detecting the fraud, but what about state regulators, outside auditors, inside accountants and lawyers?
It seems that no one who should know better knew better. If there’s any consolation, it’s that rich people are as stupid as we’re supposed to be (since, after all, we’re not rich).
And it also shows that in many a successful big shot still beats the heart of the nerd who wants to hang out with the cool guy.