Wilpon's Folly by Howard Megdal

Author:Howard Megdal
Language: eng
Format: epub
Publisher: Bloomsbury USA
Published: 2011-07-11T16:00:00+00:00

Known? No. Should Have Known

Using 20-20 hindsight it is tempting to argue that the Sterling partners would have withdrawn their funds from Madoff if they had so much as suspected that he was running a Ponzi scheme. But this supposition bypasses a crucial detail: even if they did think he might be running a Ponzi scheme, they had no way of knowing that he’d be arrested for it. After all, if there had been reason to believe that such a thing would happen, Madoff himself might have shuttered his own business, or at least taken measures to protect himself.

And that is applying the facts of what we know now, since when we think of the case, we aren’t merely thinking of a Ponzi scheme, but a different question: How could the Sterling partners have kept so much money in Bernie Madoff’s hands, when he was running a Ponzi scheme that would come to an end on December 11, 2008? Of course, no one knew that as the 2000s dragged on. No one could.

Let’s say you apply this logic to Bernie Madoff himself. Madoff actually knew he was running a Ponzi scheme, since he was the one running it. Given that he had to know that eventually he’d either run out of money or get caught, there’s no logical reason he would have put his entire life and finances at risk. Therefore, Bernie Madoff couldn’t have run the Ponzi scheme he ran.

Logic doesn’t lead to Ponzi schemes, nor does it guide those who participate in them, nor to those who turn a blind eye to indications that they may be happening. Greed is the driver.

But even if the Sterling partners believed Madoff was running a Ponzi scheme—and that is neither suggested by the trustee, nor is it the level of proof he needs to reach—what they saw, over a period of twenty-three years, was an investment that somehow provided positive returns—always. In good markets, in bad markets—consistency, not huge profits, was what Bernie Madoff provided to Fred Wilpon and Saul Katz.

This represented a huge operating advantage to the businesses they ran. Not because they were making so much more money than various businesses were making one year or another year through investments, but because they were making a little more, and they were always making a little more. As a result, by the time the red flags really started flapping, all of their businesses were reliant on that steady income to operate effectively.

So the question isn’t why they continued to invest with Bernie Madoff. The question is, just how many indications of fraud were they willing to ignore to keep investing with him? And, more important, does their willful ignorance meet the trustee’s standard of inquiry notice, or the judge’s standard of willful blindness?

Again, the issue here isn’t whether they received information that should have alerted them to this particular fraud, which was a Ponzi scheme. Certainly, they received plenty of that, from a trusted business partner urging them to buy

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