Thursday, October 24, 2013

Bernie Madoff: after years of taking, the gift that keeps on giving

Hard to believe that we’re approaching the fifth anniversary of the Fall of the House of Madoff.  For a while there, Madoff-palooza was a real boon for at least one (quasi) business blogger in search of a daily topic.

So I’m pretty much delighted to say that he’s back. Or at least his former colleagues are – the ones who are on trial for aiding and abetting the Ponzi scheme to end all Ponzi schemes.

What’s coming out these days is info on the Madoff corporate credit card policy – or lack thereof.

There wasn’t an obvious business purpose for many charges, including trips to Disney World and Las Vegas, that Madoff’s securities firm paid each month, Charlene White, whose job included running dozens of monthly reports and helping process company checks, told jurors yesterday in the trial of five former employees accused aiding Madoff’s $17 billion fraud.

“There weren’t any rules,” [Madoff employee Charlene] White testified. It’s “correct” that no expenses were ever turned down and there wasn’t a reason to be suspicious, she said under cross-examination by defense lawyers. (Source: Bloomberg.)

I still remember when I went over Wang’s $30 a day New York per diem – by one dollar – and had my expense report rejected.

Sure, this was 25 years ago, but even then $30 didn’t buy you much by way of three meals a day in The City, where I spent a few days every month.

My sister Trish was living in New York at the time and, rather than stay at the flea-bags that Wang put us up in (one step up from Bowery SRO’s), I would stay with her, using my per diem to buy groceries or take us out to a bargain dinner. That $31 went towards Chinese takeout. (Wang sales folks had a slightly more generous expense policy, so one of them would always pick up the tab for lunch, which was typically one step up from the Sabrett hot dog cart.)

Another time – another company – I went a bit over on dinner.

We were at a trade-show in Chicago, and the weather was just pissingly miserable, so I made the executive decision that we’d eat in our hotel, where the restaurant was The Palm. As the senior person, I picked up the check, which was exceedingly modest by Palm standards. All anyone had was a piece of meat and a glass of wine. Still, it went over our allowance and my boss, who was an incredible cheapo, circled the expense in red. (This after I had gone out of my way to point out that we’d gone over. When he was the senior person on any trip, we always went to the cheapest joint he could find. Some weren’t bad, but some were just god-awful.)

Anyway, I’ve pretty much worked places where there were expense policies, and they were pretty much monitored. At least for the little-wigs.

In one crazy-ville company where I worked, one of the finance folks told me that the president submitted expenses for everything – including fertility treatments, copious amounts of alcohol, and taxidermy.

Which sounds sort of like:

Joann Crupi, one of the former employees on trial who joined Madoff straight out of college in 1983 and went on to manage some of the largest accounts, charged thousands of dollars in personal expenses on her corporate card, the U.S. alleges, and never declared it as income.

Crupi, who probably thought she’d died and gone to heaven – as opposed to lived and going to prison – when she ran into Bernie,  got to regularly buzz off to Orlando and Las Vegas, plus charge case upon case of wine.

Daniel Bonventre, Madoff’s operations chief who worked with the company’s general ledger and is also on trial, signed company checks to pay for his personal American Express card, including tens of thousands of dollars for shopping trips to Barneys, airfare to Saint Martin, rooms on the island at Hotel Isle de France and dues for his Richmond County Country Club in Staten Island, according to statements displayed for the jury.

It’s not taxidermy, still…All that shopping at Barney’s?

White said she never had a reason to believe it was wrong for the company to pay Bonventre’s personal expenses, and that Madoff was generous in general to employees and threw parties for everyone to attend.

It’s certainly easy enough to believe that a rank-and-file employee whose job was check-writing wouldn’t think through the possible illegalities of paying the Barney’s charge off. (White’s not on trial.) But wouldn’t you think that the operations chief would have a clue about compliance? And where in god’s name were the auditors in all this?

In addition to Crupi and Boventre:

The other defendants are Annette Bongiorno, who worked for Madoff for 40 years, including as his personal secretary, and helped run the company’s investment advisory business, and computer programmers Jerome O’Hara and George Perez, who helped generate millions of corporate documents.

Prosecutors allege the group assisted Madoff by fabricating fake account statements and regulatory filings for years to keep anyone from finding out about the scheme. The defendants, who have all pleaded not guilty, claim Madoff deceived them and kept them in the dark about his activities.

Personally, I suspect that they were all dupes, unwilling to look that gift horse that was Bernie in the mouth.

I don’t think we’re talking about a bunch of Wharton sharpies here.

But, just as with those who got caught up in Bernie’s too-good-to-be-true investment scheme, caveat employees: if something sounds too good to be true…

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Meanwhile, FBI Special Agent Theodore Cacioppi, who worked on the Madoff case, and testified at the trial, is onto a new gig. He’s:

…a team leader for one of the agency’s underwater evidence recovery units, staffed by scuba divers who search for guns and cars used in crimes.

Talk about an interesting niche! (Luca Brasi sleeps with the fishes…)

2 comments:

Rick said...

An old friend in NYC, then COO of a significant Wall St. firm, was for a while a member with Bernie Madoff of an industry committee whose purpose was to give the SEC advice on the impact of proposed rule changes, or something similar, I forget exactly. He said he was always astounded at how out and out stupid Bernie was, and found it impossible to believe that the guy was even a good money manager, let alone a brilliant one.

But there is a class of people, I'm sure we have all run into one, in which general stupidity is combined with extreme craftiness. They may not know much, but they know one thing very well - how to get others to do what they want. My guess is that Bernie wanted his employees to, in effect, earn taxable income through reimbursement of non-business expenses that he knew perfectly well they were not going to report to the IRS. That way, if any of them asked too many questions or caused any other kind of trouble, he would threaten to report them to the IRS unless they got back in line. I don't know that he ever actually did that, but I'll bet he wanted to have the ability to do so if needed.

Kathleen Rogers said...

Taxidermy! Taxidermy? WTF