Sunday, March 22, 2009

Mystery of Madoff's rapid confession

Mystery of Madoff's rapid confession
Legal experts were flummoxed by the fraudster's willingness to admit every criminal charge laid before him, but was he trying to protect others who may have been implicated?
Andrew Clark in New York
Friday 13 March 2009

It was a brutally casual way to inform a man of his fate. After listening to a lengthy monologue by Bernard Madoff's defence lawyer on why the fraudster should remain on bail in his Manhattan penthouse, Judge Denny Chin waved away the prosecution.

"I don't need to hear from you because it is my intention to remand Mr Madoff," said the judge. He spoke almost as an aside, as if Madoff wasn't in the room.

There was a collective intake of breath. In the overflow room at New York's federal courthouse, full of hard-bitten hacks watching proceedings on a video link, a few people started clapping. The old man was finally going behind bars.

If the 70-year-old fraudster himself was surprised at being sent directly to jail, he didn't show it. He would have been warned by his defence team that he ran the risk of instant incarceration by pleading guilty to 11 counts of fraud, perjury and money laundering.

In fact, throughout the 90-minute hearing, Madoff looked as if he had been drugged. He stared fixedly at some point in the middle distance, slouched slightly forward with his arms resting on a table. His speech of "apology" was delivered in a flat monotone.

The only time he showed any tangible reaction was when one of his victims, George Nierenberg, aggressively demanded that Madoff meet his eye, moving towards him and saying: "I don't know whether you've had a chance to turn around and look at your victims."

Madoff, rather reluctantly, swivelled round and briefly eyeballed his former client before Judge Chin ordered Nierenberg to cool off.

Being Bernie Madoff's defence counsel is a job from hell, even by the standards of white-collar litigation. Madoff seems to have been intent on self-immolation from the moment his $65bn (£47bn) fraudulent scheme came to light in December.

Many legal experts were flummoxed by Madoff's decision to confess to every criminal count on the table this week without any sniff of a deal with prosecutors. If he had gone with "not guilty", he could have bought himself another year of bail. Or by co-operating with the feds and by talking them through the paperwork, he might have won a delay and a shorter term. Instead, he's probably in jail until he dies.

The probable explanation is that Madoff hopes to take the bullet for his family and colleagues. Peter Henning, a former fraud prosecutor turned law professor at Wayne State University in Detroit, says: "I think he's protecting his family. Any plea deal would definitely have required him to implicate others."

During his words of penance to the court, Madoff was at pains to emphasise that while his investment advisory outfit was a fraudulent hole, his company's proprietary trading and market-making operations were "legitimately and honestly run businesses". His sons, Andrew and Mark, were senior executives on this "honest" side of the Chinese wall. Madoff's 63-year-old brother, Peter, was in charge of trading.

It is almost inconceivable that Madoff could have spent 20 years squirreling away clients' money in a Chase Manhattan bank account, conducting virtually no legitimate transactions, without anybody at Madoff Investment Securities smelling a rat – even if, as he asserts, he was deliberately employing under-qualified staff with no expertise in the securities industry.

For the feds, catching the kingpin before they get to any henchmen poses an unusual difficulty – because of his reputation as America's biggest liar, Madoff is a radioactive witness. Any evidence he gives in future trials can be easily and quickly discredited.

"He's the king of this fraud. That's not someone you'd ever want to use as a witness," says Sam Buell, professor of law at Washington University in St Louis. "You could never use him in court – a jury would be outraged at having this guy testify against somebody who's less culpable."

So there are virtually no grounds for clemency towards Madoff – he clearly isn't being very helpful and, even if he was, his aid is of dubious utility.

The record sentence for a white-collar crime in the US is the 24-year term handed to Enron's Jeffrey Skilling in 2006 (although an appeals court ruled this was too harsh and that it should be recalculated). Madoff could find himself exceeding that.

Some argue Madoff's crime is worse than those of the bosses of corrupt companies such as Enron, WorldCom and Tyco. After all, many of Madoff's victims lost their life savings. In the case of, say, Enron shareholders, the damage is spread relatively thinly among a larger number of people.

"In some ways, this is a worse kind of fraud – it's preying on individuals rather than a fraud on the market," says Buell. "The victims here run the gamut from the very, very wealthy to the not-all-that-affluent."

Federal inmates in the US have to serve at least 85% of their sentences before they qualify for early release on grounds of good behaviour. If Madoff, 70, gets a relatively lenient 20 years and lives beyond the age of 87, he could conceivably see daylight again. But it's not very likely.

To his victims, it's hard to extend forgiveness or compassion to somebody who won't help prosecutors unravel the details of his crime, irrespective of Madoff's claim that he is "deeply sorry and ashamed".

One investor, 71-year-old Judith Welling, raised her arm in a victory salute as she exited the courthouse on Thursday. She put $1.5m into Madoff's fund and thought her nest egg had grown to $2.5m until she learned that the financier's empire was based on a pack of lies.

"Frankly, in my book, he's the lowest of the low," she said.

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