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 Erin Arvedlund's "Too Good to be True" is one of the first books about the Bernie Madoff scandal. The book is billed as chronicling "the rise and fall" of Madoff by "the author of the groundbreaking 2001 Barron's article" on the now-incarcerated financier. Neither claim is entirely true: Madoff's rise, on the backs of (what appears to have been) a perfectly legal brokerage operation, is indeed well-documented here and appears to even have some new information. But there isn't much to say about Madoff's "fall," other than his foray into asset management was essentially a Ponzi scheme from the word go and one that was due to fall apart -- as Ponzi schemes do -- when investors withdrew more funds than Madoff could raise.As for Arvedlund's 2001 piece in Barron's, it did little more than raise a few questions, specifically "that some on the Street have begun speculating that Madoff's market-making operation subsidizes and smooths his hedge-fund returns." That's hardly blowing the whistle, nor is it particularly ground-breaking. But hey, that's probably just Arvedlund's publishers (Portfolio) trying to sell the book. No harm in that. The book itself does fall short in a few areas. It jumps around chronologically and never really develops as a narrative. The whole thing feels rushed, as though the writer was in a hurry (perhaps at the publisher's behest) to get the manuscript done, pronto, before anybody else could publish a definitive work on the subject. Arvedlund also relies too much on public documents and previously published reports, though she does back these up with quotes from primary sources (several on the record, many not). The result is that at times the book reads more like a collection of press clippings than an independent report. Then there are factual errors. Arvedlund repeatedly refers to the "illegal" status of unregistered investment advisers, at one point stating, "Bernie Madoff wasn't registered as an investment adviser, so his investment advisory business was always illegal." This is of course complete hogwash. Madoff may have been a crook, but failing to register as an investment adviser was (and is) no crime. The Securities and Exchange Commission did not require it until 2005 and even then allowed exemptions, if investors were locked up for more than two years, for example. Arvedlund later contradicts her own statements, when she discusses how Madoff encouraged investors to channel their money through feeder funds so he could avoid having to count each one as an individual client (for a long time the SEC required registration only from firms with more than 15 clients, another loophole that was exploited by many legitimate hedge funds). She later says that "hedge fund experts are still divided [on] mandatory registration of hedge funds with the SEC." How can that be the case if Madoff, by virtue of his unregistered investment advisory business, was so blatantly illegal? The debate on how best to police hedge funds is certainly an applicable topic, though not when Arvedlund points out that Madoff was at best pretending to be a hedge fund. The problem does not appear to be hedge funds per se, but illegal activity. In Madoff's case the illegal activity was pervasive, dating at least to 1987. Arvedlund suggests there was never anything legitimate about Madoff's asset management business, that it was merely a "very expensive way of borrowing money from the public." How then did he get away with it for so long? There were red flags galore: His "hedge fund" didn't have a prime broker, it didn't offer quarterly letters or conference calls and didn't even offer clients electronic access to their investment accounts. Its comptroller was offshore, and its auditor "operated out of a strip mall in New City, N.Y." There was no evidence (electronic or otherwise) of trade executions. Madoff himself "stuttered when he tried to explain his options strategy," as one potential investor told Arvedlund. It turns out that many potential investors spotted these red flags and chose not to invest. But none of them alerted the SEC or other authorities. Madoff was also insulated through a tight circle of family and other enablers. Many people (so called "third party marketers") got rich off Madoff and did not want to kill their cash cow. Their role in perpetuating Madoff's Ponzi scheme was significant. This is perhaps the most interesting part of the book, and also where Arvedlund is strongest. Fundraising is of course essential to a Ponzi scheme, which requires more money to come in than go out if it is to continue. Knowing this, Madoff paid lucrative commissions to anybody who referred him investors. "Everyone connected to Madoff's fund-raising operation was getting such good kickbacks for bringing assets to him that it wasn't in their interests to worry about any warning signs surrounding him," Arvedlund writes. While such commission payments are not illegal, third-party marketers do have a fiduciary duty to their clients. If the people and firms who raised money for Madoff failed (whether implicitly or by omission) to perform their fiduciary duties, they could be in trouble. Madoff has to date insisted he acted alone. Arvedlund stops short of questioning this outright, but does provide some pretty damning research: She quotes one person -- on the record -- saying the marketers "had serious disincentives to go out and do the due diligence." One marketer allegedly told investors "you don't know what you're talking about" when they questioned Madoff's returns. Then there is the story of Sandra Manzke and Tremont Capital Management, which one suspects could attract the interest of regulators if it hasn't already. Indeed the greatest lesson of the book is its documentation of just how widespread Madoff's scheme was. We know all about some of the prominent investors who lost money with Madoff, but behind nearly every one is somebody who advised them to do so. Arvedlund tells us exactly who these people were and in many cases even how much they made from this activity. No doubt a tremendous service. - Nathaniel Baker
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From: Marleah ,
Sonny's other son, A.J. worked for Madoff Investments but left a bit before stuff hit the fan. Daddy worked for Cohmad. And mommy, Carole Delaire (Sonny's wife), helped Daddy A.J. (Sonny) lure victims to Cohmad. According to the daughter in law, Carole Delaire approached her directly and told her that she would get her money into Madoff Investments. After learning about the scam, the daughter asked back for some of the money and Carole and Sonny wrote her a personal check for part of it. Then Carole and Sonny tried to sue the daughter in law for talking to the press and to keep her quiet. The judge threw Carole and Sonny out. They were having their son in law Mark Blount, a New Jersey lawyer represent them for a while. He's married to Kristi Delaire Blount and tried to cover for them when the daughter in law spilled the beans.
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October 1, 2009 2:04 PM
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Of course the book was rushed..Penguin Publishing wanted to get this on shelves in time for Labor Day beach reading..causing Little Erin to err in a few other areas..a few mis-spellings (e.g.C ohmad enabler Dick Spring used to work at D.J. Greene (not David J. Green), and Sonny Delaire's son "A.J." wasn't the son that landed a job at the NYSE--it was his son Brett that worked inside the NYSE Surveillance Dept. But lo and behold, poor Brett was fired after NY Post tipped of the NYSE that Brett may have been sharing his knowledge of SEC investigations with his Dad Sonny, one of Madoff's major enablers. It didn't help Brett that NYSE also discovered the youngster was using NYSE email to broadcast racist and pornographic material to his peeps. All said, I'll be there with bells on at Erin's book party on Wed the 16th at the Penn Club in NYC