Business Books: Bernard Madoff, scoundrel

By Jonathan Stempel

NEW YORK (Reuters) - Bernard Madoff earned his place in Wall Street infamy by stealing billions of dollars from people who did not know any better.

Or did they? Was it too much to expect investors, as well as regulators, to know or suspect that the steady, 8 percent to 12 percent annual returns that the avuncular Madoff seemed to generate in all sorts of markets were a sham? Why were whistle-blowers like Harry Markopolos given such short shrift? Or did people just not want to believe Madoff was a thief?

Tapping into the interest in Madoff, one of the newer tenants of the Butner Federal Correctional Complex in North Carolina, publishers are racing out books on the mastermind of the $65 billion Ponzi scheme that devastated charities and duped people like director Steven Spielberg and Nobel prize-winner and Holocaust survivor Elie Wiesel out of millions.

Erin Arvedlund's "Too Good To Be True: The Rise and Fall of Bernie Madoff" (Portfolio, $25.95) and Andrew Kirtzman's "Betrayal: The Life and Lies of Bernie Madoff" (Harper, $25.99) take readers through a trail of deception that culminated in a 150-year prison sentence for Madoff, now 71.

Both authors agree Madoff's shady business dealings started early, though it is unclear when he began his Ponzi scheme, which involved using the money from newer investors to repay older investors.

The gift for illusion apparently started early in life. Both books say Madoff tried to fool a high-school English teacher by delivering an oral report on the nonexistent book "Hunting and Fishing" by Peter Gunn, though he had read nothing for the assignment. (Perhaps this, too, was apocryphal; the "Peter Gunn" TV series did not air until a few years later.)

For the native of middle-class Laurelton, New York, whom Kirtzman says "never felt he was good enough," Madoff built cachet through his market-making business, being early to embrace computers and technology. He would become chairman of Nasdaq, and his businesses would take over three floors in the Lipstick Building in midtown Manhattan.

But it was Madoff's investment advisory business on the 17th floor that was a source of mystery even to those who worked in the market-making business on the two floors above. The whole operation was shy of infrastructure -- run, as Kirtzman puts it, "like a small family restaurant."

Having built up goodwill over decades, Madoff attracted billions of dollars from feeder funds, run by people who never surmised or never checked that Madoff, known as the "Jewish T-bill" because of the steady returns he delivered, could be up to no good.

Arvedlund says one investor long enamored of the "insightful advice" proffered by J. Ezra Merkin, who funneled billions to Madoff, later deemed him a "glorified mailbox." She also says Madoff's not employing a prime broker was a "huge red flag" to anyone looking for his phony hedge fund.

While Arvedlund notes that the Madoff scandal "transcends ethnicity, religion, class and even international borders," a disproportionate number of victims was Jewish. The security that Madoff seemed to offer, rather than investment results that whipsaw from year to year, held great appeal.

"Part of the Jewish mentality is prudence, especially financial prudence, conservatism, not taking risks," Arvedlund quotes one Madoff investor as saying. "Madoff was the opposite of risk -- he was anti-risk."

Kirtzman's book is the more engaging read, focusing much more on Madoff himself and on the anger and shame his crimes provoked, whether in the Fifth Avenue Synagogue in New York or the confines of the Palm Beach Country Club in Florida.

Arvedlund, whose 2001 article in Barron's magazine about Madoff hinted at what was to come, is more interested in the scam. She wants reform of hedge fund oversight, and comes down hard on the U.S. Securities and Exchange Commission's failure to stop Madoff. Incredulity? Incompetence? Bureaucratic bungling? Favoritism? Probably all of the above, she believes.

The haste of publication shows. Arvedlund identifies Denny Chin, the judge who sentenced Madoff, as "Dennis." She also misspells current SEC Chairman Mary Schapiro's name and renders the name of the SEC lawyer whom Markopolos tipped off three different ways. Kirtzman's book lacks, and needs, an index.