The Monster Mensch

A little more than a year before he blithely confessed to masterminding the largest Ponzi scheme in history, Bernie Madoff attended the wedding of his niece. That Saturday evening, September 29, 2007, Shana Madoff, the daughter of his younger brother, Peter, his partner for almost four decades at Bernard L. Madoff Investment Securities, married a former official at the Securities and Exchange Commission, an irony that Bernie couldn’t quite keep to himself. He tossed an arm around the neck of one young guest and directed the young man’s attention across the dance floor, toward a clean-cut group sipping cocktails. “See them,” Madoff said, pale-blue eyes flashing incongruously in his kindly face. “That’s the enemy.”

There were a hundred guests at the Bowery Hotel, some of whom had their life savings invested with Bernie. Tables were set with tasteful linen and beautiful flowers. The event commingled business and family—for the Madoffs, business was family. Bernie Madoff liked to brag about what he’d built over nearly 50 years, disquisitions that often began with the phrase “We Madoffs.” His sons, Andy, 42, and Mark, 44, ran the trading floor on the nineteenth floor of the company’s multistory offices in the Lipstick Building on Third Avenue and 53rd Street, two floors above where Madoff supposedly managed billions of dollars of other people’s money. Peter Madoff, 62, was chief compliance officer and his inseparable right hand. The bride, Shana, 38, was a compliance lawyer. Bernie’s wife, Ruth, once his bookkeeper, still maintained an office there.

As the toasts began, Bernie headed to the terrace. He isn’t a toast-maker. He has a tic, a nervous schoolboy’s double blink, as if cleaning a windshield, and occasionally a stammer.

Outside, the night air was crisp with the first hint of fall. Bernie sat down and lit a cigar, his favorite, a Davidoff. He wore a black tuxedo and one of his antique watches, a Patek Philippe or a Rolex no doubt, fastidiously matched to one of his several wedding bands. He sat at the center of a small cluster of well-wishers, big shots themselves who were paying their respects to an unlikely Wall Street titan. Unassuming Uncle Bernie, as people called him, was a legend. In the seventies and eighties, he’d helped revolutionize how stocks were traded. Along the way, with apparent effortlessness, he’d turned money manager, rising to become, by the evidence of detailed statements he regularly sent to his legions of investors, one of the more successful ones in the world. On paper, he’d built fortunes for some of the admirers who now crowded around him and for much of the guest list. Bernie basked in the praise. He loved that wealthy people counted on him, loved the adulation. “It ennobled him,” one friend says. At the same time, he sometimes let slip a hint of contempt for those he took care of, as if they didn’t appreciate him enough. After all, he was the one who paid the kids’ tuitions and the country-club dues of the fancy guests who now drank his booze—Bernie’s labors had indirectly financed that too.

On the terrace, blue smoke drifted in the air. Bernie, meditative for once, told a guest that he couldn’t quite believe he was at a wedding at the Bowery Hotel. His grandparents had made their lives on the Lower East Side, a stone’s throw from where he sat with his tux and his multi-thousand-dollar watch. He’d lived with them for a while, and that evening, he recalled how poor and run-down their neighborhood had looked. He gestured in the direction of the Lower East Side. “I fought my way out of there,” Bernie told a guest. “I had to scrape and battle and work really hard.” There was an edge of anger in his voice—he’d suffered so others could live easy.

A little more than a year later, at about four in the afternoon on December 11, J. Ezra Merkin was called out of a meeting in his hedge fund’s offices at 450 Park Avenue to look at the Wall Street Journal online, where the outlines of Bernie Madoff’s story had been posted. He felt like dynamite had gone off—he couldn’t get his bearings. He felt as if he couldn’t hear. Merkin’s largest fund, Ascot, which invested the money of a large swath of the Upper East Side Jewish elite, along with that of illustrious schools and charities, had been completely invested in Madoff—some $1.8 billion.

Merkin’s funds were among the largest of Madoff’s so-called feeder funds, and the ones with the deepest roots in New York City. (Walter Noel’s Fairfield Greenwich Group was the largest; Noel had invested $6.9 billion with Bernie.) In letters Merkin sent to his investors, he said he had no choice but to unwind his funds. He was shutting down not only Ascot but Gabriel and Ariel, his two other large funds, which had invested perhaps a third of their money in Madoff. In a letter written the same day the story broke, Ezra told investors that he, too, was a victim. “I have also suffered major losses,” he wrote, signing it “very truly yours.”

On the surface, it seemed unlikely that the fates of Bernard L. Madoff, 70, and J. Ezra Merkin, 55, should be linked. Madoff was a scrappy outer-borough striver. He still had, as one observer put it, a “whiff of Queens” about him. The nuances of economic thought didn’t interest him, and when talk turned to politics, Bernie all but glazed over. His primary interest had always been pennies and dimes and dollars, the mundanities of money. He didn’t look like a leader of Wall Street, let alone a monster. In a crowd, he barely registered—if you didn’t know who he was, you might not notice anything but his doughy smile.

In the world of the Upper East Side, everyone took notice of J. Ezra Merkin. He was an intellectual showman, a marvel of erudition, quoting Hamlet or Nathan Detroit, holding forth on Jewish law or the stylistic shifts of Mark Rothko, whose paintings he collected. He not only ran money, as Bernie did, and served his community as a leader of charities and religious groups, but he was chairman of GMAC, the finance arm of General Motors. In a community that values intellect, piety, generosity, and the wealth that is their indispensable underpinning, Merkin was a model of success. “Pious, prayerful, and profound,” said a fellow congregant. Said a business colleague, “He is one of the wisest men on Wall Street.”

But Merkin, too, was a striver, though the sources of his drive were not as obvious. Merkin is a child of privilege. His father, Hermann Merkin, had made a fortune on Wall Street and much more. The elder Merkin had a glowing reputation as a philanthropist and Jewish leader, co-founding the Fifth Avenue Synagogue and underwriting a galaxy of Jewish charities.

And yet, for all his good works, Hermann was a remote, withholding father. “Short of not living at home he couldn’t have been less involved,” says Sol Merkin, Ezra’s younger brother. At home, Ezra’s parents enforced thrift. For all the comfort of his home—there was a chauffeur, a cook, a laundress—Hermann made a point of not pampering. Money does no good, was a kind of family motto, and Hermann and his wife acted as if even slight exposure might ruin the children. Ezra shared a bedroom with two brothers, and all six kids sometimes hid food in case there wasn’t enough to go around. For Ezra there was special pressure. “Ezra, as the oldest son, got a lot in the way of expectation but not much encouragement on the other end,” says his sister Daphne, who has written movingly about her family.

Ezra responded to his distant father by pursuing him assiduously, a competitive urge that led him into philanthropy, religion, and finance, and until Madoff revealed his fraud, Ezra appeared to outdo Hermann—most notably, in the scale of his fortune.

From his father Ezra inherited another, more problematic legacy. The elder Merkin knew Bernie Madoff and admired his successes. Bernie’s unfinished edges didn’t matter to him—the toughness was the point. “Hermann was a tough immigrant, and he didn’t distinguish people so much by background,” says one person who knew him. In the early nineties, when Ezra was looking for candidates to manage the huge sums he was increasingly able to raise, his father’s imprimatur must have helped sell him on the legendary Bernie Madoff, who, it turned out, underwrote a good deal of Ezra’s lifestyle. At the heights of Ezra’s hedge-fund business, in the middle of this decade, he earned perhaps $35 million a year simply for funneling money to Bernie Madoff.

Bernie Madoff’s story begins as that of the classic Jewish outsider, storming the Wall Street gates in pursuit of fortune. He entered the financial business through “a dirty, disgusting outback,” as one of Bernie’s competitors explained. As a young man in Queens, he was a swimmer, fit and tanned. In 1959, he married his Far Rockaway high-school girlfriend, a fun, energetic blonde named Ruthie Alpern, who’d been voted Josie College, a preppy before preppies were popular. In 1960, the year he graduated Hofstra, Bernie borrowed space from Ruthie’s accountant father and founded Bernard L. Madoff Investment Securities, funded, the story went, with $5,000 saved from jobs as a lifeguard and sprinkler installer.

At the time, the New York Stock Exchange dominated Wall Street trading, and it was an exclusive club, rigged for the benefit of its members. To buy or sell a stock, you went through a specialist stationed on the floor of the exchange who made money on every trade. It was a virtual monopoly, among the easiest money on Wall Street, and a fraternity that didn’t welcome the likes of Bernie. So Bernard L. Madoff Securities entered the over-the-counter market-making business, trading second- or third-tier companies shunned by the NYSE—“unseasoned” companies, Bernie called them. It was rugged competition, a constant turf war among “street-smart, scrappy, tenacious guys,” says an early competitor.

Bernie quickly developed a reputation for efficient, meticulous execution, and did well for a niche player. Carl Shapiro, who made a fortune in the textile business, recalls that 50 years ago, it could take weeks to unload a block of stock. “This kid [Bernie] stood in front of me and said, ‘I can do it in three days,’ ” Shapiro told the Palm Beach Daily News. “And he did.”

Bernie, though, had in mind a larger target, the monopoly of the New York Stock Exchange. “Back then, it was an incredible dynamic,” says one competitor. “Bernie was sort of against the rest of the world.”

Everyone knew the specialist system ripped off investors, artificially inflating the spread between the buy and sell prices. Madoff made it his mission to bring down the corrupt system, a mission happily aligned with his financial interests. “Bernie was the king of democratization,” says Eric Weiner, a reporter who covered him in the early days. “He was messianic about this.” He pushed to automate the system, listing buyers and sellers on a computer that anyone could access. He won that battle—technology was inevitable even then—and quickly moved on to the next. “We came up with the concept of developing a screen-based trading mechanism,” Bernie explained to a conference. “That was the start of NASDAQ.”

By the eighties, the Madoffs had taken huge market share and Bernie began to accumulate the trappings of the financial success he’d long dreamed of: impeccable suits, antique watches, and, later, far-flung homes and a plane on which he had his initials painted. Still, Bernie’s origins were always there. He was an outer-borough kid, and he held fast to his identity and, with it, his class resentments. As his success grew, he liked to make fun of the types who’d once raced past him, overeducated college kids he now hired. Bernie recounted, “They just spend too much time thinking … You could actually watch them … My brother and I and my sons would look at them, saying, ‘Well?’ And they would say, ‘I’m getting there.’ By that time, the price would usually have moved against us.”

The joke about Hermann Merkin was that he didn’t need a telephone at work since he didn’t heed anyone’s advice. A German immigrant, he’d made dozens of millions investing in stocks, shipping, private equity. But his ambitions were broader. In 1958, when Ezra was 5, Hermann co-founded the Fifth Avenue Synagogue, a congregation that would become perhaps the richest in the country. The synagogue, a monument to Hermann’s accomplishments, would be under his control for years. And he guided it forcefully—he had little patience for communal decisions—turning it into a haven for modern Orthodoxy as well as a center for his own religious education. Hermann put a premium on education. Yanked out of school as a teenager, he was a frustrated intellectual. At home, a learned Jewish text was often open on his desk, next to the Wall Street Journal. He regularly attended Talmud classes at the synagogue, until a few days before he died at 91 in 1999.

Ezra followed his father in almost all things—most of his life, Ezra, too, has attended Talmud classes. But Ezra’s imitation was a form of flattery lost on Hermann. “He didn’t love it,” says one person close to the family. Hermann didn’t express pride in the children. The exception was intellect, which Hermann not only encouraged but wanted on display. Hermann invited Israeli prime ministers, wealthy Wall Street businessmen, and rising politicians to dinner. The kids sat at one end of the table and listened to the adult discussion, often dominated by Hermann. But once a week, on Shabbos, Hermann ceded the floor to his eldest son, his Torah prodigy. Wearing a tie, Ezra commenced an exegesis of the next day’s Torah portion. He was professorial, playing it up. It was one of the few things Ezra did that elicited unrestrained paternal approval.

After high school at Ramaz, the Upper East Side Orthodox day school, Ezra attended two yeshivas in Israel, then Columbia and Harvard Law, and swiftly climbed through the world his father built. “There was never a time when he wasn’t a success,” says an acquaintance. He made a pit stop at top-tier law firm Milbank, Tweed, but in the early eighties, he jumped to finance, his father’s field and the glamour sport of Wall Street at the time. He went to work at a hedge fund run by Alan Slifka, a friend of Hermann’s. There he met Joel Greenblatt, who founded Gotham Capital in 1985, where Ezra later worked as an analyst, and, says Greenblatt, a good one.

From early on, though, it was clear that Ezra’s unique talent did not involve managing money. “It’s very, very difficult for Ezra to make decisions,” says one money manager who worked with him over the years. He worried about the big picture, fretted over allocations. His gift was that he “was a world-class salesman,” says the money manager. Ezra saw himself in the investor. “He recognized that many people didn’t have confidence [to make investment decisions],” says the money manager. “He recognized that if people had confidence in him, then he could give them confidence.”

With investors, Ezra was a showman. He likes a stage, and likes to show off his storehouse of knowledge. He could talk Talmud with rabbis, or politics with a Ph.D.; he sent articles to Ruth Madoff, which Bernie shared and reported. “It made me better read,” Bernie would say.

Ezra could be impatient with slower minds—“uninhibited” in his disregard, says one. But with those he considered equals, and with his clients, he was a pleaser. “He does not like to disappoint,” says one friend. And for all his erudition, he had another winning quality. He didn’t mind poking fun at himself. The key to success is sincerity, he’d confide. If you can fake it, you’ve got everything.

A couple of business associates later complained, as one put it, “He’ll talk about things factually but not necessarily in any relation to facts. For some reason, he makes things up, and not for any advantage to himself, necessarily.” Perhaps rounding the edges made for a more convincing presentation. And most found him convincing. At the UJA-Federation, where he headed the investment committee for ten years, “he would speak conceptually of economic matters,” says one attendee from outside the financial world. “The word you heard after he left the room was ‘dazzling.’ ”

But Ezra’s most potent asset as a financier was his network of connections. Among wealthy Upper East Side Jews, philanthropic, religious, social, family, and business circles overlap. “A shtetl,” says one member, Merryl Tisch of the real-estate family, though not disparagingly. Ezra was born to these circles, and after his father died, Ezra quickly filled his shoes. In 2001, he was elected president of the Fifth Avenue Synagogue, and in the same year he was elected to Yeshiva’s board of trustees, where his father had served for four decades. Ezra followed his father into charity work, too, giving tirelessly of his time. All for three Diet Cokes a year, says one member of the UJA. Usually, Ezra gravitated to the investment committees, a perch from which to help institutions he cared deeply about, as he saw it.

Ezra left Gotham in 1988, partly because Greenblatt was not interested in growing the size of his fund, which wasted Ezra’s chief talent. He took his investors with him and started Gabriel Capital. Ezra’s model, common enough on Wall Street, was to raise money and funnel it to talented managers in exchange for a fee. Later, furious investors said they’d been led to believe that Ezra was managing their money. But those who worked closest with him knew better. Ezra raised the money—“He was the golden goose,” one put it—and then relied on talented money managers, whom he had a knack for spotting. By 1992, Ezra was raising money for Stephen Feinberg, a manager whose private-equity firm Cerberus later bought controlling shares in Chrysler and GMAC. And he’d begun investing with Bernie. But the first of Ezra’s finds was Victor Teicher. Teicher, a colorful, uncontrollable character with a faulty internal censor, was not the confidence-instilling type to put in front of prospective investors. But he had an instinctive gift for financial opportunity. Early on, he concentrated on merger arbitrage, betting on whether one firm would take over another. In this, he had some help. In 1986, he was investigated for insider trading in connection with what was known as the Yuppie Five case, in which young professionals at blue-chip firms passed along inside information about upcoming mergers.

The indictment might have put Teicher out of business, but he had been earning returns as high as 20 percent a year, and so most of his investors stayed. Merkin too was enticed by the returns, and beginning in 1988, the year Teicher was indicted, he started putting a substantial portion of the money he raised for Gabriel Capital with Teicher. Ezra kept 20 percent of the profits for his troubles, and gave Teicher half. Since Ezra was technically raising money for Gabriel and its offshore twin, Ariel, he didn’t need to cloud the waters by mentioning Teicher’s controversial name, a lapse that New York University alleges in a lawsuit. In 1992, the year Teicher was sentenced to eighteen months in prison, he was running about $500 million, perhaps three-quarters of that from Ezra’s investors.

Teicher spent most of 1994 in prison. When he got out expecting to return to work, Ezra decided to separate. The business was running well without Teicher’s day-to-day oversight. And, Ezra told Teicher, his lawyers thought working with a convicted felon wasn’t a great idea. Ezra threatened to yank his money. So Teicher gave in. In January 1995, Ezra took over the staff, put Gabriel Capital’s name on the door, and hired Nathan Leight, now at Terrapin Partners, to manage the money.

Teicher operated on his own until August 1998, when Ezra called again. It was a troubled year for the markets, and he needed help. Teicher, then running about $50 million, jumped at the chance and was soon managing roughly $1 billion for Ezra as an independent operator. It was a profitable arrangement for both—Teicher turned the fund around, and he might have continued except that in January 2000, with his appeals exhausted, the SEC finally banned Teicher from running other people’s money. Ezra replaced Teicher. But by then, Ezra was also showering money on another genius: Bernie Madoff.

It is impossible to know when Madoff’s scheme began, or whether, at some point, there was an innocent explanation. But from almost the beginning, there were clues that something was not quite right. Bernie had started managing money by 1962, when he was 24 years old and raising capital for his market-making business. Bernie found a ready and able partner in Frank Avellino, an accountant who worked for Bernie’s father-in-law. Avellino used semi-grammatical English but compensated with boundless energy. He recruited another accountant, Michael Bienes, who also knew a good thing when he saw it. Soon the two were making an extraordinary (and premonitory) pitch: 13.5 to 20 percent returns guaranteed, or they’d make up the difference. In some years, the Dow collapsed by nearly 30 percent, which made Avellino and Bienes’s promise extremely hard to keep—unless, as seems likely, Bernie was cooking the books even then. And yet 30 years later, when the SEC effectively booted Avellino and Bienes out of the business—they weren’t registering investors, it turns out—they’d set up accounts for 3,200 investors with Bernie. After years of supposed gains, those accounts were worth almost half a billion dollars. The SEC ordered $454 million returned to customers. Bernie showed the SEC his books and maintained that he could return any money requested. Fortunately for Madoff, many customers were like Cynthia Crane, a cabaret singer from the West Village, who decided not to redeem. Bienes told Crane, who’d inherited some family money, “It’s okay, you can keep the money with Bernie Madoff,” which eased her worries.

The irony is that by then, Bernie Madoff didn’t need the money. His legitimate and heavily regulated market-making business tossed off cash. He executed as many as 15 percent of all the NYSE’s trades. “In the eighties, Bernie was probably making as much as $25 million a year,” estimates Kenny Pasternak, a longtime competitor. “I think the guy made hundreds of millions over his career.”

For Merkin, hanging his Rothkos was a grand gesture of self-definition, like that of a Frick or a Carnegie.

Soon, Bernie started spending his money. In 1994, he bought a house now worth $9.4 million at a good address in Palm Beach. By that point, the once-exclusive haven for Waspy heiresses was filled with Bernie’s kind of people, Jewish entrepreneurs with rough edges, unimproved accents, and one generation of wealth. “Bernie was a regular guy, my kind of guy, nothing flashy, a mensch,” says one investor who made his money in real estate.

Bernie joined the Palm Beach Country Club, the Jewish club, paying the $300,000 entry fee and assuring the officers of his solid philanthropic reputation, a club requirement. At the club, he wasn’t much of a presence. “He was always by himself primarily with his wife or his brother,” says another investor.

In Palm Beach, Bernie’s reputation as a money manager had preceded him, and his remoteness only fueled it. “Everybody said, ‘You got to go with Bernie,’ ” says one early investor. That was the phrase of choice around the club: “I’m with Bernie.”

Though no one could say with any precision how Bernie made his money, he was too ordinary, too much of a mensch, for an air of mystery to coalesce around him. He said his profits were ordinary, too. “I don’t make a lot, but I’m consistent,” he told one investor. When people asked about his methods, he talked about his long experience on the Street. “We’ve been at this 30 years, give us some credit … ” was the idea he put forward. But he never pushed. There was never a hard sell, no obvious hustling. What you saw was what you got—or so you thought.

If investors had known where to look, they might have spotted something alarming, Bernie’s weird side. Bernie—whose office is in the famously ovoid Lipstick Building—couldn’t bear curves. “He was paranoid about them,” says one employee. In one office, he drank out of square drinking glasses, stored his pencils in square holders, tossed his trash into square cans. He insisted that the blinds align with window frames—“We used a tape measure,” says the employee. He liked computer screens to stand straight up and down.

Madoff, though, kept his own mess, his own monstrousness, hidden away. His operation was relentlessly predatory, systematically looting charities, longtime friends, family, as well as investors spread around the globe. And yet it seems unlikely that he was a sociopath in the classic sense, someone indifferent to the feelings of those around him. In daily life, he wasn’t callous or cruel. Just the opposite. He valued people’s good opinion and wanted to impress. He didn’t simply treat people as means to an end. He was a great boss. He took care of his employees as if they were family and, until the end, of his investors, too. “Everybody relied on Bernie,” says one longtime investor. “He was one thing you thought you could count on. And he enjoyed being counted on.”

And yet, of course, to provide for someone is to have power over them, and Bernie liked that, too. Now it was Bernie from Queens who waved his hand and granted entry to the magic kingdom where he minted money—and Bernie didn’t let in everyone. Bernie was simultaneously compassionate and grand. As he told one charity: “I promised the Steinbergs I’d take care of the American Jewish Congress,” which was the Steinbergs’ favorite cause and which gave Bernie $11 million, more than half of its endowment.

Bernie loved the Bernie Madoff he’d become, a Wall Street legend, a protector of charities, a man who was wealthy and so much more. Even if he couldn’t be that man without stealing.

People later wondered how Bernie could ruin so many people he seemingly cared about. But for decades he didn’t hurt anyone. In fact, there were many that he helped. “I lived off Bernie for years,” one investor says, and he was speaking for many. In all likelihood, Bernie didn’t pocket much of the money. He always paid out promptly, never shorted anyone. And money was flowing out all the time, in large quantities, one continual bank run. Hadassah, for instance, invested $90 million but over the years withdrew $130 million.

Some viewed Bernie and Ezra as two sides of the same coin. One was down to earth, the other positively ethereal; one was hiding in plain sight, the other ostentatiously public. They needed each other. “Ezra was captivated by Madoff,” says one person who knows him, especially, perhaps, compared to his father. “Bernie Madoff must have seemed like a kind, haimish sort of guy compared to my father,” says Daphne. Merkin didn’t exactly think of Bernie as a peer. To him, Bernie was an auto mechanic, a blue-collar technician focused on what was under the hood. “I’m only interested in where the market is heading in the next fifteen minutes,” Bernie sometimes said. A man like that could bear down on the details so the Ezra Merkins of the world could concentrate on finer things. For Ezra, Madoff’s returns weren’t eye-popping—Teicher did better—though his average of more than 12 percent a year was more than respectable. But the real selling point was Bernie’s consistency—barely a down month in more than a decade.

There were many for whom Madoff’s consistency was a giant red flag. The SEC missed it, but Teicher, the inside trader, was a skeptic. Ezra and Teicher talked about Madoff on and off for years. Teicher scoffed. “The thing seemed ridiculous,” Teicher told Ezra. But then, Ezra must have thought, Teicher generally didn’t like anyone’s ideas but his own.

And so Ezra took Bernard L. Madoff Investment Securities places Bernie couldn’t have dreamed of going by himself. The list of people and institutions that Ezra Merkin put with Bernie Madoff is a kind of Jewish social register. There was Mort Zuckerman, the media and real-estate mogul, and Ira Rennert, chairman of Fifth Avenue Synagogue and owner of a 68-acre oceanfront Hamptons estate. Over 30 charities invested with Ezra, many of them with a Jewish affiliation. Ramaz was in, as was Yeshiva. Not every investor says they knew that Ezra’s fund Ascot was fully invested with Madoff, an assertion that will be at issue in forthcoming lawsuits. Ezra maintains that, at the very least, he let people know that he might invest with other managers. And in some instances, he claims he was more direct. In the case of Yeshiva, with perhaps the largest endowment of any nonprofit he managed, he did report a relationship with Bernie, though it appears not to have been the real one.

Ezra had served as chairman of Yeshiva’s investment committee since about 1994. Not long after that, the committee directed $14.5 million of Yeshiva’s endowment to Ascot, which Ezra passed along to Madoff, collecting his usual fee, initially one percent and later 1.5 percent, standard for all of Yeshiva’s money managers.

Yeshiva saw no conflict of interest or, if it did, didn’t mind. The university required nothing more than that those who served on the investment committee disclose that they were doing business with the university. The 2003 disclosure to the board, a copy of which was obtained by New York Magazine, reported that Ezra was managing about 10 percent of Yeshiva’s endowment through four different funds. For his efforts, he collected over $2 million in fees, almost $1 million for Ascot alone.

That 2003 memo stated that Madoff was Ascot’s “executing broker,” a term that means he was executing buy and sell orders, supposedly those dictated by Ascot. In fact, though Merkin looked at Madoff’s statements every month, and they were detailed and thorough, and questioned him about his accounts, he left the trading—or, as we now know, lack thereof—to Madoff. Some now wonder about the propriety of the chairman of the investment committee’s taking fees for simply passing along money to Bernie—especially since Bernie was elected to Yeshiva’s board of trustees in 1996, when Hermann served as vice-chairman. Why not just give the money directly to Bernie and save Yeshiva the fee? To some, it seemed like Ezra was skimming profits, and from an institution he loved.

Whatever fudging there’d been in the disclosures, Ezra did well for Yeshiva—in fourteen years, the fund grew 9 percent a year, even after subtracting losses for Madoff and expenses. And he did well for himself; certainly, he made at least $10 million from Yeshiva over his tenure.

Soon Ezra was making tens of millions a year from his funds. And for Ezra, as for Bernie, money wasn’t only money. It was the ladder that boosted him into his father’s world, an empyrean place that he now fully inhabited. Ezra had arrived, and it was an occasion worth marking.

In 1995, he paid $11 million for an apartment at New York’s most prestigious address, 740 Park Avenue, where Jackie O. was raised and where John D. Rockefeller Jr. had lived. Ezra shunned a driver for the subway, yet he purchased an eighteen-room duplex once owned by Ron Perelman, a member of his synagogue. And in 2003, he began to collect the Rothkos, amassing a dozen, some of which were fifteen feet high. They make up the largest private collection in the world, worth an estimated $150 million.

“I was surprised,” says one friend. “It was a major statement.” His father might not have approved of the public display. But Ezra had buried such concerns (along with his father). For Ezra, hanging the Rothkos was a grand gesture of self-definition, ostentatiously spiritual, like that of a Frick or a Carnegie. Visitors are overwhelmed. Room after room of giant Rothkos against dark tan walls. Merkin made a point of saying that they weren’t investments; he didn’t expect to do better than with a T-bill. “I think the Rothkos had a lot to do with getting over the guilt of his success,” says a friend.

Madoff pointed to the SEC men. “There’s the enemy,” he said.

In the sublime structure Ezra Merkin had built for himself, money was the mother of beauty and refinement. The actual business of making it amounted to a kind of plumbing, a slightly unseemly necessity, about which it was best not to go into details. Men like Teicher, or Bernie Madoff, could roll up their sleeves and make it flow, and you could take your cut, without getting your fingernails dirty. The details mattered less as long as the money kept flowing. The fact that Ezra had a blind spot for the way his money was actually being made—and in this he was not so different from many others during the boom years, even his own clients—functioned as a kind of soft corruption, which could enable the hard corruption of Bernie Madoff.

As late as 2002, Madoff could probably have sold Bernard L. Madoff Investment Securities for as much as $1 billion. Both Goldman Sachs and Charles Schwab were said to be interested in the market-making business. But Bernie waved off his buyers. “I couldn’t work for anybody,” he said. “My whole family works here.”

One of Bernie’s competitors later reflected on Bernie’s response. “In part, it resounded with me,” he says. “In part, it made no sense. He had a chance to write a billion-dollar ticket. Why wouldn’t he sell it?”

Now, of course, the answer is clear. Madoff was in much too deep to turn back. The market-making and money-management businesses were both on the books; they shared funds. And after 2002, the market-making business began to decline rapidly and was, at least according to the records, being subsidized by Bernie’s money-management business. Bernie couldn’t possibly sell the business. He couldn’t let anyone see the books.

And yet one of the strangest aspects of Bernie Madoff’s story is his unflinching pride in his success. In May 2008, Bernie celebrated his 70th birthday on a beach in Cabo San Lucas, Mexico, where he’d traveled for a golf tournament. Bernie’s crew included his brother, Peter, and their wives and close friends. One evening, they gathered at a quiet hotel, which had set up tables on the beach. Candles provided much of the light. One by one, the guests rose and toasted Bernie. Ed Blumenfeld’s was typical. Blumenfeld, a real-estate developer and a considerable investor, said, as one guest recalls, “Our lives have been enriched by knowing Bernie. It’s been a privilege to know him and have him part of our lives.”

By then, Bernie must have sensed the end approaching. But if he was anxious, he didn’t show it. Bernie golfed and relaxed, basking in the sun and the praise. On the beach, one guest recalls, Bernie crooned a Neil Diamond song, “Sweet Caroline.” “Where it began, I can’t begin to know.”

On December 10, his sons, Andy and Mark, talked to their father about bonuses, which Bernie suddenly insisted on paying early. Bernie sputtered something about the business having made profits. “Now [is] a good time to distribute [bonuses],” he told them. It didn’t make sense. They pressed him. Bernie seemed to be cracking. “He wasn’t sure he would be able to hold it together,” they later told the SEC. Bernie insisted they talk at his apartment that evening.

Facing his sons, Bernie came out with it quickly, brutally.

“[I’m] finished,” he said. “It’s all just one big lie … ” Andy and Mark called the SEC, Bernie’s enemy, as he’d once put it. The SEC contacted the FBI, which showed up at Bernie’s apartment on December 11. Bernie came to the door in a pale-blue bathrobe and slippers.

“We’re here to find out if there’s an innocent explanation,” said one of the agents.

Bernie must have rehearsed this moment for years. “There’s no innocent explanation,” he said, sounding almost relieved.

Ezra Merkin is ruined. “His life as he knew it is over and not coming back,” says brother Sol, adding, “he doesn’t deserve this.” Ezra is winding down his funds. He’s been all but exiled from many of the communities he cared about. Andrew Cuomo, the New York State attorney general, is investigating whether Ezra misled the charities whose endowments he managed in order to enrich himself. He resigned as chairman of GMAC at the insistence of the U.S. government, one condition for bailing out the lender with $5 billion. For the moment, observant Ezra still sits on the bema every Saturday, in the spot designated for the synagogue president. Some in the congregation are scandalized, and some will sue him, it is almost certain. It’s not practical to sue Madoff. There are no assets left. And so they will take their turns with Ezra—who, as general partner, is personally liable. “He will spend the rest of his life in court,” says one attorney. Ironically, the sage will plead ignorance for the remainder of his days.

And yet, in another way, it’s not over. It’s just beginning. Ezra Merkin is fascinated—“extremely fascinated,” he sometimes tells friends—to know what will happen next in his life.

About Madoff’s victims, the ones whose funds Merkin was supposed to be safeguarding, he is matter-of-fact. He tells friends, “I lost a lot of people a lot of money.” There’s something slightly obtuse in this. Nearly every day brings accounts of shuttered charities, of retirements ruined, of houses suddenly put up for sale. Shouldn’t he be rending himself? But he was tricked like everyone else, he says, and tells himself he’s got to be resilient, show fortitude. And so he talks to himself about what he has. A loving wife, four devoted children—he is a much better father than Hermann. “I have to get through this,” he tells people, if one can. As for the future, he doesn’t know what the outcome is going to be. Ezra has lately been proclaiming himself free of the need for money and prestige, those things that shaped his life. He can start anew, reinvent himself. We’ll be all right, he thinks. Ezra understands as well as anyone the role his financial success played. Money has been central to his life. It put those breathtaking Rothkos on the wall and elevated him to society’s loftiest ranks. Things will change now. He’s begun to think along other lines. He says he might pursue something more on the contemplative side, reading or writing. Whatever this evolves into, “it doesn’t have to be a wealthy lifestyle for us to be happy,” Ezra tells friends, then adds, “I don’t think.”

See Also
A Madoff Family Friend Speaks Out

Research assistance by Ross Kenneth Urken.