Illustration by Riccardo Vecchio
J. Ezra Merkin
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.