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.