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.