Madoff’s Wife Said to Be Questioned Over Helping Keep Ponzi Records

Date: Thursday, December 18, 2008
Author: David Scheer and Allan Dodds Frank

Ruth Madoff, wife of alleged fraud mastermind Bernard Madoff, is being investigated by U.S. regulators over whether she maintained secret records used in a $50 billion Ponzi scheme, a person familiar with the matter said.

The Securities and Exchange Commission, combing through files at her husband’s New York firm, found evidence she may have helped track payments, the person said, declining to be identified because the inquiry isn’t public. The agency is also examining why her name appears on related transactions, two people with knowledge of the probe said on Dec. 14.

“She’s not charged with anything,” said Ira “Ike” Sorkin, a New York attorney at Dickstein Shapiro LLP, which represents the couple. “The SEC has not sought to freeze her assets. She’s under no bail conditions.”

Neither regulators nor prosecutors have accused Ruth Madoff, 67, of wrongdoing. U.S. Magistrate Judge Gabriel Gorenstein, who is overseeing criminal proceedings against her husband, yesterday ordered the couple to surrender their passports.

Ruth Madoff is seeking to hire her own lawyer, a person familiar with the matter said. She and her husband’s brother, Peter, were the only people willing to sign a $10 million bond to secure his release.

Bernard Madoff, 70, was arrested Dec. 11 and charged with a single count of securities fraud. In court documents, prosecutors and the SEC said he had said his investment advisory business was “all just one big lie.”

Montauk, Palm Beach

The couple appeared in court yesterday to sign documents to give up homes in Montauk, New York, and Palm Beach, Florida, if Bernard Madoff flees. His bail hearing was postponed a second time in as many days, and he is now subject to electronic monitoring and a 7 p.m. curfew.

Ruth Madoff, who also has a master’s of science degree in nutrition from New York University, co-edited a cookbook in 1996 called “The Great Chefs of America Cook Kosher.” The book contains recipes for kosher dishes by well-known chefs, such as Daniel Boulud and Wolfgang Puck.

The legal developments came after SEC Chairman Christopher Cox said yesterday the agency failed to act on “credible, specific” allegations about Bernard Madoff dating back to 1999. The Madoff affair will be at the center of planned congressional hearings on the reform of the SEC, said a senior Senate official, speaking on condition of anonymity.

Cox, a Republican appointed by President George W. Bush, has said he will step down when Bush leaves office Jan. 20. President-elect Barack Obama plans to name as Cox’s successor Mary Schapiro, chief executive officer of the Financial Industry Regulatory Authority, people familiar with the matter said today.

Criticism of SEC

The SEC, already faulted over the collapse of Bear Stearns Cos. and Lehman Brothers Holdings Inc., faces criticism for failing to detect the fraud that prosecutors say Madoff confessed to. A House panel will hold a hearing next month.

Madoff’s responses during a 2005 SEC inspection of his brokerage operation should have raised suspicions and prompted further inquiries, said two people familiar with the matter.

Two years later, the agency closed a separate probe into tips and press reports suggesting his investment returns were too good to be true. Money manager Harry Markopolos helped trigger that inquiry by suggesting Madoff may be running a Ponzi scheme or front-running, a person with knowledge of the case said. In the latter practice, traders buy shares for their account before filling customer orders, betting on a likely market move.

Front-Running

Investigators focused on front-running and, after encountering obstacles, didn’t finish verifying trades Madoff claimed were for advisory clients, the person said. His company’s trades had been cleared through a single account at the Depository Trust & Clearing Corp., making it difficult to distinguish transactions specifically for Madoff’s advisory business. Other transactions were completed through foreign brokerages, forcing the SEC to persuade foreign regulators to collect the data. Instead, investigators closed the case.

Besides talking with Madoff, authorities are scrutinizing the role of Frank DiPascali, a senior official in Madoff’s investment advisory firm, said people familiar with the case.

“We’re trying to sort out everything and learn the facts,” DiPascali’s lawyer, Marc Mukasey of Bracewell & Giuliani in New York, said in an interview, declining further comment.

U.S. Attorney General Michael Mukasey, Marc Mukasey’s father, recused himself from the Justice Department’s investigation into Madoff because his son represents someone involved in the case, a department spokesman said today.

Michael Mukasey is a 1959 graduate of the Ramaz School, a modern Orthodox Jewish school in New York that invested as much as $6 million in a fund that was a Madoff client, said Kenny Rochlin, Ramaz’s director of institutional advancement.

The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net; Allan Dodds Frank in New York at allanfrank@bloomberg.net.