Jim Campbell: The Man Who Made Madoff Talk

0:04Hello, I'm Anthony Scaramucci, and this is Open Book, where I talk with some of the brightest minds out there about everything surrounding the written word, from authors and historians to figures in entertainment, neuroscientists, political activists, and of course, Wall Street. Sorry, I can't resist. Before we get into today's episode, if you haven't already, please hit follow or subscribe wherever you get your podcasts and leave us a review. We all love a review, even the bad ones. I want to hear the parts you're enjoying or how we can do better. You know, I can roll with the punches, so let me know.

0:38Anyways, let's get to it.

0:47We all know Bernie Madoff and his Ponzi scheme that cost investors as much as$65 billion. Many of you, like me, would have been working on Wall Street when the scheme unfolded. But we all still have so many questions. Who really knew what was going on? How did he pull this off for 40 years? And what about his family? My guest today, Jim Campbell, is one of the only people Bernie and the Madoff family gave those intricate details to, and he shares them all with us on today's show.

1:23So joining us now is Jim Campbell. He's a radio host and author. The book is called Madoff Talks, Uncovering the Untold Story Behind the Most Notorious Ponzi Scheme in History. Jim, welcome to the show. But what a fascinating book. I just want to start with your interest in Madoff. I mean, you've had such a great career. What gravitated you towards Madoff? And tell us why you wanted to dig into this particular story. Okay. First off, it's an honor to be on your show. We are both Tufts graduates, I have found out, which is a great link there. And you're a fund-to-funds guy. And, of course, the feeder funds were at the heart of the, let's say, abrogation of due diligence.

2:08You know, when it comes to Bernie, a lot of it was fortuitous because I was doing an interview with Laurie Sandell, who wrote a book on the Madoff family side only. And out of the blue, she says, well, Jim, your show's live. Do you want to talk off the record with Andy Madoff? the day before. So I call Andy. I jump all over him from the start and found him disarmingly honest. And he said he was going to listen to the show to see if he heard the same kind of stuff out of me. And then, fortuitous number two, his mom, Ruth Badoff, is moving to Greenwich from Florida. And I live in Greenwich. So I said, I'll take her out to lunch.

2:44Probably no one else will. And we met at a restaurant in December. She had sunglasses on, wouldn't take them off until later. ate a chef salad like she hadn't eaten. And again, we hit it off. And she said she was going to contact Bernie and tell Bernie to talk to me. So Bernie says, I'll talk to you. I said, Bernie, I'm going to vet everything, single thing you say. He says, Jim, I'm going to accept that. And the next thing we know, we had 400 pages of communications. I was interested in three things. One, getting inside his mind, which is unfathomable. Number two, the Justice Department, the FBI, the bankruptcy trustee all thought Andy, Mark and Ruth had to know I wanted to do my own independent investigation.

3:25And I had it came up with a different answer. And thirdly, the untold story that hadn't been put together was the failure of the architecture of the regulatory system from the SEC to SIPC to Wall Street. And I tried to build that all into one story. And let me just put one more plug in. The Netflix docu-series, Madoff, the Monster of Wall Street, is running. Joe Berlinger is the number one true crime director for Netflix, did a superb job, very honest linkage directly to the book. And it must have been good because Jamie Dimon called me the day after it premiered. Well, listen, I watched the documentary, I read the book, I found everything in the thing fascinating.

4:05And for me, it's like a great corners report. And I think I'm going to applaud you for a second because you make all of us safer. After reading your book, I installed a few additional safeguards at Skybridge. And I want to test the theory on you, get your reaction. It felt like the Madoff crime was a close-knit crime. It was himself, perhaps his brother, an accountant, his assistant. And I really believe that the way you commit a crime, Jim, is with a closed net. If you've got 50 or 60 people working on it, there's always a person of conscience as is, hey, this isn't for me. I'm going to the feds or I'm going to do X, Y, Z.

4:40And so at Skybridge, I've got JP Morgan as my bank. I've got Pershing as my clearing person, if you will. KPMG does our audits. So you've got a hundred different people before a key can get turned or money can get released. There's enough people in the mix where a crime can't be committed. That was one of the big things that came out of the book for me. You don't think they were involved. I don't either, by the way, which is I find there's a difference with the FBI. I guess I think everybody's a criminal. But I want to ask you this question because when I closed your book, I was like, how the hell did Jim Campbell get these people to open up the way they did?

5:17I mean, they disclosed new information to you, Jim. How did you get that done? It's not just the chef salad and your smile. Something else happened. Yeah, you know, that's a great question. In fact, Bill Cohen, who wrote a blurb for the cover, said the same thing. How did I get these guys to talk. And, you know, I guess I come across his objective that I'm going to tell the story as I see it based on facts. I'm going to verify facts. And other than that, I have a hard time understanding because you've got to remember Bernie, Ruth, and he didn't know me from dirt. I came out of the blue and none of them saw the book or any conclusions until the Sunday morning news, CBS Sunday morning, I was on that.

6:01And that was the first time they heard anything. They were all watching. And so it is hard to understand why Bernie would open up. Now, you said these things are closed. It was very closed knit. But the thing is, Bernie's mind is so compartmentalized that he kept everybody else in silos. So he's the only guy that even saw the overall perspective. And he never would have admitted to his family that he had to turn to a criminal enterprise to save his firm. And remember, he ran a wholesale trading firm that executed trades for discount brokers primarily. It was worth$3 billion of its own without any Ponzi scheme.

6:38And everybody on the 19th floor was honest and good. And then on the 17th floor was high school graduates who enabled the thing for 40 years and never even figured out it was a Ponzi scheme. Yeah, no, I felt like you had a oriental rug and that, you know, chestnut walnut on the 19th floor, but then you had this like laundry facility for the Narcos, you know, crime cartel, you know, and the dichotomy was sort of bizarre. So tell us about Bernie Madoff, sociopath, accidental villain. Did he slip into it and then become evil? What happened in your mind? What were the revelations? Yeah, that's another great question.

7:18You know, Bernie gave me this intricate story that he hadn't really told publicly because of the fact he thought it was too complex, that he was running this purely legitimate business. And just like a gambler, took a loss and made the moral mistake and legal mistake of doubling down on it. No one will notice I run a little Ponzi. We'll catch up and bingo, it'll go away, which of course never happens, just like it doesn't happen in gambling. And sociopath, he had a lack of empathy. In fact, he would start off and say, I'd say, Bernie, what is your remorse on this? And he'd say, well, my lawyers tell me I have to have remorse.

7:54And I said, let's set the best way, Bernie, to express remorse. So obviously there were signs of that. Berlinger said there were similarities to serial killers because he'd done Ted Bundy, a thing on Whitey Bulger, as well as Jeffrey Epstein. But the thing is that what happened is the wholesale trading business fit his psychology perfectly. Transaction-based commissions, if the market is up or down, control costs, leading edge in technology and hire good people. The other business involved making trades where you could lose money. And he psychically could not accept any loss. And as you know, his fund went up every single month forever.

8:32And rather than say, you know, this business of money management isn't for me, he basically doubled down on it. But here's the other thing is, as you said, that he slipped into this. That's what he was trying to convey. But once I looked at it. He ran both businesses side by side from the same time, which is really what's unfathomable. Well, I want to set that scene for you because this man was so respected, Jim. Yes. When I joined Goldman Sachs, I was in the private client area. And so my task was to go out and meet high net worth individuals, ask them to open accounts with Goldman. And I was running into people, they said, well, you know, I want to do 1 % a month.

9:13Will you be able to do 1 % a month for me like Bernie Madoff? And I'm like, no, actually, I don't think we could do that. Well, you know what? I don't have any interest in you. I remember going back to my manager and saying, who the hell is Bernie Madoff and how is he doing 1 % a month? And it was, people can pretend otherwise, sir. It was a fait accompli that he had new sauce, a new fangled thinking. He had a strategy that was revered. It was very few people. I know a few guys at the end like Harry Markopoulos and those guys got the wind of it. But remember, he had SEC audits. He thought he was cooked in 2005.

9:50And the SEC says, no, this is good. Thank you. We'll see you in a couple of years. So what was it? What was it about the Bernie Madoff aura? Everybody revises history now, Jim. Oh, I knew he was a crook. I did not know he was a crook. I met him three times. the only reason why I didn't invest with him is I didn't understand what he was doing. And so I had that cardinal rule for me. Trust me, I've lost money with other people, Jim. Okay, I'm not saying it that way, but what was it? What was his patina? What was his secret sauce? And you're right. He had tremendous respect. And of course, I said, Bernie, the reason you're such a good con man is you're the anti-con.

10:29He was behind a curtain on the 17th floor. You couldn't really talk to him directly. He didn't allow due diligence and he just produced these results. And this split strike conversion strategy, very opaque. I never found any of his clients or even on the 19th floor traders who understood it. And yet it was highly simple. It should have mirrored the overall indexes, right? Which of course, right away tells you it's infeasible because you can't just go straight up. The SEC never had the right people looking at his books because they were separate silos for money management, asset management, and broker-dealer.

11:02And they kept having only broker-dealer guys on who thought he was front-running, right? That was the rumor why he wasn't losing money. But he not only was never trading through his own firm, he was never trading at all. And sort of like SBF, he built this great scheme of credibility. SBF kind of bought it by giving donations and hiring, you know, ex-guys out of the CFTC. Bernie did it through a combination of, you know, he ran the, he architected the NASDAQ and then he was chairman. The SEC used to actually go to him to ask him what was going on in a firm like Goldman or Salomon if they didn't understand what was going on and he would help translate it for them.

11:39Also, he didn't cheat. He never cheated his customers on the legitimate side of the business. He was one of the founders of payment for order flow, right? Which a lot of people say Robinhood abuse, for instance, but he didn't abuse it. He took that, he gave that rebate back, but he gave them best price execution, even above the public market displays. So he had a tremendous image and he was also a bully. You know, he either he ran the firm like a family, which they love, or he bullied you, or he paid you with golden handcuffs overpaying these guys that were administrative high school graduates downstairs.

12:14700 ,000 is what, you know, Annette Bongiorno was making when she retired with a$58 million fake IRA and she had no education, basically. Yeah, I mean, look, But I mean, that's what he did. He sucked them in. They were very loyal to him and they were helping him perpetrate this crime. He also had like an accountant across the Tappan Zee Bridge. Nobody really knew. People were okay with that because he was Bernie Madoff. Joe Berlinger, let's talk about him for a second. I saw an interview of Joe's on CNBC where he told Andrew Rorsch Sorkin he felt that the people that invested in Bernie's business knew he was a fraud.

12:51But they did it anyway because they wanted to get those returns and a result of which they were like, hey, I don't care if the guy's a fraud. He's making me money. It's good for me. Do you believe that? Do you believe that people? I believe you can break it into three categories. One is people who definitely knew he was doing illegal stuff. They didn't know Ponzi's scheme and the big four fit under there. Jeffrey Pickauer and those folks, the feeders, a lot of them, Fairfield Greenwich had to have known the results were real. OK, the second group is, well, we think he's a crook. He's our crook.

13:23He's probably front running. But so what? We'll let it go. And then the third group are completely innocent. Many of moderate net worth who had been with him for 40 years and were completely clueless. So it kind of co-conspirators to willfully blind to innocent completely. I don't want to give away the book because the book is just too good. But I got to ask these questions just to make our podcast interesting. OK, sure. Help me understand his lawyers, JPMorgan Chase. Help me understand the web of service providers around him. How could they have not tripped the switch somewhere? Yeah, you know, JPMorgan, and as I said, I'm a fan of Jamie Dimon, and he was very nice on the phone.

14:10He let me basically interrupt him and tell him he didn't have his information, but great guy. And I counted at least six divisions at J.P. Morgan who interfaced with Bernie, several of which knew something wasn't right. And there was no and, you know, they maintained there was no horizontal way to connect J.P. Morgan back then. And I give them that to a certain extent. But, you know, when the U.K. Madoff finally went to the U.K. Financial Authority because they were being threatened by the Colombian drug lords on, you know, the Bank Medici-Thema fund, they didn't bother to tell the SEC in the U.S.

14:46or the divisions. And there were divisions like Private Wealth that were bragging that they hadn't got sucked into Bernie but didn't tell their clients that, you know. And of course, the basic thing, the 703 account,$170 billion went through that account. And JP Morgan was told it was an operating expense account, which is ridiculous. One month before it went down, they thought it was the market making account, which had been at Bank of America for 30 years. And the other thing, they're the only people that could view his account, right? It was an equity strategy. There should have been$4.4 billion of dividends deposited.

15:19There should have been counterparty payments either way. And there was never$1 of dividend deposited and never$1 of counterparty transactions in that account. So, yeah, it should have been widely open. The SEC missed five separate investigations, even when they caught him in contradictory statements, it lies, etc. So it's hard not to blame. And the feeders knew he wasn't doing the strategy in the case of some of them. Jim, the sins of the father. Did he kill his sons? Yeah, that's a good question. And, you know, Andy, Andy worded it this way. He killed my brother quickly and he's killing me slowly.

15:56As you know, Andrew died in 2014, I believe, of leukemia that had recurred and Mark committed suicide. And, you know, it's an unbelievable story. Eleanor Squileri driving home that very first night in a car to Staten Island. Her daughter calls her in the car and says, you know, she'd worked in the front office and his interns in the summer during their high school year. So she knew the boys. And Bernie's only been arrested for about three hours. And she tells her mother, I know, Mark, he's not going to be able to handle this. He's going to commit suicide. And he did, you know, two years to the day of Bernie's arrest.

16:29A lot of people thought that might be a consciousness of guilt. No, it wasn't. It was that he couldn't deal with it. They were betrayed. He had a much more fragile ego. Andy was very tough. But I mean, again, I'm not a psychologist, but I think there had to be some layers of depression in there on top of the calamity that his father perpetrated. Andy, of course, had leukemia, the stress probably of the whole situation contributed to that relapse. What about, what can you tell us about Ruth Madoff? Yeah. Ruth was almost cult-like devoted to Bernie. So she believed basically everything. And in fact, even after it happened, he was BSing her and the boys were really saying, you know, you got to cut contact with her or we're not going to have much to do with you.

17:13She was a very attractive, smart woman. And, you know, she probably played a little bit more ignorant with me than she really is. But she did not know, you know, she lived with her sister in Florida for a while. They were wiped out. So they were, she and the husband were driving a limo to the airport as a service and to survive. And obviously, they wouldn't have had Ruth with them. She trusted me completely. We texted all the time. and, you know, I would tell her, you know, I was talking to this person. They can't believe you didn't know. And, you know, she would respond to that. And she was just a very interesting person.

17:49After the book went to McGraw-Hill, she said that she didn't want to talk anymore. I think part of that was because they were trying to get early Compassionate release from Bernie. So the press, you know, this wouldn't have been a good thing. As I say, I gave her the book. So she has it. I don't know what she thought of it, but the fact that she totally trusted me and asked for no editorial content. In fact, you know, as I said, I could have found that they were complicit. In fact, it went right down to the edge for me to find out confidently that they weren't. I had to find a deep throat inside Madoff to verify what I thought.

18:23You know, the bankruptcy trustee thought these$800 million of losses that Bernie covered by laundering money from 17 to 19 was due to trading losses. It never made sense to me that a small proprietary group would have been kept going with 800 million of losses. And of course, it wasn't trading losses, but I had to verify that before I could be comfortable. And as I said, they're culpable on a moral basis, just as the SEC is. They took a lot of money out of there and they have to be accountable. Roots signed the tax returns. The tax returns were totally phonied by that guy in the strip mall that you're talking about.

19:00What was the most surprising thing you learned, Jim? The most surprising thing, I think, was Bernie's mind. And coupled with the complete failure of the regulatory system and on Wall Street, I don't think anybody realizes. We haven't talked about how SIPC failed. And it's just how, you know, FINRA failed, the SEC failed, the feeder funds, the banks, the bankruptcy trustee then completely abused his power, if you ask me. And it's almost mind boggling how the whole story hangs together like that. And of course, you know, the fact that I found differently than the entire spectrum of the investigative bodies and the public on whether they knew or not, you know, those were all surprises, I think.

19:48But, you know, Bernie's, you know, is just a unique entity of himself. And remember, he pulled this off for 40 years. And it really unbelievable. As you know, Ponzi schemes, by definition, cannot last and they generally cannot last long. FTX, let's talk about that. You may know this. I mean, I liked Sam. I trusted Sam. I ended up selling a piece of my business to Sam. I guess the good news is he gave me the money, Jim. I didn't give him the money. And I admired Sam's parents, particularly his dad. I got very close to his dad. What's your reaction to the FTX story? Yeah, you know, my reaction to that is, first off, I found it very interesting that he and Bernie, as two different entities, Bernie looking like a Wall Street guy and SBF purposely not, but they both built reputations of credibility.

20:39Nobody in the crypto communities ever said, I support regulation. And he presented that. And the thing about SBF that bothers me is basically his story is the dog ate my homework. Didn't know what I was doing. We had no accounting system. I didn't, you know. And meanwhile, not only did he have all these conflict of interest things with the hedge fund Alameda, right, that his girlfriend was running who didn't know anything. But if the dog ate his homework, this is one hell of a smart dog. He had$1.3 billion that he borrowed against that. And they programmed it so that he would not be billed interest on top of that that was accruing.

21:16Now, how does that happen without some degree of culpability, having no systems in place? And again, now, similar to Madoff, I got to blame the institutions for a failure of due diligence, right? I mean, not talking about you necessarily, but Sequoia, BlackRock, all of those firms were basically vouching for the guy. So we have the same failure of due diligence we had before. We have the same building of sort of a false credibility. And a Ponzi scheme involves no real trading, right? But there was real trading in crypto. But the FTT token, which had to remain stable, right, because all the loans on the money they'd absconded with as collateral had to stay consistent.

21:55I'm assuming there's got to be, and the SEC said that, some manipulation of the market to keep that FTT token. So, you know, Sam seems like a great guy. You say you know his parents and everything. But the actions seem to be criminal in nature above and beyond the dog eating his homework. Well, listen, I mean, and again, he had, the reason everybody got bamboozled, if you went into his data room, he had probably one of the more pristine data rooms. Moreover, like Bernie Madoff, there was some legitimacy going on. I spent 48 hours in the Bahamas, 24 of them, 12 hours a day, okay, on the trading desk, watching his activity, looking at flows, looking at data coming through the servers.

22:40He had 12.5 % of the cryptocurrency markets from an exchange point of view. So I mean, what he blew, Jim, is absolutely catastrophic and tragic. I mean, ultimately, like Madoff, he had an ego where he didn't want to quote unquote lose money. So he borrowed the money from his clients to make up for his losses. Had he just said, hey, I've lost money, I'm taking an XYZ loss, he had a very legitimate trading business going on. You know, it's funny you tell me that because Madoff downstairs had a very intricate phony. He set up a screen that was, he said, live contact, right, with the DTC where all the clearing goes on.

23:19And he says, I'll show you the inventory of my stocks. Pick one out. And the guy would say, OK, Apple. And then the, you know, DiPascale was in another room, right, putting and typing it into the screen. And that bamboozled people too. And of course, as you know, upstairs, he did have completely legitimate systems. Every trade could be proven to clear through the DTC. 17th floor never had a trade go through the DTC. So it is interesting. And they both play this sort of good guy, innocent type of thing as well, which to me makes them look like worse sociopaths, to be honest. I agree with you. What does it say, if it says anything, but I'd like your opinion, what does it say about the culture on Wall Street?

24:01You know, I'm a big fan of Wall Street, a lot of brilliant people, a lot of good work done. So I'm not, you know, some kind of crusading and anti-Wall Street guy. I'm critical of the business conflicts of interest, right, where the customer gets screwed. I'm critical of there's sort of an unwritten omerita because I kept asking, you know, what Marilyn Goldman, for instance, said, we're not trading with this guy. Something's up. But they didn't tell anybody that and they didn't tell clients. They didn't tell the SEC. And that kind of, you know, that kind of bothers me. And of course, the feeder funds are an absolute disgrace.

24:34Bernie passed on those fees to them, which means we have to give up all our due diligence, which is their only job, right? Administering and picking out funds that match risk profiles. And, you know, so how can you not be, you know, critical of that? Then you get to SBX years later, right? And the system failed again, basically. You know, there is no crypto regulation. But, you know, when this book came out, I said SPACs, which were a good innovation initially, crypto, Robinhood, oh, we're going to blow up. And I was just saying that, right? And I'm not a regulatory guy. And after all the years, every one of them blew up because the SEC is not a cop on the beat.