Madoff and the Name Game, in the Place Where Ponzi Schemes are a Way of Life

Posted on 01.28.09 10:48PM under The Everglades Room

People sometimes change the way their names are pronounced, usually for personal reasons that may not be apparent. Like when Tony Dorsett announced that henceforth he would be called Dor-sett. Occasionally, the reason is obvious, like when Joe Theisman went from “Theez-man” to something that rhymed with Heisman (it didn’t work. He didn’t win)

I’m Jewish, and it always bugs me when other Jews do this, because they invariably pick a pronunciation that sounds “less Jewish,” which I’ve always taken as a sign of going uptown, selling out and trying to “pass” (when you’re white, a name adjustment may be all it takes). Like my friend Larry Levin, who became Lawrence Le-Vin. Accenting the last syllable made his name sound vaguely French, more sophisticated, upscale, and . . . less Jewish. In fairness, I suppose it was less of a sell-out than picking a new name entirely, like Lawrence Ou-est-la-bibliotheque.

There’s no upside to altering the way my name is pronounced, and tempted though I’ve been to change it altogether, I’ve always left it alone, even though it sounds odd (I always spell it out to customer service), and means something like “peasant who follows plow” in various Eastern European languages .

All in all, I’m not surprised that Bernie Madoff wants you to pronounce his name “Made-off,” quite apart from the exquisite irony in the fact that he “made off” with more investor money than any Ponzi schemer in history. It wouldn’t matter if he inherited the pronunciation (along with a proclivity for pushing the envelope with securities regulators). Selling investments was the family business. Having a less Jewish-sounding name would have been useful fifty years ago. Even today it could help, especially if you’re running a scam aimed at attracting dynastic wealth and earning the respect of those who rule the world.

Nor is it surprising that the scheme’s center of gravity was in South Florida. It’s hardly news that the Sunshine State offers unusually fertile ground for investment fraud, or that the Gold Coast is a subtropical nuthouse full of grifters and marks. Con men have been following the snowbirds south ever since Henry Flagler built his railroad and Carl Fisher used elephant power to dredge up Biscayne Bay onto Miami Beach. By now, it’s a tradition. Floridians are accustomed to picking up the paper and reading about the latest local Ponzi scheme, whether it involves phony bullion contracts, viaticated life insurance policies, subprime auto loans, grocery diverting, consumer electronics, air charter, home jewelry or in-store cosmetics businesses, to name a few well-known examples. Even scams from elsewhere seem to trickle down, or crash land, in Florida. A new one was reported just days ago.

Put simply, in Florida, Ponzi schemes are a way of life. Hell, there are three different ones going on in my novel, Landmark Status, where rival crews vie for the right to raze a seedy Miami bar and raise a fabulous condo on its grave. One developer is selling shares in a kit airplane business headquartered in a hanger that just might be stacked floor to ceiling with boxes of empty. There’s a state-chartered bank whose balance sheet might be terminally unbalanced. And there’s the Great Florida Ponzi Scheme itself, the sale and resale of the same dirt, cut into ever-smaller slices of paradise, to the next wave of newcomers. It was and still is the principal business of South Florida, the place to which fools bring their money for safekeeping and are soon parted from it.

At bottom, all Ponzi schemes work the same way. Swindlers are generally allergic to using their own dough, so the promoter typically gets seed money from friends and family — staggering their prized entree to the inner circle, so he has later investor money to actually pay a few initial investors the promised returns on time. Then he waits for the inner circle to bring him the next wave of suckers, who will bring them the next wave. A few early payouts and some actual transactions in the purported business, plus accounting and legal documents from respected firms, are enough to keep investors “rolling over” their stakes until they need money (like in a great depression). The trick is keeping the victims happy with paper profits, because a run of cash-outs will bring the scheme down overnight.

As a securities lawyer, I represented defrauded investors in some of South Florida’s best-known Ponzi schemes, including one of the slickest ever. That scam was known as Premium Sales, and took in almost 500 million dollars in the early ’90s under cover of a business that promised huge returns from the arbitrage of regional discounts on non-perishable grocery items, by “diverting” them to other markets. It didn’t matter that real diverters work on razor-thin margins, or that bank financing ought to be available at far less cost to such a profitable business. All that mattered was the new car in the neighbors’ driveway and the fantastic paper profits they were racking up. Like most such frauds, it was sold by word of mouth to affinity groups. It swept through Miami’s Jewish community, laying waste to many families’ life savings.

Running a massive Ponzi scheme requires a special kind of crook, one who does it for the thrill, not just the money. He must possess the moxie, wits and guile to ride the rails without getting electrocuted. The Premium Sales mastermind, Ken Thenen, was said to have asked a young woman on a New York to Miami flight about a pastry box she’d brought onboard and was carefully minding at her seat, on her lap. She told him it was a cake she’d baked for her fiancé and was guarding with her life to make sure he received it intact. Thenen bet his traveling companion he could get the woman to give him a slice of her prized cake before they landed. He won the bet.

What makes Madoff’s scam special is not only its staggering size, the use of moderate returns to lengthen its lifespan, and a victim list of the rich and famous. What’s really unique is that Madoff appears not to have made a single securities trade and didn’t rely on outside lawyers or accountants to prepare any papers for the investors. His account statements showed trades at impossible prices for a trading strategy that couldn’t have produced the reported returns, even if the CBOE could have handled the necessary trading volume (it couldn’t have). Most Ponzi schemes acquire a patina of respectability from conducting a few legitimate transactions and getting accountants and lawyers to vouch for the company with fake financials and impressive looking subscription agreements. Madoff’s reputation in the securities industry apparently made all of this unnecessary. Now, that takes the cake.

In the Premium Sales case, after years of litigation, we recovered a majority of losses suffered by the investors, much of it from the grocery companies, accountants and lawyers who either knew or recklessly disregarded the fact they were involved in a huge fraud. But that was before the “Greed is Good” gang and their servants on K Street and the Supreme Court killed secondary liability and all but killed class actions for securities fraud. Observers should not be dripping with confidence that Madoff’s marks will recover more than pennies on the dollar (which are what usually remain in the coffers of a Ponzi schemer’s company).

We’ll explore how to name a Ponzi scheme in a follow-up piece. Meanwhile, if your friends start hocking you ein chinek about an investment opportunity that sounds too good to be true, it probably is, especially if they’re telling you the promoter doesn’t need your money and is doing you a favor because he’s really picky about whom he lets in. It wouldn’t hurt to watch out for fancy-sounding names, either.

BTW, back in 1981, a friend said Tony picked Dor-sett because that’s how they pronounced it in France.

*  *  *

Alan H. Rolnick has practiced law in Miami for twenty years, appearing in high-profile civil and not so civil cases, after putting himself through a music career by working at the New York Times. His first novel, Landmark Status, has received ecstatic reviews without resort to the scandalous pictures in his publicist’s safe. He provides trenchant social commentary without warning, and is Executive Producer of the independent film Canvas. To learn more, visit his website or email

As posted on January 23, 2009, at Smirking Chimp

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