“Madoff isn’t going to be real popular,” said Larry Levine, who served 10 years in federal prisons for securities fraud and narcotics trafficking and now advises convicts on surviving time behind bars. “All the guys there will have wives or parents who are losing their homes or their jobs or who can’t send money to them anymore. Everybody’s going to be blaming Bernie.”
The 70-year-old investment adviser was ordered to jail by U.S. District Judge Denny Chin until sentencing scheduled for June 16. He faces as much as 150 years in prison.
Madoff ran a $65 billion fraud that fleeced thousands of investors, including Palm Beach retirees, trustees of Yeshiva University and Holocaust survivor Elie Wiesel, who lost his savings and his foundation’s assets.
The financier was undone by the Wall Street collapse as last year’s 38 percent decline in the Standard & Poor’s 500 Index forced his customers to withdraw money, said Roy Smith, a finance professor at New York University’s Stern School of Business and former Goldman Sachs Group Inc. partner.
“No one has ever made a Ponzi scheme pay off for so long,” Smith said of the scam that prosecutors said dated back two decades. “‘Madoff’ may become a verb. It certainly is already an adjective. We can replace the old Ponzi scheme with a new Madoff version. It is a monument to the foolishness of people putting money in these places.”
Ponzi schemes are named for 1920s financier Charles Ponzi. Money from new investors goes to pay off previous ones.
After hunting down victims for decades, Madoff will now become a target, according to Park Dietz, a forensic psychiatrist at the David Geffen School of Medicine of University of California at Los Angeles.
“In the beginning, he will be besieged by mail that will be threatening and accusatory,” said Dietz, who heads a Newport Beach, California-based consulting firm that participated in more than 12,000 criminal investigations, according to its Web site.
“There will be people trying to scam him and people who think he’s hiding money,” Dietz said. “There will be inmates asking for money, and you don’t want them to disbelieve you when you say you don’t have it.”
Madoff is likely to be looking at decades behind bars, given the severity of the charges, said Alan Ellis, a Mill Valley, California-based attorney and co-author of “Federal Prison Guidebook.”
‘Over 20 Years’
“He’s looking at well over 20 years, probably at least 30,” said Ellis, former president of the National Association of Criminal Defense Lawyers in Washington, D.C. “That’s a life sentence for him.”
Madoff didn’t agree to a plea deal with prosecutors because they demanded he admit to a conspiracy, according to people familiar with the matter. That would have required him to say he worked with others in the alleged scheme, they said.
Ira Sorkin, Madoff’s lawyer, had no comment on his client’s possible sentence before the investment adviser arrived at court today.
The Queens, New York-born financier is a former Nasdaq Stock Market chairman and owns a penthouse on Manhattan’s Upper East Side, vacation homes in Palm Beach and the French Riviera and a 55-foot Rybovich sport-fishing yacht called “Bull.” He started his investment business in 1960, at the age of 22, with $5,000 saved from summer jobs.
Madoff will likely join a corps of aging white-collar convicts including former WorldCom Inc. Chief Executive Officer Bernard Ebbers, 67, now housed at the Federal Correctional Institution in Oakdale, Louisiana, and John Rigas, 84, the ex-CEO of Adelphia Communications Corp. who is imprisoned at the Federal Correctional Institution in Butner, North Carolina.
Ebbers, who was convicted in an $11 billion accounting fraud, is due for release on July 4, 2028, while Rigas’s sentence for securities and bank fraud and conspiracy runs until Jan. 23, 2018, according to the Federal Bureau of Prisons Web site.
Federal prisons carry different designations, ranging from minimum to maximum, based on levels of security.
The two former CEOs are doing time in low-security prisons featuring double-fenced perimeters, mostly dormitory housing and work programs, according to the bureau Web site.
Madoff probably would be assigned to a low- or medium- security facility, said Levine, whose firm, Wall Street Prison Consultants, is in Los Angeles. Medium-level lockups usually house inmates in cells and are ringed with electronic escape- detection systems, the bureau site says.
Because crimes such as rape and murder are usually prosecuted under state laws, “in general, the federal system is less violent,” said Peter Henning, a law professor at Wayne State University in Detroit. “Madoff will be put in with the least violent.”
Madoff, who is Jewish, may be assigned to one of several U.S. facilities in the New York area, including the Federal Correctional Institution in Otisville, New York, 70 miles from Manhattan, where ultra-Orthodox Jews run religious services inside the prison, he said.
The financier may be sent instead to a low-security facility at Fort Dix, New Jersey. It’s next to a minimum-security camp housing former fund manager Martin Armstrong, founder of now- defunct Princeton Economics International Ltd., who’s serving a five-year sentence for securities fraud.
Madoff pleaded guilty to 11 counts, including securities, investment-adviser, mail and wire fraud as well as money laundering and theft from an employee-benefit plan.
The addition of money-laundering charges “may make this a life sentence” and push Madoff into a medium-security prison, at least at first, Ellis said. “Where you end up has as much to do with where the BOP has a bed open as your sentence.”
Before Madoff’s plea, two judges dismissed a government motion to revoke his $10 million bail and jail the financier after he sent a diamond bracelet and watches to friends and relatives in violation of an asset freeze. He awaited his hearing under house arrest at his $7 million duplex at 64th Street and Lexington Avenue.
Madoff may be sent first to the 12-story Metropolitan Correctional Center in lower Manhattan or the Metropolitan Detention Center in Brooklyn. Both house criminals from “swindlers to murderers,” Wayne State’s Henning said.
The “bleak” MCC is “horrendous,” according to defense attorney Sam Schmidt, who visits the jail several times a week and represented Wadih el-Hage, convicted of federal terrorism charges related to the 1998 bombings of the U.S. embassies in Africa. He visited el-Hage at the facility between 1998 and 2001.
Conditions are worse at the Brooklyn jail, according to a court filing by Flora Edwards, a lawyer for fund manager Raffaello Follieri. He was convicted in 2008 in a real-estate investment fraud that led investors to believe he had a special relationship with the Vatican. Edwards’ filing described the MDC as having an “intolerable” stench and free-roaming rats.
Money manager Armstrong spent seven years at the MCC on civil-contempt charges before pleading guilty to securities fraud. He started out in the facility’s high-security wing with accused terrorists because there were no beds in a regular unit, he said in a January interview, quoting his jailers.
“Sometimes they’re good guys,” Armstrong said of his fellow prisoners. “Sometimes they’re nuts.”
Madoff would be housed in a special unit at either facility because his high profile would restrict his contact with the general population, Levine said.
In prison, Madoff will be able to stay in touch with the outside world via TV and the Internet, according to psychiatrist Dietz. He’ll have access to cable television and will probably get access to e-mail, Dietz said.
Unless he qualifies for a medical exemption, Madoff will have to take a job in prison that will pay anywhere from 12 cents to 40 cents an hour, Levine said. Offering inmates help with legal or financial needs might give Madoff a certain “diplomatic immunity,” said Levine, who said he acted as a jailhouse lawyer for other convicts while behind bars.
“Once he gets in, he’s not getting out except in a box,” he said. “There is no parole.”
The criminal case is U.S. v. Madoff, 09-cr-00213, U.S. District Court for the Southern District of New York (Manhattan).
By Pat Wechsler and David Glovin