2011 Rewind: Interview with Diana B. Henriques, Author of The Wizard of Lies: Bernie Madoff and the Death of Trust

Update: After this interview was conducted last May, HBO announced it had bought the rights to Henriques' book. Robert De Niro has been cast to portray Madoff. Mark Madoff's widow, Stephanie Mack, wrote the book The End of Normal: A Wife's Anguish, A Widow's New Life. Ruth Madoff appeared on 60 Minutes and denied any knowledge that something "sinister" was going on. She also said she planned to divorce her husband of 52 years.

For those seeking answers as to why and how Bernie Madoff could perpetrate the biggest Ponzi scheme in history, the disgraced investor has proven an elusive and slippery villain. He is serving a 150-year prison sentence for his—he claims--sole role in masterminding the crime which destroyed his own family and left thousands of others destitute. Diana B. Henriques, a senior financial writer for The New York Timesand the first journalist to interview Madoff in prison, wrote The Wizard of Lies: Bernie Madoff and the Death of Trust, which charts a story as gripping as any fiction. In this interview with Millionaire Corner, Henriques offers a peek behind the curtain to tell how she managed to land one of journalism’s biggest “gets,” and the challenges of interviewing a wily subject with an agenda at odds with the facts she uncovered.

Millionare Corner: Had you known Bernie Madoff before writing the book?

Diana B. Henriques: I had known him slightly. He was certainly a source in my Rolodex for many years dating back to when I was a reporter at Barron's. He was very much in the vanguard of what we take so much for granted, 24/7 round-the-world stock trading. It may be because he knew I knew his background that he was more inclined to talk to someone who didn’t see him just as a crook, who understood that he had played a bigger role on Wall Street before this disastrous crime. I think it helped too that (the New York Times') coverage of the crime was fair and moderate with respect to his family. I know that meant a lot to him, at least that’s what he told me when I met him in prison for the first time in August of 2010. But who knows why he decided to finally talk?  It took him months to agree.

MC: What was that process like?

DH: It was like pounding rocks. Nothing seemed to happen until finally one of them cracked. His lawyer told me he wasn’t going to make any decisions about an interview until he got into the federal prison itself. So I waited.  Every couple of months I wrote him a one-page letter describing why I thought it was important for him to talk and what I was hoping to provide to history; the definitive insightful book that could only be as good as I wanted it to be if I could have his cooperation. He sent me a note back that fall not saying 'no,' but saying 'not now.' It was a very flattering note (along the lines of) 'You're at the top of my list if I decide to give any interviews.’ I took that for what it was worth.

At some point that spring in 2010, I started to pick up signals from his lawyer that maybe this was going to work. Once he agreed there was another six weeks to get the prison authorities to agree. I was able to sit down with him for two hours in August 2010. 

MC: Would there have been a book without him?

DH: It was written under the assumption I would not get Bernie Madoff. My deadline for the initial draft was October 2010 and I didn’t get to see him until August. I think that was the saving grace when I did get to talk to him. I came in to the interviews with an enormous amount of background information.  I could challenge Bernie's fabrications against what I already knew. I identified the holes in the story that only he could fill; his family background, his childhood. It was a benefit in a way that it had taken so long for me to get in to see him. I think the book is much stronger. But after I did see him, it shifted the center of gravity of the book. We actually changed the title. Up until August 2010 it was going to be called A World of Lies. After I interviewed him, my editor said it wasn’t quite right and between us we came up with The Wizard of Lies.

MC: What was his reaction to the title? 

DH: He did not like it. He said it was too sensationalistic. I wrote back and said, 'Bernie, you must have known that any book about your crime was going to have the word ‘lies’ in it somewhere. It’s the currency you used to keep this crime going.' He’s a very slippery person. He read the book a few weeks ago. He was not thrilled. He is grateful for the fairness with which I treated his family. But he still insists that his crimes began in 1992.  I reached different conclusions. He is still challenging (me) and insisting I’m

wrong and he’s right.

MC: How on guard were you in that he was an unreliable narrator of his own story?

DH: This is not the first time I’ve interviewed someone of dubious credibility. If you cover Wall Street for as long as I have, that’s an opportunity you get almost daily. I was more interested in how his mind works. I wanted to see was how he lied, how he rationalized those lies to me, how he shifted from things that I had already verified and knew he was telling the truth about to outright lies, things I knew he wasn’t telling me the truth about.

MC: Was there a pattern to what he lied about?

DH: I understood why he was so adamant about when this fraud began and I think he understood that I understood. He is trying to curb the forfeiture claims that the government and the trustee in bankruptcy can make against his family's assets by persuading them and the world that the fraud started in 1992. (That way) he limits the reach of the government back into the 1980s and his assets that his children and his wife acquired then. That was the primary focus of what he was trying to persuade me.

MC: Beyond the size and scope of his crime, what else fascinated you about this story?

DH: You can’t look far behind this size and the scope; almost $65 billion of paper wealth wiped out in an instant and a web that stretched far beyond the reach of any Ponzi scheme in history. It grabs one's attention right off the bat. But what made it so compelling was the human story. Here is a father turned in by his sons. Here is a wife of almost 50 years who stands by her husband and is vilified and becomes almost a pariah. Here are a couple of lawyers in bankruptcy court who are trying to recover assets and themselves have become lightning rods for the hopes, fears, anger, and grief of a whole community of Madoff victims. Every journalist dreams of writing a novel someday. I can take that off my list. This was like a novel (with) such incredible characters and primal forces at work: trust, betrayal, family, friendship.

MC: One thing I admired about the book is that you make a very complicated story accessible.

DH:I wrote it for the general reader for a deliberate reason. Ponzi schemers don’t prey on financial journalists for The New York Times. They are looking for people who are baffled by the complexities of the marketplace and who are looking for something safe, simple and secure. Madoff was brilliant in the way he targeted his victims. The classic Ponzi schemer going back to Charles Ponzi himself was a bon vivant, very much a charismatic fellow--and it's almost always a fellow. Madoff was not like that at all. He was never the most charming person in the room. He always made you feel like you were the most charming person in the room. He wasn't trying to show off his brilliance. He let you show off your brilliance. Nothing about him would have set off the traditional trip wires of 'Whoa, be careful about this guy.'

His approach to his role was very different from the classic Ponzi schemer. Most promise you the sun, moon and stars. Madoff promised you low but safe and steady returns. There were many years during the life of his scheme where his investors could have made more money in the Magellan Fund or in a public mutual fund than they did with Bernie Madoff, but the markets were volatile. You didn’t lose money with Bernie. He attracted not people who were greedy but people who were fearful.

I’m concerned as a financial reporter that the Ponzi schemes of the future will be Madoff schemes. They will be schemes that don’t make promises, they won’t attract regulatory attention, and they won’t raise red flags in your own mind. They will exploit your fear of how complex and difficult and volatile the markets have become. That was Madoff’s genius. He attracted people who thought they were making a safe conservative bet by investing with Bernie Madoff. 

MC: You interviewed Bernie Madoff twice, once in August 2010 and then again in February 2011. You write that he had "shockingly changed."

Diana B. Henriques:It struck me forcefully. In the August meeting, he clearly was different than the man we had seen on television two years before. He was thinner. He had a prison haircut, not one by a Madison Avenue barber. But he was still crisply dressed. He took great pride in his appearance. I could see that in his prison garb; shoes brightly shined, shiny brass belt buckle. He had a clear grasp of his agenda. He was very pleasant with flashes of wit. It seemed like I was talking to the guy I had known on the street years before. February, when I came back, was two months after the suicide of his older son Mark. He was dramatically different. He had lost a great deal of weight. The belt buckle was no longer shiny. There was a button unbuttoned on his shirt that he didn’t notice until half way through our interview. He looked like someone had taken a crisp sheet of paper and just crumpled it and tried to spread it out again flat.

He had been totally blindsided from the beginning about how devastated his own family was by his crime. I think he thought he would plead guilty and he would go to jail. He knew they would be financially ruined, but I don’t think he was braced for how emotionally devastated they would all be. He was shattered by his son's death.

MC: You also write movingly about how he lost his grip when talking about wife Ruth.

DH: He was deeply grieved especially about the attacks on Ruth. The one time he lost his composure sitting in the visiting room was when I asked him why Ruth stayed with him and if he regretted the decision.  I looked up from my notebook and he was weeping. He had been so lucid up until that point. He started to stumble around that one.  He hadn't asked her to stay. He knew her friends thought she should leave. He told her she could leave. But, he said, 'Somehow she found the compassion for me' and by then he couldn’t go on. His lawyer found some stiff old paper napkins in the snack bar and brought them over, so I don’t think this was rehearsed. He found it difficult to regain his composure. When he did, he quickly moved on.

MC: As you immersed yourself in this story, how did your feelings toward Madoff evolve? Did you like him in some way?

DH:It's impossible to come to him without the awesome history of that crime he carried with him. I really came to feel like I was juggling a live hand grenade. He was so unpredictable and so untrustworthy. If I saw a message or email from him, I cringed a little bit.

MC:Did he try to work the Madoff magic on you?

DH:He said that I was the only writer he was working with. He assured me, "Diana, don't worry. I won’t let any interviews come out ahead of your book. He was lying. He was negotiating at that very moment for another prison interview with the Financial Times and was already exchanging emails and telephone calls with a reporter from New Yorkmagazine. I knew who I was dealing with, but I'll admit when he first gave me that promise, I thought, 'One less thing to worry about. Thank you, Bernie.' He was just so convincing.

MC:Did you confront him about it?

DH: Yes. He started to explain why he had to do it. There was an inmate he was doing a favor for, a young relative who was a friend of the editor at FT. He was just trying to help people out. He hadn’t thought it would violate that promise exactly. He thought somehow those stories would come out after my book. This is the same kind of rationalization I’m sure he used as his Ponzi scheme was unfolding day after day; 'I'm going to work my way out of it. I’m not really stealing. Somehow it will work out.' Those are normal rationalizations of a Ponzi schemer. Everything he told me suggested he sought comfort in those excuses.

MC:What do you hope readers, ordinary investors, take from your book and the Madoff story?

DH:You have to exercise some self-protection and the way you do that is to ask the right questions: How long have you been in business? Are you a registered investment advisor? Do you clear your own trades? Do you have a third party custodian? Whether it's not betting beyond your risk parameter or not putting all your money with one money manager, I would hope what people take from this is an awareness that they must not let trust blind them to some simple rules of common sense.