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Srbo Radisavljevic
Managing Principal/Investment Advisor

Edge Portfolio Management


State: IL

At Edge, a low client to advisor ratio allows for personal and customized service for each individual.  Our goal is to work as a team for each client to provide not only portfolio management but wealth coordination and financial planning.  We make every effort to have frequent communication with our clients and to provide timely response to calls and emails.  I also enjoy spending time with my wife and three kids, following Chicago sports, enjoying ethnic cooking, and serving as a school board member for Norridge School District 80.

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Bernie Madoff, the Man Behind the Curtain, Part Two

How can investors protect themselves from falling prey to a Ponzi Scheme?

In part two of our interview with Diana B. Henriques, author of the Wizard of Lies: Bernie Madoff and the Death of Trust (Times Books), Henriques, a senior financial writer for the New York Times, shares her impressions of her two unprecedented jailhouse interviews with Madoff and reviews the oversight changes since his Ponzi scheme was discovered. 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 York magazine. 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: Have things changed since Madoff was convicted?

DH: Not as many as I think we all expected at the time of his arrest and the disclosures that the SEC had bungled numerous efforts to investigate him. I’ll talk the good news first. The SEC did undergo remarkably sweeping overhaul (including) a much flatter management pyramid with fewer people behind desks and more people out in the field. They've eased up the process for serving subpoenas which had become almost constipated in the prior eight years.  They were able to delegate authority for initiating investigations down into the field so they could begin much more quickly. They've overhauled the way whistleblower tips and general tips from the public are monitored.  They're trying to mobilize software algorithms that will allow them to sift quickly through the hundreds of thousands of tips they get every year to try and find the ones that are really paydirt and need to be pursued quickly. They have streamlined cooperation among the different silos at the SEC which was one of the big problems in the investigations they attempted and fumbled in the Madoff years.

What haven’t changed are some basic protections that would have made us all safer. For example, Madoff maintained custody of all the stocks and bonds he was allegedly buying for all of his big hedge fund customers. If he had been required to keep all the stocks and bonds in some independent third party's hands, his Ponzi scheme could have never gotten off the ground.

A simple rule that would require all money managers to use a third party custodian would have been very successful way to address what we learned through the Madoff scheme. But small money managers complained it would be too cumbersome and expensive. But that doesn't mean that individual investors can't protect themselves by asking any person who wants to manage their money who is their third party custodian. If they say they don't use one, just smile, shake hands, and leave.

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.


Update: After this interview had been conducted, HBO announced it had bought the rights to Henriques' book. Robert De Niro is in negotiations to portray Madoff.