Financier's alleged swindle confounds

Many old friends probably lost millions with Madoff

December 14, 2008
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This story was reported by Beth Healy, Casey Ross, and Steven Syre of the Globe Staff. It was written by Healy.

In the end, Bernard L. Madoff took back the fortune he helped Carl Shapiro build.

Shapiro is a Boston philanthropist and former women's clothing merchant who has lost at least $145 million in his family's charitable foundation - and probably much more of his personal wealth - at the hands of his old friend Madoff, who last week confessed to swindling $50 billion from wealthy investors.

Shapiro, 95, made a fortune by selling his Kay Windsor Inc. clothier to Vanity Fair Corp. in 1971. Dubbed the "cotton king" of the dress industry, Shapiro ran the business from New York's garment district and had a fabric-cutting plant in New Bedford, with revenues of $22 million in 1957. And he would amass multiples of that over the years, after entrusting his money to Bernard L. Madoff Investment Securities in New York.

Shapiro and his wife, Ruth, have given away hundreds of millions of dollars to Boston hospitals, museums, and universities over the years, and their foundation had $324 million at the end of 2007. And that's not counting their considerable wealth beyond the charitable funds.

How Madoff, 70, conned even longtime friends and clients, family members, and sophisticated hedge funds, is a vexing puzzle to the investment world.

"I believe they fell into an unfortunate situation with someone who told them a story," said Jason Chudnofsky, a publishing executive who knows Shapiro and other victims through their local charitable work. "To think this is going on for so many years is beyond me."

Shapiro knew Madoff before the modern mystique had been built around his investment business, before double-digit returns, promised year-in and year-out, enticed well-heeled investors to lobby for entrance to his private club. Getting in, investors say, was as difficult as becoming a member at the tony golf clubs where many Madoff clients socialize. In Weston, it's Pine Brook Country Club. In Florida, it's Palm Beach Country Club, where Madoff rubs shoulders with people like New England Patriots owner Robert Kraft.

The Shapiro family would become part of Madoff's empire when a son-in-law, Robert Jaffe, went into business with the New York investor.

Jaffe, 64, the husband of Museum of Fine Arts trustee Ellen Shapiro Jaffe, has worked for Cohmad Securities Corp. since 1989, according to regulatory records, a business in which he attracted clients for Madoff.

Cohmad's shareholders include Jaffe and Madoff, as well as three members of the Cohn family. The firm, whose name is combination of Cohn and Madoff, is on the same floor as Madoff's in a New York City office building.

Around Boston and Palm Beach, Jaffe became the face of Madoff's business - the man who drew scores of wealthy investors, many of them prominent members of the Jewish community - to the investment firm.

A Suffolk University graduate who once worked at Louis Boston, the high-end Newbury Street clothing store, Jaffe is said to be tall and dapper. He and his wife are frequent attendees at Palm Beach charity balls and, less often these days, Boston-area charity fund-raisers. The couple have homes in Weston and Palm Beach.

The Jaffes' 11,000-square-foot waterfront home in Palm Beach, appraised at $17 million, is two houses away from Madoff's, according to public records; both are about a three-minute drive from the country club. The Shapiros live less than 2 miles away.

Jaffe, like other investors, was fooled in Madoff's con, according to several people who know him. As recently as Thanksgiving, he was talking up Madoff's investment returns, saying the famous New York trader, who was once chairman of the Nasdaq Stock Market, had made an 8 percent return this year.

Ellen Shapiro Jaffe, reached at home in Palm Beach yesterday, said she had "nothing to say," and her husband was unavailable to comment.

Madoff launched his firm in 1960, and his brother, Peter, joined him in 1970. He made his name trading Nasdaq stocks and became well known among clients for his strong investment returns.

While some professional investors now say they wondered how Madoff managed to keep churning out positive returns even in falling markets, his alleged gains this year seemed particularly surprising. High-profile investors of every stripe were reporting losses of 20 percent to 40 percent as global markets plummeted. And yet Madoff investors said their statements showed gains of about 1.5 percent in October and 2 percent in November, disastrous months for the stock market.

Madoff has told senior executives of his company, and law enforcement officials, that he ran into a cash crunch when investors sought to take $7 billion out of his firm this fall. According to a complaint filed by the US attorney for the southern district of New York, Madoff confessed that he had been running a Ponzi scheme - effectively taking money from one set of clients to pay off others - and that the firm was broke. Madoff faces criminal and civil securities fraud charges.

Madoff's attorney, Daniel Horwitz, said yesterday: "We are cooperating fully with the government investigations. We are fighting hard to work through this tragic set of events to minimize the loss."

But the fraud could leave Madoff's former clients with little chance of getting their money back. That includes the Shapiros and the Massachusetts state pension fund, which had $12 million invested with Madoff. Others who entrusted funds to Madoff include the Sidney R. Rabb Charitable Trust, one of two trusts run by the Goldberg family, which once owned the Stop & Shop supermarket chain. The Robert I. Lappin Charitable Foundation in Salem on Friday said it had to shut down because Madoff had lost all of its money.

No one in the Shapiro family was willing to be interviewed for this story.

Madoff's fall will have far-reaching consequences beyond Boston and Palm Beach.

"We've been contacted by people all over the country and around the world, as far away as Hong Kong," said Brad Friedman, an attorney at the New York law firm Milberg, one of a number of firms representing people allegedly defrauded by Madoff. "We have a scary number of clients who literally had all their liquid assets, everything but their home, tied up with this guy."

Friedman said he had spoken with more than 60 alleged victims in the past 24 hours. And many of them are not sophisticated or ultra-wealthy, he said, but rather retirees who had placed their entire life savings, in the $7 million to $10 million range, with Madoff.

Among Madoff's alleged victims, too, are firms paid to evaluate firms like his. One such firm is Tremont Capital Management, a Rye, N.Y.-based fund of hedge funds owned by Springfield's MassMutual Life Insurance Co. MassMutual and Tremont declined to comment yesterday.

Beth Healy can be reached at, Casey Ross at, Steven Syre at Globe Correspondent Hinda Mandell also contributed to this report.

An attorney at a New York law firm said he had spoken with more than 60 alleged victims of Bernard L. Madoff (left).


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