Fraud in the Family

Less than ten minutes into “Madoff: The Monster of Wall Street,” FBI Special Agent Steven Garfinkel looked straight into the camera. “There’s no way you can run a $50 billion Ponzi scheme and not have anybody else know about it,” he said, practically winking.  

While hardly the most shocking revelation made in Netflix’s latest true crime series, this observation does present a topic worthy of consideration: Bernie Madoff’s $65 billion Ponzi scheme — at the time the largest in history — couldn’t possibly have been executed solo. Though Madoff himself claimed to be the singular culprit, an empire of paper requires more than a lone staple gun operator to keep the support beams standing. Further to the point, Madoff’s one-time personal secretary, Eleanor Squillari, told documentarian Joe Berlinger that working for Madoff’s investment firm, Bernard L. Madoff Investment Securities, was perhaps less like NASDAQ and more like Olive Garden: if you were there, you were family.  

“They were family-oriented people,” she said of the Madoffs. “Ruth had an office at the firm. I think she was the person [Bernie] confided in.” 

Indeed, Madoff employed not only his two sons, Mark and Andrew, but also his brother Peter and niece Shana. Like a clan of beavers working diligently on a dam, the Madoffs ran operations together at Bernie’s investment firm in the opulent “Lipstick Building” of Midtown Manhattan. The “Ruth” who had her own office was Ruth Madoff. She is Madoff’s widow, and following the tragic deaths of both their children, she is the only surviving member of Madoff’s nuclear family. High school sweethearts, the two married in 1959 when Ruthie, as friends called her, was only 18. Madoff launched his investment firm in 1964 using a loan from Saul Alpern, Ruth’s father. From the minute the doors swung open for business, the couple was seemingly joined at the hip. By most accounts, Ruthie herself appears to have been intricately involved in the operations at BLMIS: sometimes managing the books; sometimes writing checks in Bernie’s name; frequently holding many of the couple’s myriad assets under her own.  

Yet, when Madoff’s fraudulent enterprise came crashing down in December 2008, upon being turned in to federal authorities by his own sons, Ruth Madoff escaped the ax. Though forced to surrender the houses, cars and a yacht named “Bull,” Ruthie from Queens was neither charged with fraud, nor conspiracy to commit fraud. How? Or, more significantly, why?  

To the untrained eye — and certainly, the general public at large, which was quick to vilify Mrs. Madoff — it’s scarcely conceivable that a spouse so intricately intwined with her husband’s business could have been clueless to his scheming. Really, she knew nothing while handling the books, writing checks, holding the title of “director,” and acting as Bernie’s primary confidant?  

When fraud is committed by one member in a set of romantic partners, there exists a natural tendency to presume both partners must be equally culpable. After all, isn’t that the point of intimacy? You share everything, including sinister secrets (as well as their resulting cash spoils). But by getting in bed with fraud, is the fraudster’s lover always implicated by association, or can there be some situations where they are truly ignorant of what goes on behind another set of closed doors?  

Grading on a (Cheating) Curve 

A second high-profile example that bears further scrutiny involves two good actors behaving badly: Felicity Huffman and her husband, William H. Macy. In 2019, when the U.S. Justice Department swooped down on the various co-conspirators in a wide-ranging fraud case popularly known as the “college admissions” scandal (or “Operation Varsity Blues,” if one prefers the government’s phrasing), more than 50 parents, coaches and other administrative officials suddenly found themselves facing a plethora of fraud charges.  

According to Justice Department records, the orchestrator of the scheme, William “Rick” Singer, met with both Huffman and Macy at their home prior to the SAT test their daughter was scheduled to take in December 2017. Singer discussed how he could arrange to have a proctor take the test for their daughter, thus ensuring Ivy League-quality scores. Charging documents further reveal that defendant Huffman and “her spouse” made a charitable contribution of $15,000 to Singer’s fraudulent organization as means of payment for participating in the scheme. In a call recorded by investigators, both Huffman and Macy can be heard greenlighting Singer’s plans to fraudulently alter test scores for their daughter. Yet Huffman, who was famously arrested at gunpoint, pleaded guilty and received a 14-day prison sentence; the man simply referred to as “her spouse” throughout charging documents was never charged.  

Conversely, another celebrity couple who captured headlines for their role in the scandal, actress Lori Loughlin and her husband, fashion designer Mossimo Giannulli, were both charged by federal prosecutors. While each pleaded guilty to charges of conspiracy to commit mail fraud and honest services fraud stemming from the same scheme, the sentences handed down individually to husband and wife did not run parallel to their apparent participation in the fraud. Giannulli was sentenced to five months in prison and ordered to pay a $250,000 fine, while Loughlin was sentenced to two months in prison and ordered to pay a $150,000 fine.  

Why the discrepancy? As a married couple with presumably the same motive, intent and target in the fraud scheme, why would one co-conspirator be ordered to three more months in prison than the other? Did the judge feel Giannulli’s involvement in the scheme was $100,000 more damaging to society than Loughlin’s?  

An Affair to Remember, Details to Forget 

When it comes to famous fraudulent couples, perhaps no one stands out quite like Elizabeth Holmes and Sunny Balwani. By now, the ins and outs of the Theranos case have been dissected and expounded upon to the point of self-parody, but lingering curiosity remains around last year’s sentencing of the former lovers and leaders of the organization. Both pleaded not guilty and stood trial over the same fallen company, yet Holmes was acquitted of four charges, and Balwani was convicted across the board. Similarly, when it came time for sentencing, Holmes was handed down a surprisingly sharp sentence of 11 years in prison, but Balwani was punished even more severely, with 13 years. If both conspirators had worked together, lived together and presumably shared much of their lives together while actively engaged in the fraud, then what’s with the divergence in conviction and sentencing?  

A possible explanation comes in the form of evidence, or, rather, lack thereof. Specifically, as far as Huffman and Macy were concerned, it seems that the likeliest reason for why Macy was never charged is that prosecutors simply could not build as strong of a case against him as the one brought against his wife.  

Speaking with The New York Times shortly after the scandal broke, former prosecutor Rebecca Roiphe speculated that perhaps prosecutorial discretion had a role to play. “The bottom line on Macy was that he seemed to have been less involved in the conduct,” Roiphe said. “There is no doubt that the conduct could have been charged, but prosecutors use their discretion all the time, and decide not to charge somebody because they consider it either unfair or not worth the resources.” A former assistant U.S. attorney, Bradley D. Simon, said in the same piece that witness/suspect cooperation could also be a behind-closed-doors factor: “Prosecutors have discretion as to who they charge. It may be that he cooperated with federal agents and provided important information as to the involvement of others, although most likely not his wife. He also could get charged in the future.”  

To date, Macy has not been charged. 

When it comes to disparities in sentencing, with Loughlin and Giannulli’s case, federal judge Nathaniel Gorton appears to have followed the money. According to People Magazine, the couple keeps separate bank accounts, and Giannulli was primarily responsible for furnishing the fraudulent payments to Singer. He was also allegedly the one to initiate contact with Singer, which may explain why Judge Gorton felt his debt to society was worth $100,000 more than his wife’s.  

In Madoff’s case, even Special Agent Garfinkel admitted that he found no direct evidence of Ruth Madoff’s involvement in the fraud scheme. In effect, whatever was said to her by Bernie stayed behind closed doors. Ultimately, the paper empire produced no proof of Ruth’s culpability where it counted: on paper.  

So, what does this mean for future love-bird fraudsters? Caroline Ellison, the former CEO of Alameda Research and one-time paramour of FTX’s Sam Bankman-Fried, pleaded guilty to federal fraud charges and agreed to cooperate with prosecutors rather than roll the dice on protecting her former lover, which could have cost her 110 years behind bars. Perhaps like her, partners of those committing fraud may decide they’d do anything for love… but they won’t do that.