Veteran financial reporter Nina Mehta seems to have uncovered the mystery about how Frank Avellino and Michael Bienes—Madoff’s earliest investors—came to know the world’s most famous swindler.
And wouldn’t you know it? It all started at an accounting firm.
Madoff’s eventual father-in-law, Saul Alpern, was Investor A’s family accountant in the 1950s and 1960s. The Manhattan accounting firm in the West 40s, called Alpern & Heller, was run by Alpern and his colleague Sherman Heller. Heller was a friend of Investor A’s father. Two junior accountants at the firm were named Frank Avellino and Michael Bienes. These men would wind up playing a key role in Madoff’s brush with a Securities and Exchange Commission investigation in 1992. Heller died in the mid-1960s at the age of 46, according to Investor A, and in the 1970s Avellino and Bienes took over the accounting firm.
In the late 1970s or early 1980s, Investor A recalled, Madoff decided he didn’t want to handle small individual investor accounts. So Avellino and Bienes packaged together the accounts of people who had been invested directly with Madoff. “Madoff traded them as a single entity instead of maintaining them as single accounts with separate statements,” this investor said. “He didn’t want the bookkeeping of all the separate accounts.” This investor met Madoff a number of times over the years, but was not friends with him.
Investor A brought several friends into Madoff’s ambit as investors, via Avellino & Bienes. While he continued to get 20 per cent annual returns, paid out on a quarterly basis, A&B gave these friends 19 per cent. “As the years went on, as people went in, they offered lower and lower percentages,” he said. “At the end, they were giving [investors] 13 per cent.” He added that the investments were considered loans. “My 20 per cent was considered interest income on a loan,” he said. “The tax returns treated it as interest income. That’s how Avellino and Bienes set it up.”
We told by a person familiar with the matter that Madoff actually worked at Alpern & Heller in the 1950s, before he had graduated from Hofstra College. This, as far as we can tell, is something Madoff has never revealed. He has, instead, insisted on the utterly implausible claim that he started his firm in 1960 with money he saved up as a lifeguard. Which raises the question: why would Madoff cover up his early work at this accounting firm?