Reversal of Fortune

In Palm Beach, Boston’s Jewish elite created a glittering world that unwittingly helped make Bernie Madoff possible. Laurence Leamer reports from behind the winter retreat’s manicured hedges on what it looks like now that the party is over.

In a place where appearances matter so much, the patina Madoff built up around his operation ensured it would prove irresistible. Madoff’s investors largely thought they were making serious, old-fashioned investments, not risking their fortunes in the hot new hedge fund. Even toward the end, Madoff’s website was touting holdings in blue-chip companies like Apple, Dell, and eBay. This has allowed some of his alleged victims to remain surprisingly sanguine: Nothing about Madoff’s wild success strained credulity, at least when viewed against the backdrop of Palm Beach.

Bob Lappin is a former manufacturer (he invented the Shetland vacuum cleaner) from Swampscott who spends his winters at the Breakers. He had to shutter his charitable foundation, which sent kids to Israel on heritage tours, after finding out that the $8 million it had with Madoff—its entire worth—was gone.

“I do not berate myself for investing with Madoff,” Lappin says. “Over 17 years, we received confirms of his trades, timely and accurately. Two SEC examinations gave him a clean bill of health. And, of course, Madoff was among the most highly respected members of the financial and philanthropic communities.”

When Madoff was made chairman of NASDAQ, it was not as an honorific, but rather because his new forms of computer-aided trading had revolutionized the industry. He went on to help build the once-obscure NASDAQ into a formidable competitor to the New York Stock Exchange. One of the people who watched Madoff’s rise firsthand is Muriel “Mickie” Siebert, the first woman to gain membership in the New York Stock Exchange. For years, Siebert’s Manhattan office on Third Avenue has been located on the same floor as Madoff’s firm. “I don’t know why somebody who is basically that bright and creative got himself into that position,” Siebert says. “But I know so many people who have been hurt. I know widows whose husbands on their deathbeds told them, ‘Keep your money with Madoff. He’ll take care of you all your life.'”

Adds Lappin: “In every generation, evil people, disguised as paragons of virtue and knowledge, have emerged to take advantage of innocents. In my view, there’s no great lesson here.”

 

The news of Madoff’s alleged Ponzi scheme broke almost a year to the day after the grand Brigham and Women’s fundraiser at Club Colette. I got the word of the vaporized $50 billion from a Palm Beach Country Club member I know, who called my cell phone as I was on my way to Echo, an Asian fusion restaurant on the island, for a dinner hosted by my friend Herb Gray. In Boston, Herb lives at the Heritage on the Garden. He is worth about $20 million. Until I moved to Palm Beach in 1994, I thought that was great wealth. But when I had mentioned him to the other guests at Club Colette the previous year, none of them knew who he was: He wasn’t rich enough and he didn’t belong to the right clubs.

At dinner, I mentioned the Madoff news. “My God!” Herb exclaimed. “I’ve got to call Bob Lappin.” When Herb got off the phone, his face was ashen. “He’s going back to Boston to walk through the wreckage,” he reported. In Palm Beach, people didn’t have to wait for the papers to reveal who’d been hardest hit. The scoops came from dining companions and were delivered between courses.

Every day now, I hear more stories of devastation. A home put up for sale for $6.5 million, only to have the asking price slashed by half overnight. A CEO cleaning out his locker at the Trump International Golf Club, never to return. In my oceanfront building, two owners have shuttered their apartments and headed north. A friend from the building across the street told me he had suffered just a “nicking”—but in Palm Beach, a “nicking” could be $5 million to $10 million.

The other evening I had dinner at Trevini, a popular Italian eatery on Worth Avenue. Many Palm Beach restaurants have been half-empty, but the place had a good crowd. In deference to the times, I chose the $35.95 three-course special, an offering that until this year would have been available only during the slow weeks of August. As I was nibbling at my tiramisu, I looked across the room and spotted Howard Kessler, the Boston businessman who invented affinity credit cards and owns one of the island’s greatest estates. Even from a distance, his mood appeared so dark that it cast a pall on half the room, and I thought I knew the reason why: I’d heard that he had invested with Madoff and taken a big hit. I had tried to contact him several times, with no luck.

As Kessler and his family passed my table on their way out, I got up to say hello. I introduced myself and said I would call him again in the morning. This time he took my call, but said he had never given an interview and was not about to start now. Later, a source familiar with Kessler’s situation relayed that his foundation (listed in its last tax filing as having $40.7 million in assets) had lost money with Madoff, but insisted I had misread Kessler’s mood, that he was bearing up fine, despite it all.

According to this source, Kessler has added a new, personal arm to his philanthropic efforts. He has begun playing the white knight to friends and acquaintances who’ve been left nearly destitute, and now face living with their children or eking out a semblance of their former lives on Social Security checks. This act of generosity won’t be celebrated in the society column of the Palm Beach Daily News, as I suspect Kessler would prefer.

 

On Christmas Day, there were two sittings for dinner at the Palm Beach Country Club and an almost unprecedented turnout. It was as if the assembled families wanted to send the message that everything’s the same. It didn’t quite take. “It wasn’t a celebratory mood,” says one member. “The more you think about it, the worse it gets. It’s like a horror film where something horrible is growing in a Petri dish and spreads and spreads.”

For the Shapiro family in particular, it’s been impossible to find refuge. On another day at the Palm Beach Country Club, a member went up to Carl Shapiro as he was having lunch to commiserate over his enormous losses. Shapiro looked up from his plate and said, “I’m still eating.” It seems one of few pleasures he has left. His foundation is reportedly out $145 million, and he has personally lost $400 million. While Shapiro has not been accused of any wrongdoing, the real prospect remains that some portion of his fortune will be shown to be the product of Madoff’s alleged illicit dealings. Almost nothing is certain for him any longer.

Unlike his father-in-law, Robert Jaffe’s not even getting the benefit of the doubt. It’s with acid in their voices that his Palm Beach peers remind you how the former Louis Boston salesman married into his status. “He was looking for a rich wife, and Ellen was the best he could do,” says a woman whose father was involved with Boston’s Jewish mob. After the couple married in 1968, she relays, Jaffe “went strutting down Newbury Street, showing off that he was in the chips.” In December the Jaffes canceled an elaborate engagement party they had planned for their son, Steven. (One of the would-have-been guests recently called the Worth Avenue shop from which she’d bought an exquisite crystal piece as a wedding present: She wanted to renege on her order.)

The Jaffes have also stepped down from chairing this month’s Dana-Farber Discovery Ball at the Breakers. Howard and Michele Kessler have gamely picked up the slack, and the gala will go on as scheduled, if not quite as originally planned. In Palm Beach, nights like the Brigham extravaganza of two Decembers ago are a thing of the past. For this one, the dress code has been downgraded from black tie to cocktail dress, though it probably should be mourning attire.

 

Laurence Leamer, a winter resident of Palm Beach since 1994, is the author of Madness Under the Royal Palms: Love and Death Behind the Gates of Palm Beach, published last month by Hyperion. His website is leamer.com

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