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.
Turning their Rolls-Royces and Bentleys over to the valets, the splendidly attired couples slipped behind high hedges and glided their way into the private precincts of Palm Beach’s Club Colette. The 144 people who’d turned out for the evening’s proceedings, a charity-dinner dance to benefit Brigham and Women’s Hospital, included a veritable social register of Boston’s Jewish elite. Every night during the Palm Beach season there is one extravagant party after another, but even by those standards, this one would prove impressive. Daniel Ponton, Club Colette’s owner, wouldn’t have had it any other way.
It was December 14, 2007. A year earlier, Ponton’s doctors had found a fist-size benign tumor on the frontal lobe of his brain. When it came time to be operated on, he flew to Boston, where the Brigham’s Dr. Arthur Day performed the tricky 14-hour surgery. Ponton spent 10 days recuperating in the hospital’s Carl J. and Ruth Shapiro Cardiovascular Center, a state-of-the-art facility funded largely by the philanthropists’ $25 million donation. When he was healthy enough to return home, Palm Beach friends flew Ponton back in their private jet, equipped for the trip as a mini hospital with a bed, a private nurse, and ample quantities of Jewish penicillin, also known as chicken soup.
Ponton hoped tonight’s $2,500-a-plate event would raise $1 million for the hospital, and got the ball rolling with his own $500,000 donation. To entertain his guests, he brought in Argentinean tango dancers and engaged En Vogue, the Grammy-nominated R&B quartet.
I found myself seated at one of the Boston tables. For months I had been going out almost every night, researching a book on Palm Beach society, and these social occasions had grown increasingly tedious. But the atmosphere this evening was electric. In half a century, the Jewish population in Palm Beach had gone from a ghettoized minority to the island’s indisputably dominant cultural and intellectual force. And within that community, it was the Bostonians who ruled as the most charitable, the most intellectual, and the most cultured. They didn’t merely make cocktail talk; they had conversations, over topics ranging from the tiniest nuances of Palm Beach society to the great issues of the world.
At a nearby table sat Carl Shapiro, the most universally revered figure among these Bostonians. In 1971, he sold his women’s clothing company, Kay Windsor, and has since watched his investments make him a billionaire. Over the past several decades, he and his wife have given away an ample share of their fortune in a spectacle of generosity: more than $25 million to Beth Israel, where a research institute bears his name; $80 million to Brandeis University; $15 million to the MFA. The couple has donated many more millions to arts organizations in Palm Beach. Watching him at Club Colette, it was tempting to conclude that all that largesse was responsible for rewarding him with an enviable life extending well past the biblical threescore and ten. Then 94, he walked with the posture and thought with the acuity of a much younger man.
Shapiro has typically wanted his generosity publicly memorialized, his name affixed to the buildings his money puts up (Brandeis alone has three). This is not the kind of thing considered appropriate by Brahmin standards, but it’s raised few eyebrows on Florida’s Gold Coast, where charity is a kind of sport. “It’s not such a terrible thing if the benefactor’s name is publicized,” says fellow Palm Beach philanthropist Sydelle Meyer. “It motivates other people to think about giving. We all like recognition in this world, one way or another. And if people see other people’s names, they say, ‘Oh, isn’t that nice, and can’t I be there, too?'”
At another table this evening sat Shapiro’s daughter, Ellen, and her husband, Robert M. Jaffe. He was Ellen’s greatest treasure, a sixtysomething peacock in a black dinner jacket tailored to his tall, lean frame. He had an aging gigolo’s looks, with sleek black hair and a face that if not lifted by plastic surgery nonetheless looked not youthful so much as the caricature of youth.
There was no shortage of champagne toasts during the party, but by rights several of them should have been made to a man who was not in attendance. His name was Bernard Madoff. The then-70-year-old financial wizard was the son Shapiro never had. Shapiro had mentored him as a younger man, and Madoff had reciprocated by managing Shapiro’s money in Bernard L. Madoff Investment Securities. It was Madoff, not Shapiro, who was the investor with the Midas touch; it was Madoff’s steady 10 to 12 percent annual returns that had magnificently padded the holdings of many in the room tonight. Of course, had Madoff been on hand, the gratitude would have been mutual. Because without the people in this scene, Bernie Madoff would not have become what he did. It was Palm Beach and its Boston Jews that unwittingly helped make Bernie Madoff possible.
Palm Beach is clubby in the most literal sense, and for a long time just a few of those clubs were open to Jews. When in town, Jews stayed at the Whitehall Hotel and drove over to the Sun and Surf Club, both bought in the early 1940s by Boston entrepreneur A. M. “Sunny” Sonnabend, who later started the Sonesta hotel group. After its founding in 1952, they had the Palm Beach Country Club for golf. It’s ironic in the extreme that the Shapiros live in a multimillion-dollar condominium at the Breakers, a resort that until 1965 was accused of not allowing Jews to stay there.
The Palm Beach Country Club remains the local center of elite Jewish social life. The club’s palm treeâ€“dotted course spans the width of the island, from Lake Worth to the Atlantic. Its intricate dress code dictates that members must not wear shorts that rise more than four inches above the knee; after 6 p.m., men are required to don jackets and ties. Children under age 12 are generally permitted to dine only in the Ocean Grill, one of three dining areas at the club, though exceptions are made for Thanksgiving dinners and Passover Seders. The club’s directory shows that 80 of its 700 or so members maintain homes in or around Boston, with chichi addresses in the right suburbs and among the single-digit townhouses at the Public Garden end of Commonwealth Avenue.
In Palm Beach’s social pecking order, people sort themselves into groups based largely on how much money they have. At the country club, the hierarchy has four or five distinct levels. Other than sitting in the same dining room and playing on the same golf course, those on one level rarely have much social contact with members on the others. If a fundraising chair is assembling a charity committee and tries linking someone from the bottom tier with someone from the top, the committee fails before it begins.
I have a friend, a banker from Pittsburgh named Dick Nernberg, who’s easily worth more than $100 million. He’s not a member of the Palm Beach Country Club, but one day he was there as a guest to have lunch with one of the Boston Jews.
“You guys have a lot in common,” said a mutual friend at the club. “Dick here flies his own jet.”
“Why would I want to fly my own plane?” the Boston man said dismissively. “I’ve got two big jets and pilots to fly them.”
The ties between Carl Shapiro and Bernie Madoff go back all the way to before their respective arrivals on the Palm Beach scene. When the men first met, Madoff was just 22 years old and fresh out of Hofstra, class of 1960, but Shapiro was nonetheless persuaded to put $100,000 into his fledgling investment firm. Shapiro, who was already wintering in Palm Beach, joined the Palm Beach Country Club in 1974. Madoff had visited Palm Beach over the years, but he and his wife, Ruth, did not buy their mansion at 410 North Lake Way until 1994.
After his daughter Ellen married Robert Jaffe in 1968, Shapiro hosted the couple whenever they visited Palm Beach. When it came time for Jaffe to purchase his own home, however, he bought a $7.8 million estate not near his in-laws, but two doors down from Madoff, who of course was his more valuable patron. By then Jaffe had been working as a middleman for Madoff for years, steering eager clients his way and collecting easy fees in return.
Jaffe didn’t have to sell; he didn’t even have to promoteâ€”everyone already knew he could grant access to Madoff, and that was all it took. In Palm Beach, unlike in Boston, it’s acceptable for people to share stories of their successes. “When people hear that so-and-so is doing very well, they all go to Jaffe because he’s a neighbor and ask, ‘Please, please let me be introduced,'” says Palm Beach socialite Ava Coleman. “And Jaffe did.”
Among the habituĂ©s of the Palm Beach Country Club, there is intense speculation as to just when their fellow member started conning them. If Madoff’s alleged book-cooking was under way before he joined the club in 1996, as some believe, it’s possible that he joined to gain access to a pool of new investors, whose deposits would ensure the supposed consistently high returns that existing clients expected. If, on the other hand, Madoff began (or expanded) his ruse only after joining, the club’s potential role in the scam looks very different. In this theory, Madoff lied about the performance of his funds partly because he couldn’t face the shame of failing to live up to his fellow members’ expectations, or bear the possibility of being exiled from the circle. It sounds crazy, but that’s how powerful a motivator shame (and its avoidance) is for the club’s members.
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 Madoffâ€”its entire worthâ€”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”â€”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
Source URL: http://www.bostonmagazine.com/2009/01/dispatch-reversal-of-fortune/