Bernard Madoff's alleged Ponzi scheme swept up scores of wealthy Twin Citians.
Scott Tankenoff was on a fishing trip in Canada three years ago when a longtime friend and semi-retired executive spoke in glowing terms of a New York money manager named Bernie.
"He said, 'Scott, if you ever need a money manager, call Bernie,'" said Tankenoff, managing partner of Hillcrest Development LLP, a Minneapolis-based commercial real estate firm. "I've used him for 20 years and he's fantastic. You should really invest with him.' "
He didn't, and now Tankenoff considers himself very fortunate. "Bernie" was none other than Bernard Madoff, the Wall Street trader who was arrested and charged last week with allegedly running a decades-long Ponzi scheme that defrauded major global banks and individuals from Palm Beach, Fla. to Minneapolis.
Madoff, the former chairman of the NASDAQ Stock Market and a familiar face on the Manhattan and Palm Beach social circuits, is accused of defrauding investors of an estimated $50 billion.
The alleged scheme has swept up scores of wealthy Twin Cities business people, who were allured by Madoff's ability to post year after year of gravity-defying returns. Investors are now scrambling to assess potential losses, but some local attorneys who have been contacted by alleged victims, many of them Jewish families, said combined losses in the Twin Cities exceed $300 million.
But local people familiar with Madoff's reach in the area estimated local losses could be far greater.
Many were recruited by Maddoff or his local agents through Oak Ridge Country Club, a predominantly Jewish club in Hopkins. Losses among at least a few individual members of Oak Ridge may approach $100 million, say attorneys and associates. The Wall Street Journal reported Friday that Madoff also attracted investors at Hillcrest Country Club in St. Paul.
"I lost millions," said Harold Roitenberg, the retired CEO of the former Modern Merchandising chain of catalog showrooms and a real estate investor, who declined to quantify his loss. "I gave him $1 million 22 years ago. I had a motto that, 'If it's too good to be true, it probably is.' But I gave him something every time I had cash. I lost most of my assets, but not all of them. I have other money managers."
The Madoff arrest came less than two weeks after embattled Twin Cities businessman Tom Petters pleaded not guilty to fraud and conspiracy charges in a sprawling investment scheme that allegedly cost investors more than $3.5 billion.
Most investors are saying little publicly. Roitenberg, 82, was the only one among nearly 10 affluent Twin Cities investors and foundations contacted Monday who was willing to confirm his losses.
The list of names is said to include prominent physicians, lawyers, business people and professors -- mostly golfers at Oak Ridge.
"This could be a bloodbath," said Paul Finkelstein, chief executive officer of Edina-based hair salon operator Regis Corp., who said he did not invest with Madoff but knows of some people who did. "If you walk into any Jewish country club that's been affected, it's the sole topic of conversation," he said, listing off some of the most prominent clubs from New York to Palm Beach, Fla.
Madoff's ties to the area go back decades. The Star Tribune reported in a 1992 column speculation by local brokers that Madoff had raised up to $70 million of Minnesota money, including investments from a healthy sprinkling of Oak Ridge Country Club members.
Madoff's local fundraiser in the 1980s and early 1990s was Mike Engler, a partner in the former Engler & Budd securities firm and a country club mainstay. Mike Engler is deceased.
Eli Budd, a former partner of Engler who is now retired and living in Rancho Mirage, Calif., said Madoff would occasionally call them when he had a Minnesota stock that he wanted to sell to investors. "He'd say, `I got a Minnesota company here, do you know of anyone who'd want to buy it," Budd said. Often, Madoff was trying to unload more stock than the firm could handle, Budd said.
"I don't remember anything about a Ponzi scheme," said Budd, who retired 40 years ago. "[Madoff] seemed on the up-and-up to me."
Some local nonprofits are also bracing for a hit, especially ones that receive funds from Jewish foundations. On Monday, the National Alliance on Mental Illness of Minnesota learned that one of its largest donors, New York's JEHT Foundation, was closing its doors in January because of losses related to Madoff. The St. Paul-based nonprofit is now scrambling to replace the $100,000 that JEHT had planned to donate to the group annually through 2011, which amounted to about 10 percent of the center's annual budget.
"We are looking very hard for another donor, but it does create havoc," said Sue Abderholden, the center's executive director. "What really makes me mad is this is a small nonprofit trying do a lot with a little, and someone who makes all this money just steals it."
Wall Street has questioned Madoff and his $17.5 billion hedge fund before.
In 2001, Barron's wrote a questioning column about Madoff's funds, including Fairfield Sentry Limited, which claimed it had only four down months since inception in 1989.
"Those returns have been so consistent that some on the Street have begun speculating that Madoff's market-making operation subsidizes and smooths his hedge-fund returns," Barrons reported. The magazine speculated because of the firm's large flow of orders, its traders would have advance knowledge, sometimes only by seconds, of what big customers were buying and selling, thus locking in profits.
Madoff dismissed Barron's suspicions as "ridiculous."
Still, some on Wall Street remained skeptical about how Madoff achieved such stunning double-digit returns.
Finkelstein, of Regis, said he first heard Madoff's name 20 years ago at the Boca Rio Golf Club in Boca Raton, Fla., where he belongs. Members would talk about Madoff and his exceptional returns over rounds of golf and in the locker room. "He was considered the gold standard," Finkelstein said.
But Finkelstein said a Wall Street executive -- "someone whom I trust enormously" -- dissuaded him from investing with Madoff. "He said there has to be something wrong with someone who does that well every single year, no matter what the cycle," Finkelstein said. "Even Warren Buffett has his ups and downs."
For now, many Twin Cities investors are still trying to assess the damage. Tankenoff said he's received "no less than two dozen calls" since news of Madoff's arrest emerged last Thursday. Some of the calls are coming from real estate developers nervous about whether losses among wealthy investors will affect funding for their projects, he said.
Investors are unlikely to get back much of the money they invested with Madoff. The Securities Investor Protection Corp., a nonprofit funded by the securities industry, doesn't cover market losses and has a $500,000 ceiling on client accounts -- well below what many people invested with Madoff.
"There's fear and panic," he said. As he was speaking, Tankenoff received an e-mail message that read, "Hopefully, you weren't in the Madoff deal. ... Were you?"
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