Lincoln * Institute

Ralph R. Reiland

Ralph R. Reiland

The B. Kenneth Simon Professor of Free Enterprise at Robert Morris University

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Reflections

Trouble in Paradise

by Ralph R. Reiland
 

Given what's being called the biggest case of financial fraud ever committed by one person in American history, I figured that things would be different this year during our annual Winter Break trek to Palm Beach, ground zero of Bernie Madoff's alleged $50 billion Ponzi scheme.

As a footnote, Charles Ponzi, an Italian immigrant, advertised in 1920 that he could deliver a 50 percent return for investors in 45 days. Within several months, Ponzi had pocketed tens of millions of dollars from people who had turned over their life savings or mortgaged their homes to invest.

"If there is an epicenter to this unnatural disaster, it's Palm Beach, Florida, where Madoff had a home," explained Business Week writer John Donovan. "Many wealthy members of the Palm Beach Country Club invested with Madoff."

Or as New York Observer columnist Simon Doonan explained, more colorfully: "To say that Bernie Madoff performed a rectal electrocution on Palm Beach would not be an exaggeration."

Firsthand, we saw Madoff's damage when we checked in at The Breakers, an opulent Italian Renaissance-style resort on 140 oceanfront acres. "We're at 15 percent occupancy," said a hotel employee when I asked about the impact of Madoff's swindle.

"We had five or six families check immediately out of the hotel after they got the news about Madoff's arrest, families who stayed with us for the entire season, year after year," he explained. "Very nice people. It was awful, heartbreaking."

Our room, the hotel's standard accommodation, was $499 per night, with a $100 per day rebate to spend anywhere in the resort. On our first day, without requesting it, we were moved to a $1,300 per night room with an oceanfront balcony, much larger and swankier with a fancy desk and two pink Queen Anne chairs, wingbacks, at no additional cost.

"For those people who are still spending money, we're really trying to make sure that everything is as nice as it can be," explained the bellhop who was moving our luggage into the new room. The coffee, though, was still $16 a pot.

"You can't escape the fact that The Breakers has been the center of Palm Beach society life for nearly 100 years," says a hotel review in Cigar Aficionado. "The guest list at the original hotel included such names as the Rockefellers, Vanderbilts and Astors." This year, though, it felt at times like we were the only two people in the castle.

"The tension in Palm Beach is palpable," wrote The New York Observer's Doonan about his recent stay. "Everywhere you go you hear people saying things like, 'Two o'clock. The old broad with the blonde wig. One hundred and eighty million,' " referring to her losses with Madoff.

In a front page story, The Ledger in Palm Beach saw signs that things were falling apart along super-ritzy Worth Avenue: "A few stores are defying town codes by displaying 'Sale' signs visible from the street, a violation of taste unheard-of before." What's next, neon?

Adjacent to our hotel, the Wall Street Journal reported that four multimillion-dollar condos at Two Breakers Row were put on the market several days after Madoff's arrest by sellers who had invested with Madoff. One sold during the first weekend, reportedly for $8.6 million.

Larry Leif was quoted in the morning newspaper, the Palm Beach Post: "December 10, I had $8 million. December 11, I was broke."

Leif, 58, was "a self-made man, a successful entrepreneur who for decades entrusted his nest egg to Madoff," reported the Post.

"This is a financial holocaust," said Leif. "Everybody in my past life is broke. They're trying to sell their houses in two weeks. This is the biggest financial scandal in the history of America. I am the American dream. I did it all right. Never went to college. Was president of my own company at 22. Paid my taxes. The only thing I do wrong is I speed. And this is my payoff."

The news reports the next day said that a burglar had made off with a $10,000 copper statue from the pool area at Madoff's $9.4 million home in Palm Beach. The statue, two young lifeguards sitting on a raised stand, was later found on a trail near the Palm Beach Country Club with a note attached that read: "Bernie the Swindler. Lesson: Return stolen property to rightful owners." It was signed, "The Educators."

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