An intense competitive streak may have fueled the flames of one of Wall Street's greatest frauds.

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What drove Bernie Madoff
An intense competitive streak may have fueled the flames of one of Wall Street's greatest frauds.

What made Bernie Madoff tick

Madoff: Secrets of a Scandal

NEW YORK (CNN) -- Bernard Madoff, the man accused of perpetrating one of the greatest frauds in history by allegedly losing $50 billion of investors' money, barely stood out in the Wall Street world of big personalities.

I interviewed him several times in 1999 and 2000. He was polite, charming and understated. His business card didn't even have a title on it - no chairman, CEO, or president - even though he was, in effect, all of the above. Friends say he was shy.

But inside was the drive of an intensely competitive person.

"There's a need to prove to the world that I am somebody powerful -- I am so intelligent," said psychologist Alden Cass, president of Competitive Streak Consulting, who has counseled and studied Wall Street personalities.

Starting in the early 1960s, Madoff began building a securities trading firm that by the mid-90's had become the envy of much of Wall Street.

Bernard L. Madoff Investment Securities was an innovative, high-tech operation that expertly matched relatively small buy and sell orders from retail investors.

Indeed, Madoff was stealing volume from the New York Stock Exchange by trading many of its listed stocks. He had correctly anticipated that the buying and selling of stocks would become computerized, and his systems often provided better prices, attracting clientele that included big retail brokers like Fidelity and Charles Schwab.

When trading expert Jim Angel, a professor at Georgetown University, visited Madoff's Starship Enterprise-style office on the 18th floor of Manhattan's Lipstick Building, he was impressed.

"Here was a very intelligent man who knew this business really well and who also was very driven to succeed," said Angel. "He was known as a major player. He was known as a major force."

Winning battles on the frontlines
Madoff's success had come in the trenches of Wall Street. Matching buy and sell orders has never been glamorous work, not like managing other people's money. So, on the side, Madoff did that as well.

He bolstered his reputation through activism in industry organizations, eventually becoming non-executive chairman of the Nasdaq Stock Market in 1990, '91 and '93.

At that point, Madoff was earning tens of millions of dollars. His Manhattan apartment and Hamptons estate dwarfed his modest ranch home in Roslyn, N.Y., where he lived in the 1970s.

"Here's somebody who didn't need to start a scam to become a multimillionaire many times over," said Angel. "And yet apparently there must have been some flaw in his makeup that led him to get into this mess and to dig himself deeper and deeper."

Madoff, graduated in 1960 from Long Island's Hofstra College, before it became a university, with a major in political science. One investor told The Wall Street Journal that Madoff confessed to him this year, "Sometimes I wish I had gone to Wharton or Stanford."

Madoff lacked a pedigree. He was not an alumnus of a prestigious school. But, at the Palm Beach Country Club and other social circles, he created an aura of exclusivity by selectively choosing whose money he would manage -- in effect, creating a velvet rope, like a chic nightclub excluding partygoers who seek entry.

"He had a too-cool-for-school veneer," said a Wall Street executive who came into frequent contact with Madoff. "He was a master marketer. How else did he convince much of Palm Beach to give him their money?"

In wealthy circles Madoff's reputation as a financial wizard grew.

"Everyone was in awe of him," said Jerry Reisman, an attorney who met Madoff at a party. "Madoff made it feel as if it was an exclusive club, and that's how he sucked his people in. That's how he got them to go into this. And it was a fantastic, brilliant job of marketing."

'I'm not taking any new clients'
Larry Leif and his business partner, a friend of Madoff, put their sporting goods company's pension fund with him in the late 1970's. The annual reported returns, Leif said, were between 14% and 18%.

Eventually, Leif gave Madoff his personal money to manage. Whenever Leif needed to withdraw funds he received checks promptly.

But even Leif, one of Madoff's oldest customers, found Madoff rejecting a request to take on new money from a friend.

"I wrote Mr. Madoff a letter 12 years ago asking him to take a new client who wanted to put $5 million with him," recalled Leif. "I came home, got a message that said, 'Larry, this is Bernie. I'm not taking any new clients.' Then, there was another message from Bernie later that day that said, 'That was rude of me. Call me at my private number.' "

Still, Madoff politely rejected Leif's request to accept a new investor.

When the stock market tripped into bear markets, Madoff would still report to his clients, in detailed statements, that his strategy of buying Standard and Poor's 100 stocks while trading puts and calls on the S&P 100 (options to sell and buy the index) was consistently earning money. Even during the stock market tumble that began last autumn, Madoff reported better than 10% returns, said Leif.

"On Wall Street, these individuals tend to actually only keep score based on how much money they've brought in each year," said Cass of Madoff's claim to deliver superior returns. "That determines whether you're a success or failure. They get their identity from how solid their returns are."

Bernie Madoff added to his prestige by becoming a philanthropist himself. He joined the board of Yeshiva University, then became chairman of its business school. (Madoff's name was prominent in the program for Yeshiva's annual Hanukkah dinner and convocation, a major fundraising event, held on Dec. 14 at New York's Waldorf-Astoria Hotel, three days after he was arrested.)

"He had to be a bigger fund raiser, to make a bigger donation," said a Wall Street executive. "His weakness was he was incredibly egocentric. He had to feed that ego."

Madoff's prominence and carefully cultivated image kept investors from questioning his success, even as their monthly account statements were pure fiction. Last month, Madoff even reported to them that cash was held in Fidelity's Spartan U.S. Treasury Money Market Fund. Fidelity says it hasn't had a fund by that name for three years.

Under the weight of a collapsing stock market, investor requests for redemptions finally overwhelmed Madoff this month. He admitted to his sons, Andrew and Mark, both executives at the trading company, that his investment management was a fraud. "It's all just one big lie ... basically a giant Ponzi scheme," Madoff said, according to the securities fraud criminal complaint against him.

Madoff, who remains free on $10 million bail, faces a potential penalty of as much as 20 years in prison.

Several people who know Madoff say his saga reminds them of a Greek tragedy. Just like Icarus who tried to fly too close to the sun, Bernie Madoff destroyed himself in his unending quest for success and respect. Says Madoff's defense attorney, "this is a tragedy."