“What should have raised a red flag was that in 1987, when the market dropped, we still got our 20 percent return,” said Investor A, a man who began investing with Madoff around 1971.
The investor currently lives in Manhattan and works in the real-estate business. He invested directly with Madoff in the 1970s, and received a guaranteed return of 20 percent annually, regardless of the market’s gyrations. The return never wavered, and the investor received 20 percent per year until 1992.
Investor A brought several friends into Madoff’s gambit as investors, via Avellino & Bienes. While he continued to get 20 percent annual returns, paid out on a quarterly basis, A&B gave these friends 19 percent. “As the years went on, as people went in, they offered lower and lower percentages,” he said. “At the end, they were giving [investors] 13 percent.” He added that the investments were considered loans. “My 20 percent was considered interest income on a loan,” he said. “The tax returns treated it as interest income. That’s how Avellino and Bienes set it up.”
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