In Palm Beach, Investors Assume Worst
By PAULO PRADA
PALM BEACH, Fla. -- John Sullivan was at a holiday pageant at a local school Thursday when a neighbor's cellphone interrupted a children's caroling.
Soon, three other people were on cellphones, too. "People were calling their accountants," says Mr. Sullivan, a regional-airline executive from Vermont who has a home here. The neighbor walked over and asked: "Did you invest with that guy?"
He didn't. "That guy" was Bernard L. Madoff, the legendary Wall Street trader who allegedly told his two sons last week that his investment-advisory business renowned for its steady returns was a Ponzi scheme.
Mr. Madoff, 70 years old, had clients around the world who now are reeling from the revelation that their money might be gone. In this island enclave in south Florida, the damage is especially severe. Scores of local residents who invested with Mr. Madoff are believed to have combined losses in the billions of dollars. Many are retirement-age golf buddies and country-club colleagues of Mr. Madoff, who has owned a home in Palm Beach since the late 1960s.
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Bernard Madoff attracted many investors from the Palm Beach Country Club in Florida.
Shocked investors are saying little publicly, but signs of their sudden financial distress were emerging over the weekend. By Saturday, four multimillion-dollar condominiums at Two Breakers Row, a complex just north of the landmark Breakers hotel, were put up for sale by owners who invested with Mr. Madoff, said Nadine House, a real-estate agent here.
The condos sell for as much as $17 million and generally cater to part-time residents who enjoy access to the seaside hotel's golf course, room service and other luxurious amenities.
As Ms. House spent the weekend showing the properties to New Yorkers who flew down to see them, an outreach mission abroad by a local Jewish group was canceled. High-end pawn shops saw an unusual jump in weekend business from people seeking short-term loans. Because Mr. Madoff churned out what looked like unerringly consistent returns, many investors considered his firm safe enough to park cash needed for routine living expenses.
"I don't work on Saturday, and my phone was ringing lots," said Levi Touger, owner of Royal Pawn & Jewelry, in nearby West Palm Beach, who said he fielded calls offering a Ferrari, a Tiffany ring and a yacht as collateral.
Saturday night, some of those affected by the alleged Ponzi scheme gathered for a birthday party at the Mar-a-Lago Club, a resort complex owned by Donald Trump. "I'm amazed they're here at the party, but they don't look all that happy," Mr. Trump said in an interview.
Amy Millman, Bank of New York Mellon Corp.'s managing director for Florida, said the mess is "a financial tsunami on Palm Beach island, and it's capsizing so many families." Her Palm Beach office was flooded with frantic calls late Thursday and Friday from local investors hoping to transfer funds out of Mr. Madoff's firm.
It isn't clear how much of their money is left, but many Palm Beach residents and businesses are assuming the worst. That would batter the local economy, typically fueled by one of the world's densest concentrations of wealth. Gardeners and dog walkers are likely to lose jobs, along with accountants and lawyers.
The real-estate market, already slowed overall despite resilient demand for marquee addresses, could sag even further and spill into nearby communities. Along Worth Avenue, lined with art galleries, antique shops and designer clothing stores, business owners worry that the alleged fraud will exacerbate what already has been an unusually quiet season.
Local charities are expected to suffer badly, especially Jewish causes. Mr. Madoff attracted many investors from Palm Beach Country Club, with a membership of wealthy Jews known for being active in philanthropic circles. Charitable activity is one of the requirements to join the club, established by Jews in the 1950s as a response to rejection by clubs controlled by Anglo-Saxon families.
"There may not be a lot of sympathy for rich people losing a lot of money, but many other people are going to be hurt because of this," said Patricia Lebow, managing partner of the West Palm Beach, Fla., office of Broad & Cassel, a law firm with several clients who lost millions of dollars.
"Any person, business or charity that worked with those people is going to suffer," she added. Some charities invested directly with Mr. Madoff.
Unlike many of the families that still make up older Palm Beach social circles, most older Jewish residents here accumulated self-made fortunes. Some of those who invested with Mr. Madoff are devastated because the alleged fraud could wipe out the inheritance they planned to pass to their descendants.
"The tragedy is not for the individuals themselves, but what they would be leaving for others," said Daniel Ponton, owner of Club Colette, a private dining club that includes some Madoff investors.
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