The Media’s Madoff Moment

By: Abraham H. Foxman

Published: November 10th, 2010
Latest update: April 23rd, 2012

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On the evening of December 11, 1995, businessman Aaron Feuerstein was with family and friends at a restaurant in Boston. It was his seventieth birthday, and a group of well-wishers had gathered to throw him a surprise party.

In the midst of the festivities, someone walked in with horrifying news. “It’s the factory. A boiler exploded. People are hurt, and the buildings are on fire.”

No one had to ask, “What factory?” Everyone understood the man was referring to Malden Mills, the textile plant Aaron Feuerstein’s grandfather had built in 1906 and that Aaron himself had managed for almost thirty years.

Within the hour, Feuerstein and his friends were part of a large crowd of onlookers, watching firefighters battle the blaze. It had grown into a six-alarm conflagration, drawing 200 firefighters.

The 1995 fire at Malden Mills wasn’t just bad news for Feuerstein’s company – it was a potentially devastating blow to an already depressed post-industrial community.

Malden Mills employed 2,400 people, many of them recent immigrants from countries ranging from Italy, Portugal, and Israel to the Dominican Republic. Thousands of people relied on the textile business for their survival. Now, many of them had rushed to the scene and were watching their dreams of the future literally going up in smoke.

When the flames finally subsided, three of the four factory buildings had been destroyed. Thirty-three employees had been injured, though thankfully none had died. The damage was estimated at some $500 million. Families throughout northeastern Massachusetts were in despair, wondering where their next paycheck was coming from.

Many people in Aaron Feuerstein’s position would have broken down under the shock. But Feuerstein refused to shed a tear. He bolstered his spirits by recalling a favorite passage from Shakespeare’s King Lear, in which the distraught monarch vows not to weep although his heart should “break into a hundred thousand flaws.”Feuerstein was marshalling his strength for the biggest challenge of his business career – figuring out a way to save Malden Mills and the families who depended upon it.

His response to the fire began two days later, when paychecks were due to his workers. No one would have been shocked if the checks had been late. But Feuerstein ordered not only that every check be delivered in full and on time, but that a planned Christmas bonus of $275 be included in each envelope. (He also added a note for each worker: “Do not despair. God bless each of you.”)

Then, on the evening of December 14, Feuerstein rose to address over a thousand Malden Mills employees who had gathered in the gym of Central Catholic High School to learn what their future would be.

“I will get right to my announcement,” he said. “For the next 30 days – and it might be more – all our employees will be paid their full salaries. But over and above the money, the most important thing Malden Mills can do for our workers is to get you back to work. By January 2, we will restart operations, and within ninety days we will be fully operational.”

The news stunned the crowd. After a moment of shocked silence, they broke into cheers.

Later that same night, Feuerstein made the rounds of Lawrence’s leading charitable organizations, delivering donations as he did every holiday season. In all, he disbursed $80,000 in gifts to groups like the Salvation Army and the local soup kitchen.

Feuerstein kept his word to the workers. He ended up paying full wages to his idled employees for up to four months while the plant was rebuilt and new machinery was purchased and installed. The total cost of those salaries was around $25 million. In addition to the $300 million insurance settlement, Malden Mills invested another $100 million in rebuilding the plant, creating a state-of-the-art textile factory that was the first to be built in New England in more than a century.

By February, more than 70 percent of the workers were back at their jobs.

It would be wonderful to close the story of Aaron Feuerstein and his remarkable company right here. Unfortunately, life doesn’t always provide a fairy-tale ending.

The enormous debt Feuerstein assumed in order to finance the rebuilding of the Lawrence factory eventually caught up with the company. After a business slump in 2001, Malden Mills was forced into Chapter 11 bankruptcy. The company went through several reorganizations during the next eight years, eventually emerging under a new name (Polartec, LLC) and a modernized business model. Feuerstein – by now in his late seventies – lost control of the business in 2004 and was forced to step down by the creditors who held majority shares.

In the years since 1995, many people have come to know part of the story of Aaron Feuerstein and Malden Mills. President Bill Clinton honored Feuerstein during his 1996 State of the Union address, and the CBS news magazine “60 Minutes”ran a feature about him in 2003, dubbing him “The Mensch of Malden Mills.”

But not everyone who admires Aaron Feuerstein knows about the source of his powerful personal morality. Feuerstein happens to be an Orthodox Jew, who draws his guidance on all ethical matters from Jewish tradition, religious teachings, and ultimately the Hebrew scriptures. And this aspect of Feuerstein’s story – so central to his life, yet largely neglected in the mainstream accounts – is the one I want to emphasize here.

In applying biblical teachings to practical business questions, Feuerstein is following a family tradition. In a speech on “The People and the Community” at MIT, he recalled his grandfather’s practice of distributing paychecks to the workers at Malden Mills before sunset, citing the book of Deuteronomy (24:14-15) as justification: “Do not take advantage of a hired man who is poor and needy, whether he is a brother Israelite or an alien living in one of your towns. Pay him his wages each day before sunset, because he is poor and is counting on it. Otherwise he may cry to the Lord against you, and you will be guilty of sin.”

And by “alien,” Feuerstein emphasized, “they meant all people, all faiths, all races.”

Because he viewed the workers at his textile plant as his equals in the eyes of God, Feuerstein had no other option than to do what he could to keep them whole, to prevent them and their families from suffering privation as a result of the tragic fire.

And because he was deeply rooted in a lifetime of Jewish practice, worship, study, and prayer, the notion of doing what was easy and self-serving – simply pocketing the insurance payments – never even occurred to him. As Feuerstein remarked when a reporter asked about the money, “And what would I do with it? Eat more? Buy another suit? Retire and die? No, that did not go into my mind.”

* * * * *

Feuerstein’s dark counterpart in the business arena may be another man who has garnered far more publicity and attention for his very different behavior – the fraudulent investment manager Bernard Madoff.

The outlines of the Madoff saga are well known – in fact, judging by the volume of coverage his case received, probably far more widely known than the heroic story of Aaron Feuerstein. And this disparity itself is one reason why I find the contrasting stories of Feuerstein and Madoff so revealing.

Beginning as a penny-stock trader, Madoff gradually developed a wide-ranging network of clients for whom he bought and sold stocks as well as providing investment advice. His company also developed innovative computer technology to disseminate stock prices, which helped lead to the creation of the automated stock-trading system known as NASDAQ. In time, Madoff become a prominent leader among NASDAQ dealers, even serving as the organization’s non-executive chairman.

For more than forty years, Madoff cultivated a reputation as an outstanding citizen and an astute businessman. So exceptional were the financial returns reported on Madoff’s accounts that the number of individuals and institutions vying to become his clients grew steadily. Well-known organizations, including universities and nonprofits, gave Madoff Securities portions of their endowments to manage; in prominent social circles, Madoff clients bragged about their financial success and considered themselves lucky to be among the favored circle of people who benefited from Madoff’s talents.

All in all, it was the image of a charmed life – a dedicated family man, an industry leader, a consummate professional – until the whole thing was exposed as a horrendous fraud.

Using the techniques of the classic Ponzi scheme, his company had been distributing funds from new investors to older clients, identifying them as “profits” on investment accounts. But as we now know, the profits weren’t real because in most accounts there were no investments at all. The money had been used to pay fake dividends to other victims and also to support Bernard Madoff’s lavish lifestyle – including his homes in Manhattan, Montauk, Palm Beach, and southern France – while Madoff shuffled cash around and doctored financial reports in an increasingly desperate effort to hide what was happening.

By the first week of December, with the stock market reeling from the global financial meltdown, Madoff’s Ponzi scheme was collapsing. He confessed to his sons not only that he didn’t have the money to cover some $7 billion in redemptions requested by anxious clients, but also that the entire business had been run in a fraudulent manner for years. It was “just one big lie,” he told them.

Madoff’s sons reported the confession to federal authorities, and by December 11, Madoff was under arrest. Almost $65 billion supposedly held in client accounts, including both actual investment funds and fabricated gains, had disappeared.

By June 29, 2009, when Madoff was sentenced to the maximum possible term of 150 years in prison on multiple counts of fraud and perjury, he had become one of the world’s most famous – and most hated – individuals.

At a time when millions of ordinary investors were watching their savings dwindle under the impact of the financial meltdown of 2008-2009, it was probably inevitable that the spectacular tale of Bernie Madoff, replete with celebrity victims and page-six lifestyles, should capture the world’s attention as the embodiment of all that’s worst in the world of high finance.

Far more disturbing, however, is another aspect of the Madoff saga. I’m referring to the way in which Bernard Madoff has, for many people, come to symbolize not just the dangers of greed and dishonesty, but something much more specific, questionable, and troubling – namely, the supposed role of the Jew in the world of money.

There’s no evidence that Madoff read the Torah nightly or devoted himself to ethical study as Aaron Feuerstein did. In that sense (and leaving aside the evidence of their respective business behaviors), we might assume that Feuerstein is more personally devoted to Jewish tradition and teachings than Madoff. But there’s no denying that, in ethnic, social, and cultural terms, Bernard Madoff is Jewish – just like Aaron Feuerstein.

And unfortunately, Madoff’s “Jewishness” became, for some people, the central story of the Madoff scandal.

At the Anti-Defamation League, one of our jobs is to monitor signs of evolving attitudes among religious, ethnic, and racial groups. In the wake of the Bernard Madoff scandal, we knew we would see an outpouring of rage against this man whose criminal behavior had harmed so many innocent victims – and indeed we did. But we wondered how much of that rage would focus on Madoff’s ethnic and religious heritage.

The intolerant ones did not pass up this opportunity.

During the months between Madoff’s arrest and his sentencing, hundreds of news sites, blogs, and financial message boards that ran stories about the Madoff scandal were inundated with responses that focused not on the villainy of one man but on the supposed propensity of all Jews to commit fraud in pursuit of profit.

Was Bernie Madoff Jewish? Undoubtedly. But was his faith the single most salient fact about him? Judging by the news coverage of his story, you might think so.

A profile of the scamster in the New York Postplayed the “Jewish angle” for all it was worth; similarly, a profile of Madoff published in The New York Timesjust two days after his arrest managed to use the word “Jewish” three times in its first nine paragraphs.

* * * * *

These two stories are not directly related. But a comparison of the ways these stories have been covered in the mainstream media reveals something important – and disturbing – about our society and its attitudes.

In the case of Aaron Feuerstein, one of the most unusual and admirable business figures of our time, his religious heritage was treated, in most media coverage, as an interesting but distinctly secondary theme – despite the fact that being a devout Jew profoundly shaped the very ethical behavior that made Feuerstein newsworthy in the first place.

By contrast, in the case of Bernard Madoff, story after story emphasized his Jewish background – despite the fact that it was basically irrelevant to the history of fraud and deception that placed Madoff in the spotlight.

Why this difference? I don’t believe most of the writers and editors who covered these two stories had any religious or ethnic animus toward Jews. But I do think it’s easy for all of us – including media professionals who should be especially sensitive to this danger – to fall back on familiar images, themes, and stereotypes.

It’s a form of lazy thinking that is difficult to avoid, especially when society is so deeply permeated by a particular pattern of ideas that many people aren’t even fully aware of its ubiquity. And the pattern of stereotypes that the Madoff story activated in the minds of many people is a particularly deep-seated and pernicious one – the age-old pattern of false and slanderous beliefs about Jews and money.

With the United States and the world still struggling to overcome the impact of what many have called the Great Recession of 2008-2009, this is an especially dangerous time for these bigoted beliefs to reemerge.

Abraham Foxman is national director of the Anti-Defamation League. This essay was adapted from his new book (released earlier this week), “Jews and Money.”