Bernie's Bag Lady

Article excerpt

Byline: Allan Dodds Frank

Madoff victims are waging legal war against financier Sonja Kohn, who funneled billions into the swindler's firm from her bank in Vienna. Tracking the woman enmeshed in the world's largest Ponzi scheme.

Sonja Kohn never had trouble reaching Bernie Madoff, whether by phone or in person. "I would always put her in to Bernie, because he always wanted to talk to her," recalls Eleanor Squillari, Madoff's personal secretary for 20 years. When Kohn ventured from Europe to visit Bernard L. Madoff Investment Securities, a warm welcome always awaited her at his 19th-floor office in the high-rise known as the Lipstick Building on Manhattan's East Side. "He always closed his door when she came in," says Squillari, who adds that her boss was "very comfortable" with Kohn.

In court papers, Irving Picard, the Madoff bankruptcy trustee, describes the scene this way: whenever Kohn brought wealthy European investors to New York, "Madoff would greet Kohn 'with a big hug and a kiss.'?" Squillari admired the flair of the sturdy Orthodox Jewish matron from Austria wearing a red sheitel--a religious wig.

"She was very lovely--if you looked at her face, she looked grandmotherly," says Squillari. "But she dressed--I don't know if you would say sharp, I would say a little funky. I remember one time she came in wearing a furry vest. She'd always have something special on."

For 23 years, operating mostly from abroad, Kohn was the go-to liaison for bankers, hedge-fund managers, and rich individuals outside the U.S. who wanted to invest in Madoff's financial products, often indirectly, through so-called feeder funds. These days Kohn, 62, is the subject of global litigation. Picard is suing her in the U.S. and the U.K.; investors have brought civil suits against her in New York; and in Austria, nearly two dozen firms are pursuing her. "Madoff could not have maintained his Ponzi scheme for so long without Sonja Kohn," says Timothy Pfeifer, a lawyer with Baker Hostetler who is leading the Madoff bankruptcy trustee's $19.6 billion civil-racketeering lawsuit against Kohn. "Madoff's own records -- reflect that he credited Kohn with feeding over $9.1 billion of other people's money into his Ponzi scheme." Kohn's international legal defense team has a simple, two-pronged strategy: paint Kohn as an unwitting victim of Madoff, and highlight her clients' own failure at due diligence.

The trustee's court filings allege that before Madoff admitted his crimes to his sons and surrendered for arrest on Dec. 11, 2008, he destroyed documents detailing his multimillion-dollar secret payments to Kohn. What Madoff apparently did not realize is that an employee kept copies of such documents and helped investigators retrieve them. And though Madoff has begun talking in jail to the bankruptcy trustee's team, he has apparently not provided much useful information about Kohn.

Kohn was extraordinarily valuable to Madoff as his "initial ambassador" to Europe, says Oren Warshavsky, the lawyer for the bankruptcy trustee's suit against Kohn's custodian bank, HSBC. "If you are trying to maintain a Ponzi scheme," Warshavsky told NEWSWEEK, "turning to the European community is a natural choice." In other words, wealthy offshore investors rarely ask questions when they believe their investments are safe in a diversified stock portfolio with steady returns of 10 percent or more.

People who know Kohn and those investigating her agree on one point: while she is a charming and extremely hardworking saleswoman, her most important distinguishing characteristic--indeed, her No. 1 asset--was her unparalleled access to Madoff. "She would call Bernie and introduce people," recalls Squillari. With offices across the street from the opera house in Vienna and three blocks from La Scala in Milan, Kohn cultivated the image of a woman of culture, and of political and economic power. She promoted herself as "Austria's woman on Wall Street"--cachet that privately included her offer of entree to Bernie. …