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Lucky investor dodges Madoff

A prudent financial advisor saved one investor from financial ruin -- others weren't so fortunate.

By Jennifer Reingold, senior writer
Last Updated: January 5, 2009: 11:07 AM ET

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Bernard Madoff

NEW YORK(Fortune) -- On Monday morning, Dec. 8th, Gilbert Harrison, chairman of investment bank Financo, was finally ready to start investing with Bernard Madoff. Luckily, his financial advisor pulled him in off the ledge.

Just days earlier, Harrison's golf buddies at the Trump International club in Palm Beach had once again regaled him with accounts of can't-miss returns. Harrison's own investments had been pulverized in the stock market collapse. And Harrison knew and liked Madoff -- the two had rented cabanas next to each other at the Breakers Hotel for years.

Harrison called his financial advisor that day. "I said everyone is talking about how much money Madoff is making. Why shouldn't I be invested?"

It was the third time Harrison had brought up the idea -- and the third time the advisor had refused to hear of it. "He said, 'You pay me to invest your money, and I don't understand what [Madoff] does.'"

Just days later, Madoff was arrested for his alleged $50 billion Ponzi scheme. But many were not as lucky as Harrison.

"I ran into my co-op board president and he said he just lost $18 million," said a host of a holiday party last week at a Park Avenue home just a block away from Madoff's paparazzi-besieged building on New York's Upper East Side. Another guest recounted a story of a European investor who had lost in the billions.

"Shock, disbelief, nausea... and now it's turning into hate," says a garment industry executive, who wouldn't give his name but who has lost a substantial portion of his net worth in the scam. "It's horrible, just horrible. I'm too old to have this shit happen. It takes retirement right out of my wheelhouse."

The executive had been introduced to Madoff by a friend, and had become very friendly with him over the years, playing golf and occasionally dining with him in Florida. The executive admired Madoff's seemingly conservative strategy and was re-assured that other big names were investing with him.

"Wilpon [head of Sterling Equities] is not a stupid guy and the head of GMAC [J. Ezra Merkin] is not a stupid guy, so you feel kind of comfortable. Honestly, I never questioned [the returns). I was thrilled. It seemed like an awfully safe thing that was going on for years."

That's also what Susan Markin thought. A member of Palm Beach's city council and also a member of Trump's golf club, Markin didn't lose as much as others did, preferring to put only a small portion of her net worth in the fund because she believed in diversification. But the result still wasn't pretty.

"I was shocked," Markin says. "It was almost like if you put your money in Treasuries and someone says you're not getting your money back. I invested with him because it was a really conservative, well-performing fund."

But it was exactly that consistency that should have tipped people off, says Ron Shear, founder and president of CFG, a fund of funds manager in Manhattan.

"There is no magic bullet," Shear says. "It never made sense to me. People got taken advantage because of his personality. But they could have gone into any book store and bought a book on hedge fund investing for $29. He would have failed on any of the questions." To top of page

Added insult to Madoff investors: those who got out in time may have to give some money back.

A closer look at Madoff's Web
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