The mystery of Ruth Madoff's money
Charles Ponzi's wife, Rose, wound up broke, but Madoff's wife may have tens of millions. What's fair?
Madoff's London secretsNEW YORK (Fortune) -- With Bernard Madoff pleading guilty to federal charges that will likely send him to prison for life, attention has turned toward his wife, Ruth. Or, more specifically, to two questions about her: What did she know of the fraud? And, will she keep the tens of millions of dollars worth of property and assets in her name?
Three months ago, Bernard Madoff described his operation as a Ponzi scheme, bringing new life to the man for whom it was named, Charles Ponzi. Now, the focus on Ruth Madoff should do the same for Ponzi's wife, Rose, though Mrs. Madoff might weep at the comparison, at least financially.
In 1917, Rose Gnecco was 21 when Ponzi spotted her on a trolley platform in Boston. An Italian-American beauty, just under five feet tall, Rose had dark hair, alabaster skin and curves that put the twiggy fashion girls of the day to shame. The 35-year-old Ponzi was smitten, and by a stroke of luck he was accompanied on the platform by his landlady, who had taught Rose to play piano. Introductions were made, and Ponzi spent the trolley ride lost in reverie, staring at the back of Rose's head. He later wrote of that moment: "Time, space, the world, and everything else around me, except that girl, had ceased to exist." Seven months later, they were married.
Rose wanted a simple life built around her husband and a house full of children, and she despaired at Ponzi's endless dreams of riches. He wanted to wait to start a family until they were financially set. "I want you to be able to throw away a hundred dollars," he told her. Ponzi took over Rose's father's failing fruit business, but it was a hopeless cause. He pawned his pocket watch and three of Rose's rings, and struck out on his own. After several false starts, by late 1919 he came upon the idea that would make him and Rose rich, if only briefly, and turn his name into a synonym for swindle.
Ponzi's plan involved a primitive form of arbitrage. He believed that he could earn huge profits by taking advantage of price differences in coupons that could be exchanged for stamps in almost any country in the world. He rounded up investors, but when the plan proved unworkable, rather than return the money, he began using funds from new investors to pay the returns promised to earlier investors. Long known as "robbing Peter to pay Paul," it was the same scheme prosecutors say Madoff used.
By all indications, Rose had no idea what Ponzi was up to. Among other evidence, the records of the bankruptcy proceedings that followed Ponzi's fall are marbled with claims by Gneccos--all members of Rose's extended family who trusted him with their money. On page 363 is Rose herself, entering a claim for a $2,535 investment with her husband's company, money she would never see again. A skeptic might suggest that investments by Rose and her family were beards for Ponzi to hide behind, but when thousands of investors reclaimed their money in a weeks-long run near the end, neither Rose nor her family withdrew a cent. They believed.
When Ponzi pleaded guilty to a federal charge of using the U.S. mails to defraud, one of the same charges against Madoff, he went to prison and Rose was devastated. At first, investors who lost money with Ponzi turned toward Rose with scorn, suggesting that the Ponzis had hidden a fortune. But it soon became apparent that was untrue. Rose watched as an auctioneer disposed of the contents of the gracious home they had bought in Lexington, Mass. She begged lifts or rode the trolley to visit Ponzi in prison when their magnificent Locomobile limousine was repossessed. She moved in with family and found a job.
Rose remained devoted to Ponzi during his five-year federal prison term and throughout the seven years in state prison that followed. During a brief period of freedom in between, photos show Rose beaming at his side. Upon his release, she fought an unsuccessful battle against his deportation to Italy--he had never become an American citizen after immigrating in 1903. Two years after the deportation, unwilling to leave her home and homeland, or the nieces and nephews she loved like the children she would never have, Rose won a trans-Atlantic divorce. Yet for the remaining dozen years of Ponzi's life, they exchanged loving, flirtatious letters that spoke of reuniting.
It's an open question what Ruth Madoff knew of the deeds committed by her husband of nearly 50 years. But already, her actions contrast sharply with those of Rose Ponzi's, causing suspicions to abound. Massachusetts regulators say that in the weeks before Bernard Madoff's arrest, she withdrew $15.5 million from a brokerage partly owned by her husband's company. Earlier this month, answering one of two civil lawsuits that name both Ruth and Bernard Madoff, their lawyer asserted that about $70 million in property and accounts in Ruth Madoff's name are separate from her husband's assets and unrelated to any alleged fraud. Calls to Madoff's lawyers weren't yet returned.
Rose Ponzi walked away from her husband's scheme broke but innocent. Given the pain Bernard Madoff caused by emulating Charles Ponzi, Ruth Madoff might want to consider following the example of Ponzi's wife.
Mitchell Zuckoff is a professor of journalism at Boston University and author of "Ponzi's Scheme: The True Story of a Financial Legend." 
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