The Ponzi Scheme That Changed My Life

It was a “Remember where you were when ... ?” moment: on Dec. 11, 2008, I was standing under a palm tree in Santa Monica when my cellphone rang.

It was my brother-in-law, a Wall Street big shot who rarely called me. “Are you sitting down?” he asked. I wasn’t. And I didn’t. But I should have, because his next sentence made my knees wobble. “They arrested Bernie Madoff.”

He needn’t have said another word; I knew right away my whole investment was toast. Two weeks earlier I had doubled my stake, having thought of Mr. Madoff’s fund as a safe haven from a nose-diving stock market. Just that morning I had received my monthly statement showing a perky increase; I had even called to thank my Madoff contact.

Yet during all the years I had money with Mr. Madoff, I had a sense there was something odd about his fund. Its performance wasn’t stellar — it was just so suspiciously steady. I had joked with friends that “someday this will turn out to be a Ponzi scheme, but I’ll have my money out by then.” Someday turned out to be that Thursday, two years ago.

I had to go meet a prospective client. Sitting in the meeting was a surreal experience. I could focus on bits and pieces of what was being said but every few minutes my newly gruesome financial reality overwhelmed me and I was off in deep space. We did not win the business.

That evening a friend — whom I hadn’t told what had happened — took me to see “Slumdog Millionaire.” I identified with the adjective rather than the noun. I felt gutted, humiliated, deeply shaken. I hadn’t lost my last dollar, but still it hurt so much.

Over the next few weeks I heard from friends and acquaintances who had also handed their money to Mr. Madoff: Barry, Arthur, Rob, Neil. First names only — like recovering alcoholics, Ponzi victims don’t want to be known. The press ran articles about famous people who had been suckered, which gave me some of that “misery loves company” relief. I can’t be that dumb, I figured, since those people lost way more than I did.

How did this happen? I have an M.B.A. from a well-known Eastern business school. I had frequently read about Ponzi schemes and was familiar with their unsustainable mathematics. I play cards and know bluffing. But none of that saved me.

Mr. Madoff attracted people who believed in him and who were themselves credible. My own connection to Mr. Madoff came through members of a wealthy family who kept tens of millions of dollars in his fund for many years. My investment was a small fraction of theirs; it felt safe to outsource my thinking, and my investing, to them. With so much more to lose, they had to be doing it right.

After Mr. Madoff’s arrest I was angry. I was angry at someone who despicably stole so much from so many. I was angry at the Securities and Exchange Commission for not having uncovered his scheme sooner, angry at the family who put me in the investment, angry at my own family for not having talked me out of it. But ultimately I was angry at myself. A fool and his money are soon parted, and I was the fool.

But as happens after the death of a loved one, the pain that followed my financial loss slowly wore off. After a few months I came to see my Madoff experience as the penalty for sloppy judgment. Not the scale of punishment I would have chosen, but one that left quite a lasting impression. (Unfortunately, the pain continues for others, as witnessed by the death of Mark Madoff, the financier’s son.)

The following year, 2009, was better. The I.R.S. issued a ruling on Mr. Madoff that my accountant said was the most favorable we could have expected. And I received the biggest tax refund of my life. It didn’t come close to recouping my losses, but at least money was coming in instead of pouring out.

Grateful that I now had the resources to attempt a recovery, I slowly returned to investing, knowing that sitting on cash or putting my money into certificates of deposit would erode my capital when interest rates inevitably rose. In the process I felt as if I was channeling Polonius’s platitudes: Make sure the accountants are reputable, the results transparent, insist on meeting the managers in person. Keep in mind that risk and reward always travel together, that if something sounds too good to be true it usually is, that the law of gravity cannot be repealed, that you’re seldom warned the floor has just been waxed. Remember the Wizard of Oz was a phony.

Whether the stock market’s rising tide lifted my boat or my investment decisions were particularly astute doesn’t matter: I’m scratching my way back to where I was two years ago. More important, before putting money into any deal, I have spent tedious hours vetting the managers, checking references and getting greasy and grimy crawling under the hood to understand how their business works. And today my portfolio feels like a family album; I know every piece of it in intimate detail.

Bernie Madoff opened my eyes. I now understand that life is a game of Minesweeper where the mines are real — and that letting someone else play for me is a losing strategy. For that I am, I dare to say, grateful.

Michael Kubin, a media executive and a writer.