The Madoff clients of Aspen are coping with staggering losses, seeking advice from lawyers and tax experts and, in a few cases, considering selling their homes. A couple of friends launched a support network, the Phoenix Group, vowing to "rise from the ashes."Adding to the anguish, many of their names appeared on a widely read list of customers burned in the scandal. In letters to the local newspapers, some blasted the media for publishing the names on the report first unveiled in U.S. Bankruptcy Court in New York City… The Aspen housing market, meanwhile, is experiencing "excessive developer inventory and possible foreclosures looming on the horizon," according to Tim Estin, a broker with Mason Morse. "Add to that the Madoff factor" as some investors are forced to sell.

By James Paton, Feb. 27, 2009, Rocky Mountain News, Final Edition

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They belonged to an exclusive club in an ultra-exclusive community.

They lived in Aspen, where a $6 million home is nothing extraordinary, and had the means to dish out generous gifts to nonprofit organizations. They also considered themselves lucky for another reason: They had investments with Bernard Madoff, an opportunity available only to select people.

But since Dec. 11, when Madoff was arrested and accused of running what is likely the largest investment fraud in history, this mostly wealthy group – including doctors, developers and former Wall Street executives – has bonded in a dramatically different way.

The Madoff clients of Aspen are coping with staggering losses, seeking advice from lawyers and tax experts and, in a few cases, considering selling their homes. A couple of friends launched a support network, the Phoenix Group, vowing to "rise from the ashes."

Adding to the anguish, many of their names appeared on a widely read list of customers burned in the scandal. In letters to the local newspapers, some blasted the media for publishing the names on the report first unveiled in U.S. Bankruptcy Court in New York City.

One investor, real estate developer Guy Alciatore, sat in the bridge room of the rustic Maroon Creek Club and pondered the impact the Madoff scandal has had on some of his buddies. They tend to commiserate when they gather at the private Aspen retreat.

"They look different," he said of some of the investors he knows. "They’ve been so damaged by Madoff that they’ve aged. They’ve lost the spring in their step."

Alciatore, 66, said he is in considerably better shape than most people with the lion’s share of his net worth tied up in properties. Still, he is hardly unaffected. Alciatore said he was victimized by a man he trusted in a real estate scheme several years ago.

"I’ve been burned before, and I thought I had learned my lesson. Now, I’ve been burned again," he said. "I’m suspicious of everyone. I don’t believe anyone anymore. You have a bunker mentality. You’re going to protect you and your family, and that’s it."

When the rich get poorer, instead of richer, their plight can spark glee among the less fortunate, and some believe that’s an element of the story. In hindsight, many observers have asked how so many savvy people could have been suckered.

Others have called for more sympathy, saying that even regulators missed the warnings signs and that the group’s losses could affect everyone.

Madoff investor Ed Calesa, the chairman of a medical device company and the co-creator of the Phoenix Group Web site, said many of the clients in Aspen have made important economic and charitable contributions.

The Madoff meltdown has added to the pressure on a town already grappling with a sour economy. The stock market’s severe sell-off and the Madoff catastrophe have "impacted those people twice," said Calesa, an Aspen home owner since 1975. "Donations and charity and confidence are clearly going to suffer."

Meeting Madoff

Marc Mandelbaum, a 43-year-old home builder, opened his laptop and pulled up a photo from his 1992 honeymoon in Courchevel, the French resort. In the picture is Madoff, his wife Ruth and Mandelbaum’s former wife, Dana Mandelbaum. Madoff, a relative of his ex-wife, happened to be in France at the same time.

The Woody Creek resident remembered that he met Madoff on several other occasions, including his wedding, a family funeral and drinks one evening at the Little Nell.

The Manhattan money manager seemed distant, and not a particularly impressive figure when he did talk, but "people couldn’t get in with him quick enough. Everyone wanted to meet Bernie," Mandelbaum said.

Mandelbaum said that he, his sister and his parents invested more than $3 million with Madoff, a sum they believed had grown to $5.7 million, though his own portion amounted to just $100,000. Mandelbaum said that his former wife’s family had entrusted significantly more money to Madoff.

Clutching a stack of Madoff statements from several years ago, Mandelbaum said he and others thought something was odd and couldn’t figure out Madoff’s strategy but didn’t ask too many questions.

The Wall Street trader appeared to "have a magic system" for producing steady gains in up and down markets, he said.

Mandelbaum said that in 2004 he cashed out of a small position in a joint account with his wife, whose mother is Madoff’s cousin. However, that was because of his divorce, not out of suspicion about Madoff, he said.

Other investors stuck with Madoff until the end.

Alciatore, who moved to Aspen in the 1980s after selling his software company in Michigan, said he met Madoff 18 years ago and soon began investing.

For years, Madoff "ran like a clock," he said.

When Alciatore had a real estate profit, he would place the money into the account. When he bought a property, he would withdraw the cash. "It was like a savings account, except it paid 10 percent a year," he said.

Calesa, the Massachusetts-born businessman, opened a Madoff account about 12 years ago. The longtime Aspen resident said he guessed he tried to help nine other people get into the Madoff club at various points.

Madoff "turned down eight of them," Calesa said.

Aspen investment adviser Wally Obermeyer borrowed an idea from author and Arizona State University professor Robert Cialdini to try to describe what happened to some of his neighbors. Cialdini told the Wall Street Journal that probing Madoff after he opened his doors was seen as rude.

It was akin to "being invited into a prestigious country club and going into the kitchen to assess whether the place was clean," Obermeyer said.

Obermeyer said "a basic flaw in our makeup" is to fall for something with an air of exclusivity.

"Most of these people are pretty astute," he said. "They wouldn’t buy a Colorado ranch without having their attorney review it. They would ask whether it comes with water rights, but they would throw their life savings into Madoff without due diligence."

Eventually, the questions came, and investors cracked the kitchen door, but it was too late.

With the stock market and the economy in turmoil last November, Calesa, 67, grew concerned about his nest egg and sought out a face-to-face meeting with Madoff. The money manager eventually agreed, inviting Calesa to his Manhattan office. Madoff explained that his strategy involved buying stocks and trading options and was designed to generate modest returns.

"He was calm and collected," Calesa said.

Then, weeks later, the news knocked the wind out of Calesa and other Aspen customers. Madoff, the 70-year-old former Nasdaq chairman, allegedly told employees that losses in the fraud totaled $50 billion.

Alciatore was in Dubai, on vacation with his wife, when his cell phone rang. It was a friend and fellow Madoff client calling to deliver the bad news.

"He said, ‘Guess what? Madoff is a Ponzi scheme,’ " said Alciatore, who is selling real estate assets to raise cash. "I was dumbfounded. Your mind can’t accept it. It’s like being hit by lightning."

Some acknowledged they should have subjected Madoff to tougher scrutiny. The red flags – suspiciously steady gains of more than 10 percent a year in up and down markets and a refusal to answer too many questions about his strategy – are obvious now.

Still, they said Madoff didn’t aim to shoot the lights out and his modest results were plausible. They said they wanted to preserve wealth, not grow wealthier.

One of the phrases often heard in the wake of the Madoff scandal and other swindles is the familiar lesson: ‘If it’s too good to be true, it probably is.’

Calesa, who lost "a lot" of money, but declined to divulge just how much, said, "Every time I hear that I want to throw something at the TV."

Another investor, Jillian Livingston, said that it was her father who discovered Madoff years ago. When he died in 1997, he was "convinced that he had done well for his wife and children," she said.

Livingston wrote in a piece published in the Aspen Times: "Investigating and trusting a highly reputable investment firm is not greedy behavior. We thought that we were safely saving for our future. Were we stupid for not diligently following the proper steps to check up on Madoff? We were following some of the most brilliant people in the world who had also invested with Madoff. We felt secure in doing the same."

The fallout

Madoff will be the talk of this resort town for months to come.

One realm bracing for an impact is the nonprofit community. Although a number of contributors to the Aspen Music Festival and School have been able to maintain their financial support, the reeling economy has hurt fund raising, and the Madoff mess doesn’t help, said Alan Fletcher, the group’s chief executive.

"I’ve had a couple of major donors who said, ‘We’re just not going to be able to make a gift this year. We hope to come back.’ A couple have said, ‘We’re going to make a gift, but it will be less,’ " he said.

Other area organizations, such as the Aspen Valley Medical Foundation and the Aspen Institute, have counted on donors who are on the Madoff list, according to a review of their reports.

The Aspen housing market, meanwhile, is experiencing "excessive developer inventory and possible foreclosures looming on the horizon," according to Tim Estin, a broker with Mason Morse. "Add to that the Madoff factor" as some investors are forced to sell.

The former client Mandelbaum said he knows dozens of Madoff investors, some of whom will need to unload their prized homes, a move that would have been unthinkable until recently.

"I know a gentleman here. I cannot believe he’s worked all his life and he’s almost dead broke," Mandelbaum said. "Eight months ago, he was a multimillionaire living the high life in Aspen."

Plenty of the Madoff investors were super wealthy and had connections to the money manager through the Jewish community, but others do not fall into that camp. Some of the Aspen clients do not consider themselves affluent, and they are struggling, too.

Many now are meeting with high-priced attorneys, hoping to recover as much of their investments as possible. Those who withdrew significant funds over the years worry they may be forced to return some cash.

Livingston, 44, said her family took out Madoff funds to build a house in Old Snowmass. She, her husband and three young children moved in about a year ago.

"We have no idea what’s going to happen to us now," said Livingston, whose Madoff experience inspired her in January to start a blog about her family.

In the aftermath, critics have complained that printing names is callous, pointless and adds insult to injury. Livingston said "a certain part of society seems to take pleasure in exposing" other people’s pain.

"First you get a phone call that Madoff is going down," Livingston said. "Then you have the shock reading your name listed in the paper, which is disturbing."

A few have even expressed frustration with being portrayed as "victims."

With the blog, Calesa and fellow investor Steve Goldenberg hoped to provide a way to bond and exchange tax and legal strategies. They wrote on the Web site, "The Phoenix is a beautiful bird, who in both Christian and Jewish religion was able to recreate itself from its own ashes."

They said: "Madoff MADE OFF with our money and that has severe and different complications for all our lives. United we can be stronger than as individuals."

On the list

Just a few Aspen-area residents whose names appear on the Madoff list:

* Gaston Alciatore: Real estate developer who lives in Aspen and started investing with Madoff roughly 18 years ago.

* Ed Calesa: Retired but still serves as chairman of a medical device company. He started the Phoenix Group, an online support group for those burned by Madoff.

* Marc Mandelbaum: Woody Creek resident and home builder whose ex-wife is a Madoff relative. He had a relatively tiny amount of money in Madoff but withdrew it after his divorce several years ago.

* Jillian Livingston: Old Snowmass resident whose family used Madoff money to buy a new house. She started a blog, isdisnormal.com, about her family after the scandal broke.

* Bart Pepitone: Aspen resident and director of development at the Aspen Country Day School. Pepitone has said the loss will make it harder to meet his expenses, including a nursing home for his mother.

* Harold Thau: Theater producer who represented John Denver and helped produce some big Broadway shows.