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It was a “remember where you were when …?” moment: On December
11, 2008, I was standing under a palm tree in Santa Monica, California, when my
cell phone 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 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 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,
“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.

Over the next few weeks I heard from friends and
acquaintances who had also handed their money to 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 MBA 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.

Madoff attracted people who believed in him and
who were themselves credible. My own connection to 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 Madoff’s arrest I was angry. I was angry
with someone who despicably stole so much from so many. I was angry with the
Securities and Exchange Commission for not having uncovered his scheme sooner,
angry with the family who put me in the investment, angry with my own family
for not having talked me out of it. But ultimately I was angry with 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 IRS
issued a ruling on Madoff that my accountant said was the most favourable 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 channelling
Polonius’ 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 is a media
executive and a writer

© 2010 The New York Times