U.S. News

Russian Oligarchs Also Duped by Madoff: Report

Nelson D. Schwartz and Julia Werdigier|The New York Times

With an aggressive style that stood out in the staid world of Austrian banking even more than her bouffant red wig, Sonja Kohn made few friends gathering billions for Bernard L. Madoff from wealthy investors in Russia and across Europe.

Now, she has even fewer.

Mrs. Kohn has dropped out of sight, leaving the firm she founded, Bank Medici, in the hands of Austrian regulators, who took it over last week.

Embarrassment from investing heavily with Mr. Madoff could explain wanting to disappear from public view. But another theory widely repeated by those who know Mrs. Kohn is that she may be afraid of some particularly displeased investors: Russian oligarchs whose money made up a chunk of the $2.1 billion that Bank Medici invested with Mr. Madoff.

“With Russian oligarchs as clients,” said a Viennese banker who knew Mrs. Kohn and her husband socially, “she might have reason to be afraid.” It was a view shared in interviews with Mrs. Kohn’s fellow bankers, former employees and other associates — from Vienna to London to Geneva to Monsey, N.Y. Few of those who know her were willing to be quoted by name because they feared being linked to the scandal surrounding Mr. Madoff as well as the investigations into his alleged fraud.

But several people with knowledge of her personal and professional dealings say she became concerned about retribution by Russian investors after Mr. Madoff’s arrest last month. (Russia’s richest men have been especially strapped as commodity prices and their stock market have collapsed.) A spokeswoman for Bank Medici, Nicole Back-Knäpp of the public relations firm Ecker & Partner in Vienna, said Mrs. Kohn did not want to speak to the press.

“She is a victim and the Bank Medici as well,” Ms. Back-Knäpp said. She declined to comment on whether Mrs. Kohn was in hiding.

Bernie Madoff

It is a stunning reversal for the 60-year-old Mrs. Kohn. The daughter of Jewish refugees from Eastern Europe who moved to Vienna after World War II, she came to New York in the 1980s and was one of the rare women to found and head a small brokerage firm.

At that time, she started a decades-long friendship with Mr. Madoff. Once known here as “Austria’s woman on Wall Street,” she became one of Mr. Madoff’s international conduits for securing billions of dollars from the global rich. With her husband, Erwin, a former banker, Mrs. Kohn was able to draw interest from wealthy Russians, Ukrainians and Israelis.

And though she migrated from a more traditional Jewish background to ultra-Orthodox practice — which is why she covered her hair with the wig — Mrs. Kohn and her husband even managed to secure meetings with deep-pocketed Arab investors.

“He was the door opener, she was the go-getter,” said the Viennese acquaintance of the Kohns who insisted on anonymity because of the publicity surrounding the Madoff case, both in Europe and the United States. “She’s not somebody for small talk.”

Curtis J. Hoxter, a veteran New York-based communications adviser who has worked with Bank Austria and met Mrs. Kohn frequently in Manhattan said, “She has a very aggressive personality and wouldn’t take no for an answer.” He added, “She was overwhelming.”

Mrs. Kohn owns 75 percent of Bank Medici, with Bank Austria holding the rest. Mrs. Kohn’s background could not have been more different than that of Rene-Thierry Magon de la Villehuchet, the French aristocrat who committed suicide in New York last month after his firm, Access International, lost $1.4 billion.

While Mr. Villehuchet attracted elite investors like Philippe Junot, the former husband of Princess Caroline of Monaco, and Liliane Bettencourt, daughter of the founder of the French cosmetics giant L’Oréal, Mrs. Kohn’s Madoff-linked funds were more often marketed to individuals through banks like UniCredit and its subsidiary, Pioneer Alternative Investments.

In other cases, Mrs. Kohn appealed directly to investors during her frequent trips around Europe. Like Mr. Madoff himself, she used the promise of entree to an otherwise unavailable investment as her key selling point.

“She said she was a very close friend of Bernie, and had good connections,” said one top Geneva banker who met with her in Vienna several years ago. “She said it was hard to get into, but she could give me access.”

"Our History Is a Very Conservative One"

There is no indication that either Mr. Villehuchet or Mrs. Kohn knew of the Ponzi scheme Mr. Madoff is accused of running. While Mrs. Kohn and her husband were hardly fixtures of the European scene, friends say they patronized charities in Italy and elsewhere on the Continent that enabled them to rub elbows with wealthy potential clients.

Mrs. Kohn also granted occasional interviews to local newspapers and talked up her bank’s prospects. In June 2008, she told The Voice of Russia “our history is a very conservative one.” Mrs. Kohn owned a home until about a year ago in Monsey, N.Y., an ultra-orthodox community about an hour north of Manhattan, but has recently spent more time in Europe.

One associate in Monsey said the Kohns’ lifestyle was modest. With just 16 employees, Bank Medici was hardly a powerhouse, based in a fourth-floor office in a nondescript building overlooking the Vienna Opera House. But it had a lucrative model.

In 2007, Madoff-linked investments produced the bulk of Medici’s fees of 9.7 million euros, or about $13.7 million, and net income of 472,300 euros, or $665,000. But Mr. Madoff’s name does not appear in the bank’s 2007 annual report, its most recent statement.

Instead, Mrs. Kohn presented herself as the gatekeeper to the Madoff funds, and made it clear to her employees that only she could contact Mr. Madoff. Although its headquarters are in Vienna, Bank Medici focused on marketing and distributing the Madoff-linked investment vehicles through other banks and asset managers in Europe and beyond.

Nearly all of Bank Medici’s $2.1 billion exposure to Mr. Madoff comes from clients outside Austria.

In recent years, Sonja Kohn traveled constantly to Milan, Zurich, London, Israel and New York, returning from time to time to an apartment in an upscale neighborhood of Vienna near the Parliament building. She also maintains a villa outside Zurich. But she maintained close ties to the Viennese banking and government elite.

“The Austrian banking market is relatively small, and many banks get their growth from Eastern Europe,” said Christopher Kummer, a professor of mergers and acquisitions at the Vienna-based Webster University. “The industry’s ties with the government are strong and the environment is one where most people know each other or of each other.” Indeed, two former government ministers, Hannes Farnleitner and Ferdinand Lacina, sit on Bank Medici’s supervisory board.

Former employees say Mrs. Kohn was always dreaming up potential new products, like a credit card allowing rich Russians to arrange private jet service or a Liechtenstein-based life insurance package. In Britain, one London banker recalled how Mrs. Kohn would always stay at Claridge’s, a five-star Mayfair hotel, and receive clients in a suite there.


The banker described Mrs. Kohn as generous with employees and clients, frequently bestowing small gifts, like pens as well as Sachertortes, the classic Viennese chocolate cake.

While some bankers were put off by what they described as her aggressive style and occasional name-dropping, he said Mrs. Kohn could also be charming, displaying flashes of the “gemutlichkeit,” or coziness, her hometown is famous for. “She could be hard to say no to,” he recalled.

Mrs. Kohn is fluent in a host of languages, including English, German, Hebrew and Italian. Gerhard Altenberger, the government-appointed commissioner in charge of securing the interests of Bank Medici’s creditors, said the bank had been cooperating fully, and that he had been able to interview Mrs. Kohn in Vienna.

But friends of the couple say they have not seen them since shortly after Mr. Madoff was arrested on Dec. 11. A fellow banker said when he last saw Erwin Kohn in Vienna, on Dec. 13, “he looked shattered and nervous. He couldn’t believe it.” Bank Medici is now effectively being managed by Mr. Altenberger, the government-appointed commissioner.

A judge extended an order Tuesday barring the hedge fund founder J. Ezra Merkin from shutting down funds that had invested with Bernard L. Madoff or withdrawing money from them.

Justice Richard Lowe of New York State Supreme Court issued the extension in a lawsuit brought on Dec. 23 by New York University, which says it lost $24 million when funds run by Mr. Merkin invested money with Mr. Madoff without its consent. The initial order expired Tuesday.

Leslie Wayne contributed reporting from New York.