Feb. 19 (Bloomberg) -- Sonja Kohn, who used her relationship with Bernard Madoff to help build a Vienna private bank, was doing what she is known for at a Dec. 9 reception in Zurich: promoting her investment record. Swiss investment adviser Hans Kaufmann liked what he heard over goulash soup.

“We agreed to meet in Vienna soon as I wanted to know more,” said Kaufmann, founder of Kaufmann Research AG in Wettswil am Albis near Zurich. He says he was impressed that Kohn reported investment gains during a year in which he was proud to keep losses to 7 percent.

The meeting never happened. Two days later, Madoff was arrested in New York for allegedly running the biggest Ponzi scheme in history. Kohn’s Bank Medici AG managed and distributed funds that had $3.2 billion of client money with him. She says she was a victim of a “fraud that destroyed lives, life savings and companies.”

Bank Medici funneled the most money of any firm in Europe into Madoff’s alleged $50 billion scam. It is now under the supervision of a state-appointed auditor. Kohn, 60, is a self- taught money manager who built her investment house by networking and creating the allure of joining an exclusive club similar to Madoff’s, according to interviews with more than 20 clients, former employees and acquaintances.

“In the end, it was just a money-collecting company for Madoff that presented itself as a staid bank,” said Edwin Fischer, a professor of finance at the University of Graz in southern Austria. “The chart was just going up and up and people stopped being critical about the performance.”

18-Hour Workdays

Kohn boosted the bank’s credibility with backing from 25- percent owner UniCredit Bank Austria AG, the country’s biggest lender, and by recruiting “respected” former government ministers as supervisory board members, Fischer said.

Kohn didn’t reply to two e-mails and a letter hand- delivered to her home in Zurich seeking comment for this article. She said in a Jan. 14 e-mail to Bloomberg News that she was as deceived by the “Madoff fraud” as anyone else. Madoff wasn’t a friend and didn’t confide in her, she wrote.

Born on Aug. 5, 1948, Kohn is fluent in five languages and has five children and 24 grandchildren.

She advanced her career through self-study of finance and hedge funds, 18-hour workdays except on Saturday, the Jewish Sabbath, and travel between Vienna, Zurich, New York, Jerusalem and Milan, according to the clients, former employees and people who met her over the years.

And her access to Madoff.

‘Elite Club’

“The reason why people invested was that they knew Mrs. Kohn was acquainted with Bernard Madoff,” said Helmuth Frey, Bank Medici’s chief executive officer from February 2006 to August 2008. “People really got the impression they were in an elite club if they were allowed to invest in his funds.”

Madoff sent $526,000 in payments for Kohn to Cohmad Securities Corp., a New York broker-dealer he co-owned, according to a Feb. 11 complaint the Massachusetts securities regulators filed against Cohmad. Kohn has not received any of the funds suggested in the complaint, her lawyer Isaac M. Neuberger said in an e-mailed statement.

Kohn was the only one at Bank Medici who spoke directly with Madoff, said Frey, who said he quit when he tired of her interference as a “very, very active” chairman.

Meeting Madoff

She didn’t talk about how she met Madoff, Frey and former clients said. The two probably met in New York, where Kohn began her investing career in the 1980s, according to one former Bank Medici employee and one person who worked for Bank Austria at the time. They asked not to be identified because they no longer work for the respective companies.

Madoff’s investment business was built on personal contacts, notably in Jewish country clubs and charities. Kohn and her husband, Erwin, bought a house in Monsey, a New York suburb with an Orthodox Jewish community, property records show.

Kohn only got into investing after staying home to raise her five children.

She passed her first broker exam in 1984 when she was 36, according to filings with the U.S. Financial Industry Regulatory Authority. In 1990, she set up investment boutique Eurovaleur Inc. in the General Motors building on New York’s Fifth Avenue.

Eurovaleur marketed accounts for Madoff, according to a money manager who accompanied Kohn to a 1991 meeting with Madoff in New York. Madoff greeted Kohn with a big hug and a kiss as they arrived, said the person who asked not to be identified.

Around that time, Kohn started appearing as an expert on investing at events back home where she was presented as “Austria’s woman on Wall Street,” according to a person who attended the seminars.

Primeo Funds

In 1994, Kohn founded Medici Finanz Beratung GmbH in Vienna.

That same year she helped create the first of three Bank Austria Primeo funds that invested with Madoff, according to the former Bank Austria employee. She introduced executives of Bank Austria, now owned by Milan-based UniCredit SpA, to Madoff in New York at the time, the person said.

Two Primeo funds face almost $1.1 billion of losses from the alleged scam, according to UniCredit, Italy’s biggest bank.

Kohn’s company received a banking license and was renamed Bank Medici in 2003, when it posted a loss. It managed and distributed three funds that put most of their money with Madoff.

Bank Medici boosted fee income to 9.72 million euros ($12.2 million) in 2007, from 1.38 million euros in 2003, by gaining new clients in Austria, Germany, Switzerland, Italy and the U.S., according to fee-payment tables in its income statement.

Italian Nobles

The name Medici, which evokes the Italian family that produced popes, queens of France and a line of bankers, was only a “fantasy name,” Kohn said in a 2004 interview with Austrian business daily Wirtschaftsblatt.

“I like to be invisible in my work,” Kohn told the newspaper, adding that one has to invest conservatively and “be careful not to lose any customer funds.”

Bank Medici’s golden logo resembles a coat of arms with two heraldic lions holding a shield topped by a crown.

Before the Madoff affair, its Web site noted Bank Austria’s 150-year-old banking tradition stretching back to its founding by the “legendary Rothschild family.” It also cited Albert Einstein, J.P. Morgan and Winston Churchill on investments and worldly wisdom. The site has since been redesigned.

Baroque Furniture

The bank’s office in a post-war building opposite the Vienna State Opera was decorated with baroque furniture and oriental rugs. Kohn often referred in conversations to the bank’s supervisory board members, including former Economics Minister Johannes Farnleitner and former Finance Minister Ferdinand Lacina, according to Frey and one-time clients.

“The office décor and opulent Web site all were part of the bank’s branding, which was a big hit with the customers,” Frey said. “Name-dropping certainly was part of it.”

Kohn often did business at the “Rote Bar” restaurant and adjacent cafe in Vienna’s historic Hotel Sacher behind the opera house. She sometimes gave the double-decker chocolate Sacher Torte or old paper stock certificates as year-end gifts, according to former employees.

“Sonja Kohn held her first breakfast meetings at 8 in the morning, not like others who came at 10 or 11,” said Elisabeth Guertler, whose family owns the Hotel Sacher. “I always had great respect for her for juggling her business life and her large family. She was a real workaholic.”

‘Triumph of Bacchus’

Kohn never missed an opportunity to promote Medici funds, according to Frey.

Wilfried Seipel said it was clear Kohn had networking in mind when she approached him two years ago about being a sponsor of Kunsthistorisches Museum, Vienna’s largest art museum. Once she gave him a document introducing the bank.

“It was kind of pompous as was the whole office and the marketing effort,” said Seipel, who retired as the museum’s director at the end of 2008. “I feel really sorry for her. She was always friendly, very professional and straight to the point. She knew what she wanted.”

Bank Medici wound up sponsoring two events. At the Dec. 1 gala previewing “The Myth of Antiquity” exhibition featuring works by Titian and Correggio, it spent 3,000 euros for a table with the theme “The Triumph of Bacchus,” Seipel said.

Kohn also has pursued other business efforts. In 1999, she was awarded the Great Medal of Honor for Merit from the Republic of Austria. In Italy, she helped create online mutual-fund shop FundsWorld with what is now Intesa Sanpaolo SpA and Michael Lipper, the founder of mutual fund research company Lipper Inc.

“Her image at the time was of someone with a very strong network in the international world of business,” said Christian Merle, then the CEO of Banca Intesa SpA.

In hindsight, by investing with Madoff, Kohn failed to heed her own advice.

“One of the biggest risks to a portfolio is when its manager thinks he’s cleverer than the market,” Kohn wrote in the introduction to “Alternative Investments,” a 2002 book she co-wrote with Anna Gervasoni, head of Italy’s private equity association. “We need to learn to value the human element.”

To contact the reporter on this story: Matthias Wabl at mwabl@bloomberg.net.

Last Updated: February 18, 2009 19:01 EST