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[newscaster] It has been a week
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since Bernie Madoff
turned himself in to the FBI.
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[man] This guy had enormous credibility.
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- [woman] One of the biggest market makers.
- [man] If you can't trust him...
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- One of the founders of the NASDAQ.
- ...who do you trust?
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[newscaster 2]
How could he pull this off by himself?
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[newscaster 3] It seems almost impossible.
It has to be that people were included.
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Whether they knew what they were doing
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- becomes a larger question.
- [newscaster 2] Or not. Right.
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[brooding music playing]
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[Steven N. Garfinkel] One of the unique
things about the Madoff investigation
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was the fact that it started
with a confession and an arrest,
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but we knew we had to get more.
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So as we were doing our investigation,
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we went to the 17th floor,
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and we were like...
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"Holy shit."
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It was almost like
walking into a time warp.
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It looked like the mid-1980s.
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You had these old,
big mainframe computers.
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There's reams of paper everywhere.
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There are file cabinets, boxes.
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[Keith Kelly] There are faxes
that have come in requesting redemptions.
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There are documents laying everywhere.
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Very messy,
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which is a stark comparison
to the 19th floor, which was pristine.
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[Garfinkel] The thing that always
struck me was the dot matrix printer.
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He had this old-school paper, you know,
where you tore off the sides of it.
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If you invest with
any large brokerage firm,
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nobody gets a statement
on dot matrix paper.
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[Kelly] On one desk I found
a stack of 5x8 index cards
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with handwritten columns
depicting cash activity.
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Withdrawal, deposit, ending balance.
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And the ending balances,
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I see four and a half million, and
I'm thinking, "Gee, that's a big number."
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When I looked at it closer,
I realized it was four and a half billion.
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[brooding music builds]
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[Kelly] And that's when I realized
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this is not an ordinary
white-collar crime.
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[theme music playing]
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[somber music playing]
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[employee] I started working for Madoff
around 1992, in computer operations.
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When I first went
for the interview at the office,
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it was a good conversation,
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and the salary that they offered me,
I was very happy with the salary.
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It was like, double the amount
that I made at Federal Express,
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and um, I wasn't working out in the rain.
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I was working in a nice office building,
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and I was more than excited.
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But also I was very nervous
because it was just something that
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I wasn't used to.
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When I first started,
I worked on the 19th floor.
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Everything was on the 19th floor
at that time.
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The 19th floor was beautiful.
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It was all glass,
all black and silver decor.
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Then we moved to the 17th floor.
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[suspenseful music playing]
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[employee] The 17th floor
was totally different.
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[deposition lawyer]
When you started doing the,
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we'll call it the fraudulent
investment advisory business,
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you moved the people who did that
to a separate floor?
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[Madoff] That's correct.
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We moved the whole advisory side
down to the 17th floor.
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That was in the, uh, '90s.
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[employee] I worked nights, so I saw a lot
of the grimy stuff that was going on.
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I could see where there was
some things that were kind of sketchy.
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They had an area called the cage.
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And the cage is where
everything was going down.
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You go in there and you'll see
them got, like, six-packs in there,
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and at that time, you could smoke inside.
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Now I see people coming in smashed
and go in the back with their mistresses,
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or some guys who did coke
in there, or whatever.
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And I thought that was really crazy,
you know? I was like, "Wow."
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I was real naive to a lot of this stuff
because of the fact that
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we still had very heavy hitters
in the company who are working down there,
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like Bernie Madoff and Frank.
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[Madoff] The investment advisory side,
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or the 17th floor, as it's referred to,
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was basically supervised
by Frank DiPascali.
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He just ran pretty much everything
down on that floor.
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[deposition lawyer] Is it fair to say that
Frank was in charge of the 17th floor?
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Yes. He was very talented when it came
to, uh, helping to build the system.
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He did pretty much everything.
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[intriguing music playing]
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[Ellen Hales] Frank DiPascali was a guy
that you would expect to run numbers
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or be shooting craps in the street.
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He was definitely, you know, a smart guy,
but, you know, like, a streetwise guy.
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If Frank had been a mobster,
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he would have been the one
telling people who to hit.
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Frank was Italian, he came from Queens.
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I was Italian, I came from Brooklyn.
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I couldn't relate to him.
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And I should have, I should have.
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But we were different.
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I remember hearing that
Frank was working in a gas station
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before working at Madoff,
and that he didn't complete college.
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If you were going to have somebody
run your investment advisory business,
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I would certainly think it would be
somebody who was educated.
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I could just never understand it.
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[Hales] It was very clear
that Bernie respected Frank a lot.
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And for Frank, this was an opportunity
to make more money than he ever imagined,
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and live the lifestyle he always wanted.
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I'm not sure a kid from Howard Beach
could have had the kind of yacht he had
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and the house in Jersey the way he had,
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doing anything else
but working for Bernie Madoff.
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[employee] Then there was
Annette Bongiorno.
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[chuckling] Annette...
I don't really know what she did.
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I knew that she was a heavy hitter
and she was a snazzy woman.
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Yeah, she dressed nice.
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I know Annette was making very good money.
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I know she used to have
a little drawer with cash in it.
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And she would be like,
"Go in the drawer and get such-and-such
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and order you and such-and-such dinner."
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And it was a nice little stack of money
she had in there.
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[suspenseful music playing]
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[Hales] Annette was a working-class woman
from Queens, and not a lot of education.
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A lot of the people
that were on the 17th floor,
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Bernie got them in when they were
very young, very impressionable.
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So they would be incredibly loyal
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and deferential to him
and do whatever he asked.
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Annette worshipped Bernie.
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And I think she would have
taken a bullet for him.
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She had her little team downstairs
that she controlled,
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and Bernie seemed
to rely on her quite heavily,
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particularly with his biggest clients.
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[deposition lawyer] Let's turn to Annette.
That's Annette Bongiorno?
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[Madoff] Yes.
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[deposition lawyer]And what were
Annette's day-to-day responsibilities?
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[Madoff] She handled the...
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uh... the big clients.
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[deposition lawyer] And how long
did Ms. Bongiorno work for you?
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[exhales]
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Probably 30-some odd years.
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[Hales] No matter what Bernie was doing,
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he would drop what he was doing
to talk with her.
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And I remember thinking at the time,
"Boy, Bernie really takes care of her."
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He's very loyal to his longtime employees.
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She was always going to Palm Beach.
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She was always getting some new car.
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She lived quite a life,
we thought at the time,
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for somebody who was a secretary
and a clerk, kind of, from Queens.
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[tense music playing]
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[Squillari] The investment advisory down
on the 17th floor was always very busy.
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There was always mailings going out.
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It was like a buzz of activity going on.
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And it was divided into two spaces.
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Annette had one side, Frank had another
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with the computer guys,
Jerry O'Hara and George Perez.
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[employee] My supervisor was Jerry O'Hara.
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Yeah, he looked over my work.
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As a computer operator,
I was to print out, like,
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these statements
for certain stock or securities,
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but the printers were not fast.
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They were very slow, like,
dot matrix printers and stuff.
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A typical day on the 17th floor,
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I would print out
probably 700 statements at night.
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If I had issues with printing,
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I would call them,
and they would troubleshoot it.
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They wouldn't be like,
"Leave it till the morning."
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They would want to get it done right then.
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If it came out smudged or wasn't done
the right way, they would print it over,
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and then we would mail them out
to the different clients.
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They ran a tight ship
with every little detail that went on.
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One of the reasons I chose
to be in silhouette is because
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I don't want to be part of anything
that's still going on with that case.
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I know the Madoffs did
some very bad things to some people,
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and I feel bad for the people
they did it to,
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but they were good people to me,
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and I can't say nothing bad about them.
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Bernie Madoff's fraud
was not a complex fraud.
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It involved simply taking people's money,
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telling them he was going to invest it,
and he never did.
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[suspenseful music playing]
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[Dubinsky] So, to continue the Ponzi
and perpetrate this fraud,
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he had his handful of soldiers at the
investment advisory side of the business,
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create fake trades.
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It was very easy
to create a fictitious trade
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if you know what it traded for yesterday.
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It's like going to the horse races
and betting on yesterday's horse race.
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It was just a key punch operation.
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People sat around and key-punched this
historical information into the computer
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to make it look like
they bought Amazon a month ago
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and sold it yesterday at a profit.
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George Perez and Jerry O'Hara
had computer programs
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that took the information
from the fake trades
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and put them on a customer statement,
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so when you, the customer, got it,
it looked real.
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The complexity was how many clients
he had to deal with in the '90s and 2000s.
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Almost 5,000 clients.
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It was a paper mill.
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It's an iterative process
of punching in fake trades,
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seeing what the returns look like,
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shredding those statements,
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punching in new trades
with different prices
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to make the returns even better,
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and then eventually
mailing those to customers.
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Mr. Madoff, importantly,
never provided electronic access
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for people to access
their account statements.
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He didn't want people
to have electronic access
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to see what was going on
behind the curtain.
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The 17th floor really operated,
in a sense, like a bookie operation,
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and somebody had to keep track
of all the money in and out.
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[suspenseful music playing]
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Jodi Crupi was another one
of these um, unsophisticated types
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that Bernie brought in
to be an instrumental part of the scheme.
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Her job, towards the end, was to manage
what was called "Jodi's pad."
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It was actually a tally done every day
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of the ins and outs of cashflow
from the JP Morgan bank account,
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known as the infamous 703 account,
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which represents the last three digits
of the account number,
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which we now know as the Ponzi account.
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And every day at the end of business,
the tally would be delivered to Bernie,
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so Bernie knew exactly
what came in and what went out.
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[Dubinsky]
This was very important to Mr. Madoff,
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obviously, when you're running a Ponzi,
to understand how much money you have
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to make sure you get enough cash on hand
to meet some of these withdrawal requests.
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That's why the 17th floor
was so important for Bernie Madoff.
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When you control a few people
that you can keep quiet for a long time,
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that's how you can perpetrate this fraud
for four decades or longer.
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[Squillari]
The investment advisory business,
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down on the 17th floor,
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nobody had access to it except
the employees who worked down there.
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I had a card key because I would
have to go back and forth for Bernie.
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And even when I went down,
nobody encouraged you to stay.
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Nobody wanted to have a conversation.
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[tense music playing]
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[Hales] The 17th floor was a real enigma.
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I don't know that we... The people
that I knew on the trading floor,
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that we ever really knew
what went on down there.
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We didn't talk
about the trading side to them,
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and they didn't talk about
whatever they were doing on their side.
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[intriguing music playing]
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[Andrew Cohen]
Madoff was a family-dominated firm,
234
00:14:32,580 --> 00:14:35,833
so Bernie was the top of everything.
235
00:14:35,916 --> 00:14:39,378
His family had all the key positions
on the 19th floor.
236
00:14:39,461 --> 00:14:42,464
His younger brother, Peter,
was the compliance officer,
237
00:14:42,548 --> 00:14:46,719
and Bernie gave his sons, Mark and Andy,
both very young, a lot of responsibility.
238
00:14:46,802 --> 00:14:48,178
They ran the trading floor.
239
00:14:49,305 --> 00:14:53,392
[Hales] His sons both worked for the firm
since the day they graduated college.
240
00:14:53,475 --> 00:14:56,645
[Cohen] And because they were Madoffs,
we had to listen to them.
241
00:14:56,729 --> 00:14:59,899
I thought I was a, you know,
much better trader than Mark,
242
00:14:59,982 --> 00:15:03,944
but I couldn't beat him in an argument
because he was Mark Madoff.
243
00:15:04,028 --> 00:15:06,655
Andy'd joke with me,
he said, "This is nepotism central."
244
00:15:08,782 --> 00:15:10,409
[Hales] Mark and Andy both felt
245
00:15:10,492 --> 00:15:13,329
that they needed to understand
the whole business,
246
00:15:13,412 --> 00:15:17,082
including what Bernie was doing
on the 17th floor
247
00:15:17,166 --> 00:15:18,918
with the investment advisory business,
248
00:15:19,001 --> 00:15:21,503
and Bernie wouldn't talk to them about it.
249
00:15:23,213 --> 00:15:27,301
There was this line that Bernie had drawn
250
00:15:27,384 --> 00:15:31,680
that separated the boys
from what he was doing on 17.
251
00:15:31,764 --> 00:15:33,390
[inaudible]
252
00:15:33,474 --> 00:15:37,394
[Hales] As far as I know, Mark and Andy
weren't allowed on the 17th floor,
253
00:15:38,437 --> 00:15:40,105
and it really bothered them.
254
00:15:40,189 --> 00:15:41,065
[inaudible]
255
00:15:41,148 --> 00:15:45,277
[Hales] I remember thinking
how kind of strange it was
256
00:15:45,361 --> 00:15:49,615
that he would seem
more interested in pulling Frank in
257
00:15:49,698 --> 00:15:51,659
than he was his own sons.
258
00:15:54,370 --> 00:15:56,038
Bernie basically told them,
259
00:15:56,121 --> 00:15:59,625
"I'll manage my side of the business.
You manage yours. Mind your business."
260
00:16:00,334 --> 00:16:03,003
Even his own sons couldn't question him.
261
00:16:10,970 --> 00:16:13,013
[Diana B. Henriques]
Since at least the late 1800s,
262
00:16:13,097 --> 00:16:17,851
the sign of real success on Wall Street
and in the world of finance in New York,
263
00:16:17,935 --> 00:16:20,896
was to be able to play golf all winter.
264
00:16:20,980 --> 00:16:23,315
To go somewhere
where it was warm and sunny,
265
00:16:24,149 --> 00:16:26,777
to get away from the New York slush.
266
00:16:27,945 --> 00:16:31,782
Bernie and Ruth
set their sights on Palm Beach,
267
00:16:31,865 --> 00:16:35,369
which was one of the most
exclusive enclaves
268
00:16:35,452 --> 00:16:37,579
along the eastern coast of Florida.
269
00:16:38,664 --> 00:16:41,375
They purchased a home there
270
00:16:41,458 --> 00:16:46,588
and began to participate
in the seasonal social life of Palm Beach.
271
00:16:46,672 --> 00:16:51,010
And Bernie and Ruth were accepted
as members to the Palm Beach Country Club.
272
00:16:52,136 --> 00:16:57,766
The Palm Beach Country Club, unlike
a few competing clubs of longer standing,
273
00:16:57,850 --> 00:17:00,227
was open to both Jews and non-Jews.
274
00:17:00,936 --> 00:17:04,982
Most of the Jewish families turned there
for their country club membership.
275
00:17:06,316 --> 00:17:07,876
[Leonid Feldman] I had many congregants
276
00:17:07,901 --> 00:17:10,738
who were members
of the Palm Beach Country Club.
277
00:17:11,989 --> 00:17:17,411
I came to America after being a dissident,
or what we used to call refusenik.
278
00:17:18,203 --> 00:17:20,497
I'm originally from
the former Soviet Union.
279
00:17:21,248 --> 00:17:24,877
When I applied for the position
to be the rabbi of Temple Emanu-El,
280
00:17:24,960 --> 00:17:27,379
they said, "Rabbi, do you own a tuxedo?"
281
00:17:27,463 --> 00:17:31,675
I said, "What? I rented a tuxedo
a couple of times in my life."
282
00:17:31,759 --> 00:17:34,928
They said "No, no, no,
you will need at least one tuxedo,
283
00:17:35,012 --> 00:17:37,347
because you will go
to a lot of fundraising events."
284
00:17:38,182 --> 00:17:44,855
Because Palm Beach is one of the major
capitals of fundraising in the world,
285
00:17:44,938 --> 00:17:46,648
including Jewish causes.
286
00:17:47,858 --> 00:17:49,193
From what I understand,
287
00:17:49,276 --> 00:17:53,739
to join the club, you have to show
your charitable contributions,
288
00:17:53,822 --> 00:17:57,493
in addition to the $300,000,
which you will never see.
289
00:17:57,576 --> 00:18:00,954
This is just to join, to show,
"Yes, I believe in this club."
290
00:18:01,038 --> 00:18:05,209
So, fundraising is a very important
part of life in Palm Beach,
291
00:18:05,292 --> 00:18:09,088
and that probably is
the reason why he ended up here.
292
00:18:09,880 --> 00:18:14,384
It is an interesting question.
Why did Bernie Madoff pick Palm Beach?
293
00:18:14,468 --> 00:18:16,762
He did not go to Silicon Valley.
294
00:18:16,845 --> 00:18:19,932
He did not go to Bedford,
New York or Scarsdale.
295
00:18:20,015 --> 00:18:23,894
Because in Palm Beach,
Jews are allowed only in one club,
296
00:18:24,520 --> 00:18:26,480
and this is where Madoff discovered
297
00:18:26,563 --> 00:18:31,568
that this is a very easy way
for him to get new investors.
298
00:18:31,652 --> 00:18:33,445
Make it very exclusive.
299
00:18:33,529 --> 00:18:37,616
And from what I remember, people said,
"It's impossible to get in."
300
00:18:38,283 --> 00:18:41,245
Somebody would come and say,
"I want to invest a million dollars."
301
00:18:41,328 --> 00:18:42,246
He says, "No."
302
00:18:42,329 --> 00:18:44,123
He would turn people down.
303
00:18:44,206 --> 00:18:46,208
He created this excitement
304
00:18:46,291 --> 00:18:49,670
that you had to go through somebody
who knows somebody who knows somebody,
305
00:18:49,753 --> 00:18:51,755
maybe he will take your money.
306
00:18:51,839 --> 00:18:55,342
He did you a favor
to take your five million dollars.
307
00:18:55,425 --> 00:18:56,468
He was brilliant.
308
00:18:59,388 --> 00:19:02,766
[deposition lawyer] Did you solicit
new investment advisory customers?
309
00:19:02,850 --> 00:19:04,977
- [Madoff] No.
- [deposition lawyer] Why not?
310
00:19:05,561 --> 00:19:07,771
[Madoff] Because the firm
was in a position
311
00:19:07,855 --> 00:19:10,399
that we were always
turning away investors.
312
00:19:10,482 --> 00:19:14,194
We never, uh,
never solicited new monies coming in.
313
00:19:14,945 --> 00:19:18,532
As a matter of fact,
we tried to return monies at times,
314
00:19:18,615 --> 00:19:21,201
but met resistance with clients.
315
00:19:22,578 --> 00:19:25,622
[reflective music playing]
316
00:19:27,958 --> 00:19:32,129
[Bette Greenfield] My father invested
all of his money with Bernie Madoff.
317
00:19:32,880 --> 00:19:35,716
He was so impressed by Bernie Madoff.
318
00:19:35,799 --> 00:19:37,885
I mean, really, really impressed.
319
00:19:37,968 --> 00:19:43,056
The dream of Jewish people like my father
320
00:19:43,140 --> 00:19:48,562
was to earn money,
invest it and live off the interest.
321
00:19:50,105 --> 00:19:54,151
[Richard Schwartz] Originally, it was just
my father, my mother, sister and myself,
322
00:19:54,234 --> 00:19:56,069
put a certain amount of money in,
323
00:19:56,153 --> 00:19:57,863
got a return the next quarter.
324
00:19:59,114 --> 00:20:02,951
My father said, "Okay,
let's put another investment in."
325
00:20:03,035 --> 00:20:06,705
And now we included
my brother-in-law and my wife.
326
00:20:06,788 --> 00:20:10,667
And by the time 2008 rolled around,
327
00:20:10,751 --> 00:20:12,878
my kids were in it,
328
00:20:12,961 --> 00:20:14,671
my nieces and nephews were in it,
329
00:20:14,755 --> 00:20:16,006
and some of their kids.
330
00:20:16,089 --> 00:20:18,550
So this was my father's pride and joy.
331
00:20:18,634 --> 00:20:22,221
It was a legacy for him
to provide to his family,
332
00:20:22,304 --> 00:20:24,932
and he was extremely proud of it.
333
00:20:27,517 --> 00:20:32,439
[Greenfield] My father,
he had a stack of statements
334
00:20:33,315 --> 00:20:36,777
from this Bernie Madoff company,
335
00:20:36,860 --> 00:20:39,738
and he says, "Look at this,
look at how much you're making."
336
00:20:39,821 --> 00:20:42,282
He says, "This guy is brilliant."
337
00:20:43,784 --> 00:20:47,788
And I said,
"Dad, I don't understand this."
338
00:20:47,871 --> 00:20:53,168
"How come everybody else
is getting 8%, 7%,
339
00:20:53,252 --> 00:20:55,045
and you're getting 15?"
340
00:20:56,588 --> 00:20:57,881
And he said,
341
00:20:59,341 --> 00:21:00,634
the typical,
342
00:21:01,635 --> 00:21:04,346
"Don't worry your pretty little head."
343
00:21:05,973 --> 00:21:10,060
[Schwartz] A lot of his procedures
and methods struck me as odd.
344
00:21:11,436 --> 00:21:14,398
When he supposedly bought stock
at all these companies,
345
00:21:14,481 --> 00:21:17,651
we wouldn't get confirmations
for maybe two, three weeks afterwards.
346
00:21:18,318 --> 00:21:22,447
We didn't question it, but we certainly
didn't get it in a timely fashion.
347
00:21:22,531 --> 00:21:25,409
And it was very difficult
to communicate with them.
348
00:21:25,492 --> 00:21:29,621
Basically, one of the rules
we learned early on was
349
00:21:29,705 --> 00:21:31,540
he was pretty much the Soup Nazi.
350
00:21:31,623 --> 00:21:33,875
Excuse me,
I-I-I think you forgot my bread.
351
00:21:33,959 --> 00:21:35,836
- You want bread?
- Yes, please.
352
00:21:35,919 --> 00:21:36,795
Three dollars!
353
00:21:36,878 --> 00:21:38,213
[audience laughter]
354
00:21:38,297 --> 00:21:39,840
- What?
- No soup for you!
355
00:21:40,716 --> 00:21:42,843
[audience laughter]
356
00:21:42,926 --> 00:21:44,966
"You're asking too many questions?
No soup for you."
357
00:21:45,012 --> 00:21:47,532
"I'm gonna send your check back."
That's exactly the way it was.
358
00:21:49,057 --> 00:21:50,642
[Madoff] Customers would never call me
359
00:21:50,726 --> 00:21:52,936
and ask me to discuss
their statement with them.
360
00:21:53,020 --> 00:21:56,648
It was not something that
I would discuss with the customer.
361
00:21:56,732 --> 00:21:59,818
If they called me up and said to me,
"I want my money back,"
362
00:21:59,901 --> 00:22:03,655
I would say to them, "If you force me
to sell it out, I'll sell it out."
363
00:22:03,739 --> 00:22:06,033
"I'm sending your money back,
don't come back."
364
00:22:06,116 --> 00:22:07,796
People said, "Oh no, no, no, that's okay."
365
00:22:07,826 --> 00:22:10,620
"Whatever you're doing is fine.
Just keep it going."
366
00:22:10,704 --> 00:22:15,459
So, they were buying into something
that had a track record.
367
00:22:15,542 --> 00:22:19,504
It was five, 10, 15, 20 years going
when they got involved.
368
00:22:19,588 --> 00:22:21,381
So what's there to doubt?
369
00:22:21,923 --> 00:22:25,552
[Feldman] Did people trust him more
because he was Jewish?
370
00:22:25,635 --> 00:22:29,348
Yes. Perhaps there is an element of,
"Oh, he's one of us."
371
00:22:29,431 --> 00:22:33,435
"He's a contributing member
of the society, of the community."
372
00:22:36,605 --> 00:22:39,358
But we need to know Jewish history.
373
00:22:39,900 --> 00:22:43,862
Jewish people were not welcome
in most places on Earth,
374
00:22:44,488 --> 00:22:46,531
and especially in Palm Beach.
375
00:22:47,324 --> 00:22:48,533
For many years,
376
00:22:48,617 --> 00:22:50,327
it was impossible to buy a house,
377
00:22:50,410 --> 00:22:53,163
it was impossible
to get into any of the clubs,
378
00:22:53,246 --> 00:22:59,086
even famous hotels,
until 1960s, '65, I think.
379
00:22:59,169 --> 00:23:03,215
There was a sign there,
"No Jews, no dogs."
380
00:23:04,549 --> 00:23:07,469
[Schwartz] It wasn't a religious thing,
it was a social thing
381
00:23:07,552 --> 00:23:12,307
that the Jewish community learned
to build a wall around themselves.
382
00:23:12,391 --> 00:23:14,851
They weren't against other people,
383
00:23:14,935 --> 00:23:17,646
they just didn't trust them
that they'd be treated fairly.
384
00:23:22,025 --> 00:23:26,154
[Henriques] They trusted Bernie because
everybody they knew trusted Bernie.
385
00:23:26,238 --> 00:23:31,952
And it was inconceivable to them
that one of their own would defraud them.
386
00:23:37,290 --> 00:23:40,085
[Squillari] I remember one time
the receptionist called me up.
387
00:23:40,168 --> 00:23:43,672
She says, "You're not gonna believe this."
A couple of elderly women came in,
388
00:23:43,755 --> 00:23:46,633
and they wanted to meet Bernie,
and he came out,
389
00:23:46,716 --> 00:23:49,052
and she says,
"You'd think they met a movie star."
390
00:23:49,970 --> 00:23:52,639
Some of these elderly people
could be very sweet.
391
00:23:52,722 --> 00:23:54,724
You know, I guess he was like...
392
00:23:55,642 --> 00:23:57,352
He could be their Jewish son.
393
00:23:57,436 --> 00:23:59,938
He was taking care of them,
investing their money.
394
00:24:00,689 --> 00:24:01,982
They admired him.
395
00:24:02,858 --> 00:24:03,858
I did.
396
00:24:06,319 --> 00:24:08,780
You had people who were wealthy,
397
00:24:08,864 --> 00:24:11,491
and people who weren't
and it was their life savings,
398
00:24:11,575 --> 00:24:15,370
but it wasn't necessarily just
Jewish people, it was everybody.
399
00:24:17,706 --> 00:24:23,795
By this point, Bernie's
investment advisory business has grown,
400
00:24:23,879 --> 00:24:27,716
word-of-mouth, largely,
grown and grown and grown.
401
00:24:27,799 --> 00:24:31,845
So, Bernie is collecting names,
402
00:24:31,928 --> 00:24:34,931
moving in more significant circles.
403
00:24:35,015 --> 00:24:39,853
That allows him to really tap into
this burgeoning world of hedge funds.
404
00:24:40,437 --> 00:24:45,609
Now, the original name for hedge funds
was "hedged funds."
405
00:24:45,692 --> 00:24:47,903
And a fund that was hedged
was simply a fund
406
00:24:47,986 --> 00:24:50,989
that wasn't betting
on everything just going up.
407
00:24:51,072 --> 00:24:54,326
It had taken stakes in the market
if prices went down.
408
00:24:54,409 --> 00:24:56,870
So, you've hedged your bets.
409
00:24:57,746 --> 00:25:00,290
Hedge funds had been around
for a long time,
410
00:25:00,373 --> 00:25:03,752
but through the '80s and into the '90s,
411
00:25:03,835 --> 00:25:06,671
there's a sea change
in the world of retail investors.
412
00:25:07,297 --> 00:25:12,010
This is when Silicon Valley startups
are starting to be so attractive,
413
00:25:12,093 --> 00:25:14,804
when professional mutual fund managers
are saying,
414
00:25:14,888 --> 00:25:17,933
"You know, I can make
a lot more money running a hedge fund."
415
00:25:18,016 --> 00:25:20,936
However, as they became more popular,
416
00:25:21,019 --> 00:25:25,732
as every Tom, Dick, and Harry decided
he could be a hedge fund manager too,
417
00:25:25,815 --> 00:25:29,486
this original, classic strategy
of hedging your bets
418
00:25:29,569 --> 00:25:31,112
was thrown out the window.
419
00:25:31,196 --> 00:25:34,616
They were simply
collecting money in a pool
420
00:25:35,367 --> 00:25:38,245
and investing it
with somebody like Bernie Madoff.
421
00:25:44,584 --> 00:25:49,631
Jeffrey Tucker,
who was a former SEC regulator,
422
00:25:50,215 --> 00:25:51,967
and Walter Noel,
423
00:25:52,050 --> 00:25:57,097
a classic prep-school-bred
aristocrat on Wall Street,
424
00:25:57,180 --> 00:26:00,809
had teamed up to form
Fairfield Greenwich, a hedge fund.
425
00:26:01,476 --> 00:26:06,189
And Jeffrey Tucker's, um,
father-in-law, knew Madoff,
426
00:26:07,524 --> 00:26:09,317
and made the introduction.
427
00:26:09,401 --> 00:26:13,863
So, Walter Noel, Jeffrey Tucker,
they go to visit Bernie,
428
00:26:14,990 --> 00:26:17,617
and Bernie's right-hand man,
Frank DiPascali.
429
00:26:17,701 --> 00:26:20,328
[string music playing]
430
00:26:20,412 --> 00:26:25,875
[Henriques] Madoff explains his
split-strike conversion strategy to them.
431
00:26:26,501 --> 00:26:31,214
But in the parlance of Wall Street,
it was simply called a bull spread.
432
00:26:31,298 --> 00:26:35,343
It was a strategy that you use
to ride a bull market up,
433
00:26:35,427 --> 00:26:38,888
but to put a floor under your losses
434
00:26:38,972 --> 00:26:41,683
so that you wouldn't lose too much.
435
00:26:42,726 --> 00:26:45,729
And that's what Bernie started to market.
436
00:26:47,230 --> 00:26:49,899
Bernie deliberately made it seem complex,
437
00:26:49,983 --> 00:26:54,321
but it seemed to give them
what they wanted from Bernie:
438
00:26:55,071 --> 00:26:57,115
consistent returns.
439
00:26:59,242 --> 00:27:01,870
But what really appeals to them
440
00:27:02,746 --> 00:27:07,292
is something they'd never seen before
in the burgeoning world of hedge funds:
441
00:27:07,375 --> 00:27:10,045
the fee structure was luscious.
442
00:27:10,128 --> 00:27:12,839
The rule was 2 and 20.
443
00:27:12,922 --> 00:27:15,216
The manager, that is, Fairfield Greenwich,
444
00:27:15,300 --> 00:27:19,971
would get 2% of all the assets invested,
just right off the top.
445
00:27:20,055 --> 00:27:24,142
That's their annual fee
for managing your money.
446
00:27:24,225 --> 00:27:29,064
And then, they would get 20%
of the profits they made for you.
447
00:27:29,147 --> 00:27:32,359
In a normal world
with a normal money manager,
448
00:27:32,442 --> 00:27:37,238
Walter Noel and Jeffrey Tucker
would have to split their fee,
449
00:27:37,322 --> 00:27:41,201
the fee they collected
from their investors, with Madoff.
450
00:27:42,243 --> 00:27:44,412
But Madoff doesn't require that.
451
00:27:44,996 --> 00:27:48,458
Madoff lets them keep the entire fee
452
00:27:48,541 --> 00:27:51,127
without paying him
anything but commissions
453
00:27:51,211 --> 00:27:53,880
on the trades
he's supposedly making for them.
454
00:27:54,464 --> 00:27:58,593
To call this unusual
would be a vast understatement.
455
00:27:59,135 --> 00:28:00,970
It was unprecedented.
456
00:28:01,471 --> 00:28:04,766
It was the most attractive deal
457
00:28:04,849 --> 00:28:07,686
a hedge fund manager
could find on the planet.
458
00:28:09,521 --> 00:28:14,025
Now, to give him credit,
Jeffrey Tucker asks questions.
459
00:28:14,651 --> 00:28:16,403
He's the due diligence guy.
460
00:28:18,154 --> 00:28:24,953
But, at this point, Bernie firmly adopts
the strategy that will serve him so well.
461
00:28:26,121 --> 00:28:30,041
"If you've got all those questions,
maybe you should take your money out."
462
00:28:30,792 --> 00:28:32,794
"You know, I don't have time for this."
463
00:28:34,379 --> 00:28:38,675
And so, Fairfield Greenwich
decided to invest with Bernie Madoff.
464
00:28:39,801 --> 00:28:45,390
Fairfield Greenwich was really
Bernie's first big hedge fund client.
465
00:28:49,102 --> 00:28:53,523
I worked for Fairfield Greenwich Group
founder Walter Noel
466
00:28:53,606 --> 00:28:56,234
from 1987 to 1998.
467
00:28:57,861 --> 00:29:02,490
I think that Walter Noel
and his family were very pretentious.
468
00:29:02,991 --> 00:29:04,868
When Walter first started out,
469
00:29:04,951 --> 00:29:09,414
he tried to pretend that he was rich
because they wanted to be in high society.
470
00:29:09,497 --> 00:29:13,293
[refined choral music playing]
471
00:29:13,376 --> 00:29:16,296
[Sherry] I heard that he would
refinance his mortgage constantly.
472
00:29:17,172 --> 00:29:22,177
He would rent out his house to help defray
the expenses of a vacation in Europe.
473
00:29:22,260 --> 00:29:24,763
He did his own lawn for a while.
474
00:29:26,055 --> 00:29:30,185
And his mother-in-law was giving his wife
some money to help her each month.
475
00:29:31,352 --> 00:29:34,105
But Walter was very good
at selling himself.
476
00:29:34,689 --> 00:29:36,941
He lived an aspirational lifestyle.
477
00:29:37,776 --> 00:29:41,946
So, he made sure that he was at
the right clubs and he was very gregarious
478
00:29:42,030 --> 00:29:44,699
and was very much
into networking with people.
479
00:29:45,200 --> 00:29:49,621
I thought, "Well, okay, that's kind of
harmless, because so what?" [chuckles]
480
00:29:50,413 --> 00:29:52,957
Then Bernie Madoff came on the scene,
481
00:29:53,041 --> 00:29:56,044
and that's when things just exploded.
482
00:29:56,127 --> 00:29:58,630
It was like finding
the goose that laid the golden egg.
483
00:30:00,048 --> 00:30:05,261
The money started to really roll in
very quickly, and a lot of it.
484
00:30:05,345 --> 00:30:08,973
And he stopped mowing his own lawn.
He stopped renting his house out.
485
00:30:11,267 --> 00:30:12,852
[phone ringing]
486
00:30:12,936 --> 00:30:18,066
[Henriques] Bernie experienced
this avalanche of cash flowing in
487
00:30:18,149 --> 00:30:19,734
from the hedge fund world.
488
00:30:20,443 --> 00:30:23,488
Part of that was just
the curious and glamorous structure
489
00:30:23,571 --> 00:30:25,031
of the Walter Noel family.
490
00:30:26,115 --> 00:30:28,451
He had five gorgeous daughters.
491
00:30:29,035 --> 00:30:32,455
Each of them seemed to marry
into the moneyed aristocracy
492
00:30:32,539 --> 00:30:34,707
of a different part of the globe.
493
00:30:35,542 --> 00:30:38,711
One married a Latin American heir,
494
00:30:38,795 --> 00:30:41,422
another married a Swiss investor
495
00:30:41,506 --> 00:30:44,259
who had great ties in Latin America
and the Middle East.
496
00:30:45,677 --> 00:30:50,265
So, with Fairfield Greenwich
and all of these sons-in-law,
497
00:30:50,348 --> 00:30:53,643
Bernie had, like,
instant global credibility
498
00:30:53,726 --> 00:30:57,564
and access to global cash.
499
00:30:59,774 --> 00:31:02,360
[Sherry] It took me
a long time to understand
500
00:31:02,443 --> 00:31:05,572
what was so special
about Bernie Madoff's trades.
501
00:31:07,574 --> 00:31:12,829
And then one of Walter's clients wanted
to see what stocks were in that portfolio.
502
00:31:12,912 --> 00:31:15,331
So, he hands me seven pages
503
00:31:15,415 --> 00:31:18,376
that were printed on a dot matrix printer,
504
00:31:19,210 --> 00:31:22,964
on thin paper
and in very poor quality ink.
505
00:31:23,047 --> 00:31:26,092
And I thought to myself,
"What a schlock operation."
506
00:31:26,175 --> 00:31:29,012
I mean, it looked like
he was working out of his basement
507
00:31:29,095 --> 00:31:31,472
with cinder block walls. [chuckles]
508
00:31:31,556 --> 00:31:33,558
This was not the way a statement looks,
509
00:31:33,641 --> 00:31:36,185
because every statement from a bank,
510
00:31:36,269 --> 00:31:38,938
from a brokerage house,
from a credit union,
511
00:31:39,022 --> 00:31:42,901
is on premium paper,
and it's got a nice, big, color logo,
512
00:31:42,984 --> 00:31:46,487
and it's got a lot of fine print,
and it's got a phone number where to call
513
00:31:46,571 --> 00:31:49,407
if there's a problem
or if you have a question.
514
00:31:49,490 --> 00:31:51,492
Bernie Madoff statements had none of that.
515
00:31:54,996 --> 00:31:57,391
[Dubinsky] Hedge funds are important
to Madoff's Ponzi scheme
516
00:31:57,415 --> 00:31:59,626
because it was a way to funnel money in.
517
00:31:59,709 --> 00:32:02,754
So, the hedge funds
were basically feeder funds,
518
00:32:02,837 --> 00:32:05,381
collecting money from other investors,
519
00:32:05,465 --> 00:32:09,469
and then they would put that money in,
on behalf of those investors, into Madoff.
520
00:32:10,219 --> 00:32:14,474
And so the question then is how many
of these feeder funds were complicit,
521
00:32:14,557 --> 00:32:16,434
or whether they turned a blind eye
522
00:32:16,517 --> 00:32:18,645
and just stuck their head
in the sand and said,
523
00:32:18,728 --> 00:32:22,357
"Look, as long as I'm getting the returns,
I'm not gonna ask any more questions."
524
00:32:22,440 --> 00:32:25,860
But you certainly have to question,
you know,
525
00:32:25,944 --> 00:32:29,989
what was going
through their mind at that point, uh,
526
00:32:30,073 --> 00:32:32,075
when they invested with Bernie Madoff.
527
00:32:35,203 --> 00:32:39,707
So, Mr. Madoff promised
some of the larger individual clients
528
00:32:39,791 --> 00:32:41,417
a higher rate of return.
529
00:32:41,501 --> 00:32:44,545
Those were kind of the big four,
so to speak.
530
00:32:45,254 --> 00:32:49,968
[deposition lawyer] You had agreements
with Norman Levy, Carl Shapiro...
531
00:32:50,051 --> 00:32:51,051
[Madoff] Right.
532
00:32:51,552 --> 00:32:53,888
- [deposition lawyer] With Jeffry Picower?
- [Madoff] Yes.
533
00:32:53,972 --> 00:32:55,848
- [lawyer] And Stanley Chais?
- [Madoff] Right.
534
00:32:55,932 --> 00:33:00,061
I had a very special relationship
with the big four clients, all right?
535
00:33:00,144 --> 00:33:02,230
Picower was a little bit different.
536
00:33:03,022 --> 00:33:08,778
[Henriques] I asked Madoff whether
he thought anybody among his big investors
537
00:33:08,861 --> 00:33:10,530
knew what he was doing.
538
00:33:10,613 --> 00:33:15,201
And the one name
he came up with was Picower.
539
00:33:15,284 --> 00:33:17,495
He said, "I think he knew."
540
00:33:17,578 --> 00:33:20,873
"We never discussed it.
Never confronted one another."
541
00:33:23,376 --> 00:33:27,005
[Dubinsky] Jeffry Picower was
a longtime client of Mr. Madoff's,
542
00:33:27,755 --> 00:33:29,924
dating back over 30 years.
543
00:33:30,008 --> 00:33:32,260
He was a lawyer, he was an accountant,
544
00:33:32,343 --> 00:33:35,013
who started his career
selling tax shelters.
545
00:33:35,596 --> 00:33:38,099
[Henriques]
Picower is kind of this shadowy figure.
546
00:33:38,641 --> 00:33:43,187
He invested north of $600 million
in his Madoff account,
547
00:33:43,813 --> 00:33:50,653
and then between 1998 and 2003,
Picower begins drawing money out.
548
00:33:51,946 --> 00:33:57,785
And the amount of money that he was
taking out was really quite staggering.
549
00:33:57,869 --> 00:34:00,621
Hundreds of millions of dollars at a time.
550
00:34:00,705 --> 00:34:03,458
A billion dollars in one particular year.
551
00:34:04,542 --> 00:34:08,254
It had to have been
very difficult for Bernie to deal with.
552
00:34:08,337 --> 00:34:12,383
He had to raise the money
to cover Picower's withdrawals. In fact,
553
00:34:12,467 --> 00:34:17,305
at one point, virtually all the money
that Fairfield Greenwich, the feeder fund,
554
00:34:17,388 --> 00:34:19,057
was steering into Bernie's hands,
555
00:34:19,140 --> 00:34:22,727
Bernie was turning around
and paying out to Jeffry Picower.
556
00:34:24,270 --> 00:34:27,440
[Campbell] If you look at
the entire length of their relationship,
557
00:34:27,523 --> 00:34:33,321
Picower took out $7 billion from
Bernie's investment advisory business.
558
00:34:33,863 --> 00:34:36,908
And yet Bernie becomes
totally dependent on Picower,
559
00:34:36,991 --> 00:34:40,953
because while Picower was extracting
billions of dollars,
560
00:34:41,037 --> 00:34:45,041
he also puts money in, even if
it's just for a brief period of time,
561
00:34:45,124 --> 00:34:49,128
when the Ponzi's threatened
by periodic cash crunches,
562
00:34:49,212 --> 00:34:52,006
bailing Madoff out
when he needed to be bailed out.
563
00:34:52,840 --> 00:34:56,761
And as a result, Picower comes to have
the power to extort Bernie.
564
00:34:58,262 --> 00:35:00,681
He's both Bernie's savior, if you will,
565
00:35:00,765 --> 00:35:03,935
and Bernie's deep, enraging enemy,
566
00:35:04,477 --> 00:35:07,105
because Bernie,
as the ultimate control freak,
567
00:35:07,188 --> 00:35:10,066
has allowed somebody
to basically control him.
568
00:35:11,150 --> 00:35:16,280
For instance, while Picower was taking
real gains in cash out of the business,
569
00:35:17,073 --> 00:35:20,451
he would call in fake losses
to Annette Bongiorno,
570
00:35:21,202 --> 00:35:23,454
and literally would say, "I need losses."
571
00:35:23,538 --> 00:35:26,165
"It's the end of the year.
I don't want to report gains,"
572
00:35:26,749 --> 00:35:29,585
and then have fictitious losses made
573
00:35:29,669 --> 00:35:33,339
so he didn't have to pay taxes
on that money that he was taking out.
574
00:35:35,341 --> 00:35:36,384
I asked Bernie,
575
00:35:36,467 --> 00:35:40,388
"Why would you let yourself
be at the mercy of this guy?"
576
00:35:41,472 --> 00:35:44,892
He basically said,
"Jim, you've heard the expression,
577
00:35:44,976 --> 00:35:47,979
'keep your friends close
and your enemies closer.'"
578
00:35:50,273 --> 00:35:52,650
[Henriques] Bernie's own suspicion was
579
00:35:52,733 --> 00:35:55,736
that Jeffry Picower
had twigged to what he was doing,
580
00:35:55,820 --> 00:35:59,157
understood that Bernie
couldn't say no to him,
581
00:35:59,240 --> 00:36:03,244
and was going to milk his Madoff account
for everything he could.
582
00:36:03,327 --> 00:36:06,622
And indeed, no one made more money,
583
00:36:06,706 --> 00:36:10,418
no one got richer
from the Madoff Ponzi scheme,
584
00:36:10,501 --> 00:36:13,087
than Jeffry Picower did, not even Madoff.
585
00:36:15,631 --> 00:36:20,845
[Madoff] I admitted to doing enough things
that were totally embarrassing and wrong
586
00:36:20,928 --> 00:36:22,263
that I regret,
587
00:36:22,346 --> 00:36:24,765
but this was my own doing.
588
00:36:25,474 --> 00:36:27,226
No one had a gun to my head.
589
00:36:28,144 --> 00:36:31,147
You had to understand, unless you knew me
590
00:36:31,230 --> 00:36:33,858
and you know my relationship
with these people,
591
00:36:33,941 --> 00:36:37,904
my four big clients,
being the greedy people that they were,
592
00:36:37,987 --> 00:36:39,989
never wanted to close out the transaction.
593
00:36:40,072 --> 00:36:44,827
[atmospheric music playing]
594
00:36:46,204 --> 00:36:47,622
[Erin Arvedlund] I'm a reporter.
595
00:36:47,705 --> 00:36:50,875
Been covering business since the 1990s,
596
00:36:50,958 --> 00:36:55,671
and I came to work at
Barron's Magazine in 2000,
597
00:36:55,755 --> 00:36:59,342
and I wanted to start writing
more about hedge funds,
598
00:36:59,425 --> 00:37:03,721
which were not as big of a deal
as they are today.
599
00:37:04,764 --> 00:37:09,977
And one day, I got a phone call from a guy
who was a very good source of mine.
600
00:37:10,061 --> 00:37:12,813
He said, "You should write
about Bernie Madoff's hedge fund."
601
00:37:12,897 --> 00:37:14,232
"It never loses money."
602
00:37:14,941 --> 00:37:17,818
And that made me prick up my ears,
603
00:37:17,902 --> 00:37:21,113
because never in history
had there been a hedge fund
604
00:37:21,197 --> 00:37:23,658
- that never lost money on Wall Street.
- [bell ringing]
605
00:37:23,741 --> 00:37:24,992
[newscaster] Online companies
606
00:37:25,076 --> 00:37:27,620
were among the biggest losers
on Wall Street this past week.
607
00:37:27,703 --> 00:37:30,122
And the carnage is just beginning.
608
00:37:30,206 --> 00:37:35,127
[reporter] Former high-flyers that
once fetched $30, $40, $50 a share
609
00:37:35,211 --> 00:37:36,921
can now be had for a few bucks.
610
00:37:37,755 --> 00:37:39,590
[Arvedlund] In the early 2000s,
611
00:37:39,674 --> 00:37:43,427
the dot-com bubble had just burst.
612
00:37:43,511 --> 00:37:46,681
So, the stock market was cratering.
613
00:37:47,223 --> 00:37:48,849
At the same time,
614
00:37:49,392 --> 00:37:53,813
Bernie Madoff's hedge fund
was apparently consistently making money,
615
00:37:54,981 --> 00:37:56,607
which was also strange.
616
00:37:56,691 --> 00:38:01,570
Why would his particular hedge fund
be the only one that was making money?
617
00:38:01,654 --> 00:38:05,616
So, I wanted to find out more
about Madoff's hedge fund.
618
00:38:07,368 --> 00:38:09,203
As part of my research,
619
00:38:09,287 --> 00:38:14,041
we found an offering document
for Fairfield Greenwich.
620
00:38:14,125 --> 00:38:16,168
An offering document is really just
621
00:38:16,252 --> 00:38:18,879
a prospectus or an investment pitch
622
00:38:18,963 --> 00:38:21,966
that a fund gives to potential clients
623
00:38:22,842 --> 00:38:24,969
that explains a trading strategy.
624
00:38:25,845 --> 00:38:29,223
So, in the spring of 2001,
625
00:38:29,307 --> 00:38:32,476
at that time you could actually
go to the Exchange
626
00:38:32,560 --> 00:38:34,645
and go down onto the trading floor,
627
00:38:34,729 --> 00:38:38,482
and I would interview traders and say,
"Have you heard of this guy?"
628
00:38:38,566 --> 00:38:41,527
"Has anyone done business
with this billion-dollar hedge fund
629
00:38:41,610 --> 00:38:42,987
run by Bernie Madoff?"
630
00:38:43,070 --> 00:38:48,242
And the strange part was that
nobody had done any trading with them.
631
00:38:49,035 --> 00:38:53,080
And I started asking private banks,
632
00:38:53,789 --> 00:38:57,752
"Hey, do you have any wealthy people
who invest in this hedge fund?"
633
00:38:57,835 --> 00:38:59,462
And over the course of it,
634
00:39:00,004 --> 00:39:02,715
I started noticing
some very strange things.
635
00:39:02,798 --> 00:39:09,764
So, for instance, when I interviewed
some clients of a private bank, they said,
636
00:39:10,306 --> 00:39:13,559
"You know, we have been told
we can invest in Bernie's hedge fund,
637
00:39:13,642 --> 00:39:15,853
but we can't tell anyone
he's our money manager."
638
00:39:15,936 --> 00:39:19,815
It's a red flag
when your money manager tells you,
639
00:39:19,899 --> 00:39:22,735
"Don't tell anyone
I'm running your money," because
640
00:39:22,818 --> 00:39:26,030
most portfolio managers
want to crow about their returns.
641
00:39:27,698 --> 00:39:32,745
I went to lunch with somebody
who worked at Merrill Lynch,
642
00:39:33,245 --> 00:39:38,793
and he was kind of a banker
to the wealthy, and he said,
643
00:39:38,876 --> 00:39:42,254
"I can't look at the books,
I can't do any due diligence."
644
00:39:42,755 --> 00:39:45,966
"However, if I tell my clients
645
00:39:46,050 --> 00:39:49,887
that I want to pull them out
of Madoff's fund,
646
00:39:49,970 --> 00:39:51,055
they're gonna fire me."
647
00:39:51,138 --> 00:39:54,225
This scenario was repeated
over and over and over.
648
00:39:55,684 --> 00:40:00,106
As part of my reporting,
I also called Fairfield Greenwich,
649
00:40:00,189 --> 00:40:02,108
and I spoke with Jeffrey Tucker.
650
00:40:02,817 --> 00:40:05,778
And he dismissed me and said,
651
00:40:05,861 --> 00:40:07,964
"There's no reason
why you should be writing a story."
652
00:40:07,988 --> 00:40:09,240
"This is a private fund."
653
00:40:09,323 --> 00:40:13,077
"It's not open to retail
or mom-and-pop investors."
654
00:40:13,160 --> 00:40:17,248
And Barron's is very much
a magazine read by the public.
655
00:40:18,249 --> 00:40:22,461
But some investors avoided Madoff.
656
00:40:22,545 --> 00:40:24,255
For instance, Goldman Sachs,
657
00:40:24,338 --> 00:40:26,048
Salomon Brothers.
658
00:40:26,132 --> 00:40:28,634
They refused to do business with Madoff.
659
00:40:28,717 --> 00:40:32,304
They said, "We can't figure this out.
There's something weird about this."
660
00:40:33,472 --> 00:40:38,978
So my expectation was that it would be
easy to get an interview with Bernie
661
00:40:39,061 --> 00:40:43,149
because most money managers
wanted to be interviewed.
662
00:40:43,232 --> 00:40:46,402
It was considered, you know,
kind of a career win
663
00:40:46,485 --> 00:40:49,196
if you were profiled in Barron's Magazine.
664
00:40:51,907 --> 00:40:53,284
[line calling]
665
00:40:53,367 --> 00:40:56,078
But I... I could not get through to him.
666
00:40:56,162 --> 00:40:59,165
[unsettling music playing]
667
00:41:02,251 --> 00:41:05,379
[Arvedlund] I tried the back door,
I tried the front door, uh...
668
00:41:05,463 --> 00:41:08,799
I just could not get the guy
to give me an interview.
669
00:41:10,843 --> 00:41:13,262
It was a couple days before publication...
670
00:41:13,345 --> 00:41:15,556
[phone ringing]
671
00:41:16,265 --> 00:41:17,933
...and I left a message and said,
672
00:41:18,017 --> 00:41:20,936
"We're going to write this story
whether you talk to me or not."
673
00:41:21,020 --> 00:41:23,606
[inaudible]
674
00:41:28,486 --> 00:41:29,486
[Arvedlund] And,
675
00:41:30,154 --> 00:41:31,822
bang, he was on the phone.
676
00:41:35,409 --> 00:41:40,122
As I remember it,
Bernie Madoff was very smooth.
677
00:41:40,706 --> 00:41:45,711
Seemed surprised that I would be
interested in writing about his fund.
678
00:41:46,837 --> 00:41:50,007
He pretty much gave me
the brush-off and said,
679
00:41:50,090 --> 00:41:53,594
"I can't tell you about my strategy,
it's proprietary."
680
00:41:53,677 --> 00:41:57,306
And kind of patted me on the head
and sent me on my way.
681
00:41:58,015 --> 00:42:02,436
And, because I had,
really, no answer from him,
682
00:42:02,520 --> 00:42:05,231
so all we could really do
was raise questions.
683
00:42:05,731 --> 00:42:06,982
How did he do it?
684
00:42:07,066 --> 00:42:08,776
How did he make money?
685
00:42:08,859 --> 00:42:10,778
You know, what was the strategy?
686
00:42:11,612 --> 00:42:16,617
Why does he tell people
not to tell anyone he has a hedge fund?
687
00:42:17,368 --> 00:42:20,246
Why does he give up
all this money in fees?
688
00:42:21,747 --> 00:42:25,626
I knew in my gut
that there was something not right,
689
00:42:26,919 --> 00:42:29,296
but that was all I had at that point.
690
00:42:44,770 --> 00:42:48,857
After the article came out,
it was May of 2001,
691
00:42:48,941 --> 00:42:50,109
I thought,
692
00:42:50,192 --> 00:42:52,152
you know, "Yes! I've won the Pulitzer."
693
00:42:52,236 --> 00:42:55,239
Um, but I didn't get a single phone call.
694
00:42:55,322 --> 00:42:58,367
I thought maybe I'd get
an angry, you know, response
695
00:42:58,450 --> 00:43:00,661
from Bernie or his lawyers,
696
00:43:01,662 --> 00:43:03,289
but it was total silence.
697
00:43:05,749 --> 00:43:07,585
What I didn't know was that
698
00:43:07,668 --> 00:43:10,170
Bernie went on to his trading floor
699
00:43:10,254 --> 00:43:12,840
with a copy of my story and said,
700
00:43:12,923 --> 00:43:14,758
"This woman's an idiot."
701
00:43:14,842 --> 00:43:18,596
"I don't want to hear anything about it.
It's total baloney, let's move on."
702
00:43:20,889 --> 00:43:22,516
[Squillari] I said to Bernie,
703
00:43:22,600 --> 00:43:25,978
"But it's in the paper.
People are going to mention it."
704
00:43:26,061 --> 00:43:28,606
He goes, "We're not discussing this."
705
00:43:29,189 --> 00:43:33,986
Bernie never liked to be associated
with any bad publicity.
706
00:43:34,069 --> 00:43:40,868
Any time a reporter called
or a piece was written about Bernie,
707
00:43:40,951 --> 00:43:42,536
he'd get very uptight.
708
00:43:46,999 --> 00:43:48,417
That's just the way he was.
709
00:43:48,500 --> 00:43:51,128
In his mind, if we don't discuss it,
710
00:43:52,338 --> 00:43:54,298
it's okay. It's not real.
711
00:43:54,381 --> 00:43:56,800
That's it. No mention of it.
712
00:44:01,847 --> 00:44:04,058
[Henriques] Up until the spring of 2001,
713
00:44:04,141 --> 00:44:09,146
Bernie Madoff had managed to keep
his entire investment advisory business
714
00:44:09,229 --> 00:44:12,524
almost completely off the public radar.
715
00:44:12,608 --> 00:44:18,030
He was keeping everything very quiet,
very shadowy, very hidden
716
00:44:18,822 --> 00:44:24,119
until the more formidable pages
of Barron's Magazine comes out.
717
00:44:24,203 --> 00:44:26,205
Now, it's important to note
718
00:44:26,288 --> 00:44:31,210
that the story did not accuse
Bernie Madoff of doing anything illegal,
719
00:44:31,293 --> 00:44:35,506
but it did produce questions
among their investors.
720
00:44:38,217 --> 00:44:40,386
[Arvedlund] After my article came out,
721
00:44:40,469 --> 00:44:45,557
it really spooked Jeffrey Tucker
from Fairfield Greenwich.
722
00:44:46,141 --> 00:44:47,685
He started to have doubts.
723
00:44:48,185 --> 00:44:50,187
So he demanded a meeting.
724
00:44:50,688 --> 00:44:54,942
This is a precarious moment
for both Jeffrey Tucker and Bernie Madoff,
725
00:44:55,025 --> 00:44:57,820
because they have
such a symbiotic relationship.
726
00:44:58,529 --> 00:45:01,907
Tucker and Fairfield Greenwich
have invested billions of dollars,
727
00:45:01,990 --> 00:45:06,328
and Bernie is supposedly investing
these billions of dollars.
728
00:45:07,371 --> 00:45:10,290
[Henriques]
The meeting was an awkward encounter.
729
00:45:10,374 --> 00:45:13,919
"Bernie, I need to talk with you
about what's been reported."
730
00:45:14,753 --> 00:45:17,881
It was imperative that he reassure Tucker,
731
00:45:18,841 --> 00:45:21,885
but it's classic Madoff
732
00:45:21,969 --> 00:45:25,013
that he reassured him by appearing
not in the least bit worried.
733
00:45:26,181 --> 00:45:30,894
And Bernie has his right-hand man,
Frank DiPascali, there with him,
734
00:45:30,978 --> 00:45:34,148
and they show him a paper trade ledger,
735
00:45:34,231 --> 00:45:38,193
showing the different trades that
have been made in their account over time.
736
00:45:38,819 --> 00:45:42,197
Well, Jeffrey Tucker,
this was not his first rodeo.
737
00:45:42,281 --> 00:45:45,451
He was a former regulator,
he was a lawyer.
738
00:45:45,534 --> 00:45:50,789
Anybody can print out a stack of paper
that says certain trades have been made.
739
00:45:50,873 --> 00:45:51,873
He needs more.
740
00:45:53,000 --> 00:45:58,338
[Arvedlund] At which point,
Bernie and Frank fire up the computer
741
00:45:58,422 --> 00:46:03,635
and they show him that they have
an account with a regulator called DTC,
742
00:46:03,719 --> 00:46:05,971
which is the Depository Trust Company.
743
00:46:06,054 --> 00:46:10,517
This is essentially a bank account
for every broker on Wall Street.
744
00:46:10,601 --> 00:46:14,688
They say, "If you really, you know,
are worried about where your money is,
745
00:46:14,772 --> 00:46:18,442
just know that we have this account
and you can check your portfolio anytime."
746
00:46:19,318 --> 00:46:22,404
[Henriques] "So," Bernie says,
"Pick a stock,
747
00:46:22,488 --> 00:46:24,031
pick any one of these trades."
748
00:46:24,114 --> 00:46:26,492
"Which one would you like to check on?"
749
00:46:26,992 --> 00:46:30,579
"Well, check on our trades in AOL."
"Sure."
750
00:46:31,288 --> 00:46:33,791
Frank punches a few keys,
751
00:46:33,874 --> 00:46:39,379
up pops what looks like a page of
Fairfield Greenwich's transactions in AOL.
752
00:46:40,631 --> 00:46:45,594
Showing exactly the number of shares
Jeffrey Tucker expected to find there.
753
00:46:46,637 --> 00:46:51,099
[sighs] I mean, you could have heard
the sigh of relief around the world.
754
00:46:51,183 --> 00:46:52,434
It's all there.
755
00:46:52,518 --> 00:46:54,686
Nothing to worry about.
756
00:46:56,522 --> 00:47:01,026
And he goes away
really placated and reassured.
757
00:47:02,528 --> 00:47:04,279
Now in reality, of course,
758
00:47:05,489 --> 00:47:06,490
this was all a sham.
759
00:47:07,825 --> 00:47:11,995
This was a Potemkin village
of a DTC account.
760
00:47:12,663 --> 00:47:14,706
Now, what had actually happened is,
761
00:47:14,790 --> 00:47:19,878
Frank DiPascali had hijacked
the legitimate clearing house feed
762
00:47:19,962 --> 00:47:23,882
from the legitimate firm upstairs
763
00:47:23,966 --> 00:47:28,720
and had woven fake trades into it
764
00:47:28,804 --> 00:47:33,100
so that he could summon it up,
show it to Jeffrey Tucker,
765
00:47:33,183 --> 00:47:37,813
and reassure him that, in fact,
his AOL stock was safe and sound.
766
00:47:38,480 --> 00:47:42,234
So he had created a perfect replica.
767
00:47:43,277 --> 00:47:47,990
Madoff and DiPascali really had
a remarkable relationship,
768
00:47:48,073 --> 00:47:49,073
in that,
769
00:47:49,783 --> 00:47:53,912
DiPascali was able... to intuit
770
00:47:54,496 --> 00:47:57,457
what Madoff would need
771
00:47:57,541 --> 00:48:02,504
and what Madoff could best use
to cover up his fraud.
772
00:48:02,588 --> 00:48:04,506
[compelling music playing]
773
00:48:04,590 --> 00:48:08,010
[Henriques] There was one amazing episode
774
00:48:08,093 --> 00:48:12,848
where an accountant for a fund
asks DiPascali
775
00:48:12,931 --> 00:48:16,435
to see the trade ledger for a random date,
776
00:48:16,518 --> 00:48:19,438
and DiPascali says, "Oh sure, sure,"
777
00:48:19,938 --> 00:48:22,024
and says, "We need a trade ledger."
778
00:48:23,191 --> 00:48:27,154
Well, his minions there
frantically go into action.
779
00:48:27,237 --> 00:48:30,991
They create a fake trade ledger.
780
00:48:31,074 --> 00:48:34,453
It prints off the printer,
this huge stack of paper,
781
00:48:34,536 --> 00:48:38,165
but, oh wait,
it's too pristine, it's too clean.
782
00:48:38,248 --> 00:48:43,128
They toss that wad of paper
around the office like a beach ball
783
00:48:43,211 --> 00:48:47,883
until it looks sufficiently ragged
and thumbed and well-used.
784
00:48:47,966 --> 00:48:50,677
But, oh wait, it's hot off the printer.
785
00:48:51,219 --> 00:48:52,596
That's a problem.
786
00:48:52,679 --> 00:48:55,682
So they chill it
in the office refrigerator.
787
00:48:56,934 --> 00:49:01,855
And, of course it's completely convincing
to the accountant.
788
00:49:01,939 --> 00:49:05,317
So, this kind of stagecraft,
you can't call it anything else,
789
00:49:05,400 --> 00:49:08,570
just seemed to fit
like a hand into a glove
790
00:49:09,071 --> 00:49:14,076
uh, for what Madoff needed
to reassure his investors.
791
00:49:14,159 --> 00:49:17,162
Even before Madoff himself
knew what he needed.
792
00:49:19,456 --> 00:49:21,216
[deposition lawyer]
"I am standing here today
793
00:49:21,249 --> 00:49:24,086
to say, that from the early 1990s
794
00:49:24,169 --> 00:49:26,380
until December of 2008,
795
00:49:27,172 --> 00:49:30,384
I helped Bernie Madoff and other people
796
00:49:30,467 --> 00:49:33,136
carry out the fraud
that hurt thousands of people."
797
00:49:33,887 --> 00:49:37,557
"There was one simple fact
that Bernie Madoff knew,
798
00:49:37,641 --> 00:49:40,477
that I knew, and that other people knew,
799
00:49:40,560 --> 00:49:42,729
but that we never told the clients,
800
00:49:42,813 --> 00:49:46,066
nor did we tell the regulators
like the SEC."
801
00:49:46,149 --> 00:49:52,364
"No purchases or sales of securities were
actually taking place in their accounts."
802
00:49:52,447 --> 00:49:55,283
"It was all fake. It was all fictitious."
803
00:49:55,367 --> 00:49:58,620
"It was wrong,
and I knew it was wrong at the time."
804
00:49:58,704 --> 00:50:01,665
[dramatic music playing]
805
00:50:02,708 --> 00:50:04,334
[printer whirring]
806
00:50:08,296 --> 00:50:10,507
[Dubinsky] This fraud went on for decades.
807
00:50:12,217 --> 00:50:14,094
But without the proper paperwork,
808
00:50:14,177 --> 00:50:16,888
the whole thing would have
been exposed very quickly.
809
00:50:17,681 --> 00:50:19,266
Account statements,
810
00:50:20,434 --> 00:50:22,144
trade confirmations,
811
00:50:23,061 --> 00:50:25,689
reports for clients when
they wanted a report...
812
00:50:25,772 --> 00:50:28,775
The only way that could be done
is through the use of the computer.
813
00:50:30,694 --> 00:50:35,157
And you can't go out
and buy software for fictitious trades.
814
00:50:35,240 --> 00:50:38,410
You need to create your own software
to make that happen.
815
00:50:40,370 --> 00:50:45,417
So, computer programmers George Perez
and Jerry O'Hara were critical
816
00:50:45,500 --> 00:50:48,545
in helping Madoff
continue the fraud for so long.
817
00:50:48,628 --> 00:50:51,465
[tense music playing]
818
00:50:52,674 --> 00:50:56,011
Jerry and George didn't lead
the same lifestyles
819
00:50:56,094 --> 00:50:58,513
as the 17th floor staff.
820
00:50:59,681 --> 00:51:01,725
Frank had a two-million-dollar boat.
821
00:51:02,434 --> 00:51:05,687
Jodi had this house on the Jersey Shore.
822
00:51:06,563 --> 00:51:10,442
They didn't have that.
They kind of lived pretty modestly.
823
00:51:11,193 --> 00:51:13,570
But they knew
what they were doing was wrong.
824
00:51:14,279 --> 00:51:17,449
[Campbell] They know
that they're falsifying reports,
825
00:51:17,532 --> 00:51:20,118
and over time,
they become uncomfortable with that.
826
00:51:22,704 --> 00:51:26,583
George and Jerry were getting a little
nervous that they were gonna be discovered
827
00:51:26,666 --> 00:51:28,710
because they're at risk here.
828
00:51:32,214 --> 00:51:34,841
[Campbell] They start
to confront Frank DiPascali,
829
00:51:35,425 --> 00:51:39,387
and it turns into
almost a comical blackmail,
830
00:51:39,471 --> 00:51:42,557
because they start saying
they need more pay to do this.
831
00:51:43,433 --> 00:51:47,229
And they don't want it to look
like there's a sudden bump in pay,
832
00:51:47,312 --> 00:51:49,523
so they ask to be paid in diamonds.
833
00:51:51,483 --> 00:51:54,361
Of which Frank is thinking,
"That's fucking nuts."
834
00:51:55,612 --> 00:51:57,781
And they actually
put together a note saying,
835
00:51:57,864 --> 00:52:00,283
"We're very concerned
with reports we're running,
836
00:52:00,367 --> 00:52:03,453
and we don't know
if our lives may be in jeopardy,"
837
00:52:04,329 --> 00:52:06,540
and they want to get this on the record.
838
00:52:09,417 --> 00:52:13,797
It says, "I've expressed to my boss,
Frank DiPascali,
839
00:52:13,880 --> 00:52:18,176
my unwillingness to work on projects
which I am uncomfortable with."
840
00:52:18,718 --> 00:52:23,348
"I don't know how far up the ladder
my unwillingness has been communicated,
841
00:52:23,890 --> 00:52:28,019
but it is a matter of short time
before it hits the top."
842
00:52:28,103 --> 00:52:31,231
"I fear for my job, my family, my future."
843
00:52:31,731 --> 00:52:33,733
And it's signed George Perez.
844
00:52:37,779 --> 00:52:39,197
[tense music playing]
845
00:52:39,281 --> 00:52:42,075
[Garfinkel]
Then they confronted Bernie about it.
846
00:52:43,326 --> 00:52:47,080
And Bernie, he didn't, like,
bend over backwards and say,
847
00:52:47,164 --> 00:52:49,416
"Oh yeah, you know,
okay, yeah, you got me, guys."
848
00:52:49,499 --> 00:52:52,544
"Take whatever you want."
He was gonna play hardball with them.
849
00:52:54,796 --> 00:52:57,674
[Campbell] They go
into Madoff's office with Frank,
850
00:52:58,341 --> 00:53:01,553
and they basically say
they're not comfortable.
851
00:53:01,636 --> 00:53:04,181
"And furthermore,
we think you should shut down
852
00:53:04,264 --> 00:53:06,683
the investment advisory business."
853
00:53:06,766 --> 00:53:10,604
Which, of course,
drives Bernie into pure bully mode.
854
00:53:10,687 --> 00:53:14,482
[tense music continues]
855
00:53:14,566 --> 00:53:16,026
[Campbell] He browbeat them.
856
00:53:17,777 --> 00:53:20,906
It's a precarious situation
for both sides because
857
00:53:20,989 --> 00:53:24,201
these boys don't deal with Bernie
directly day-to-day.
858
00:53:24,284 --> 00:53:26,536
And furthermore,
they've just threatened this guy
859
00:53:26,620 --> 00:53:30,332
who is the man that runs the firm
and is a legend on Wall Street.
860
00:53:30,415 --> 00:53:32,834
Get the fuck out of my office. Now!
861
00:53:34,836 --> 00:53:39,257
[Garfinkel] And eventually
Madoff negotiated this through Frank,
862
00:53:39,341 --> 00:53:42,260
and, you know,
Frank got them some more money.
863
00:53:43,470 --> 00:53:46,932
They ended up with an additional $60,000,
864
00:53:47,015 --> 00:53:50,894
which, in the scope
of this whole case, really isn't a lot.
865
00:53:52,938 --> 00:53:56,233
[Dubinsky] They actually could have
extorted Bernie for any amount of money,
866
00:53:56,316 --> 00:53:58,735
most likely, and kept their jobs.
867
00:54:00,111 --> 00:54:04,950
The boys settle
for this rather average increase,
868
00:54:05,909 --> 00:54:09,204
and Bernie sort of has
yet another narrow escape.
869
00:54:10,038 --> 00:54:11,164
For the time being.
870
00:54:16,211 --> 00:54:19,256
[closing theme music playing]