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Sometime around 2005,
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my mother and I
were at Palm Beach Country Club.
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It was a beautiful day. We played golf.
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And we went upstairs
to the balcony to eat lunch.
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We were seated,
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and there was only one other couple there,
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and it was Bernie Madoff
and his wife, Ruth.
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And my mother immediately noticed.
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"Oh, it's Bernie."
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She went up and started talking,
"Hi," and introduced me.
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"This is Jeff, my son.
He has an account with you."
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And I shook Mr. Madoff's hand.
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And I was, like, in awe.
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He was the god of Palm Beach.
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He was the god of finance.
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We went back to the table,
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and my mother, in her fashion, said,
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"Oh, what a wonderful man."
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But then she said,
"There's just one thing about him though."
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"He never looks you in the eye."
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My mother got it before anybody.
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She just didn't put it together.
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Because this god was a demon, a devil.
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Bernie Madoff has been arrested.
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He's the founder of
Bernie Madoff Investment Securities.
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He's 70 years old.
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He is a fixture on Wall Street.
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Bernie Madoff, 70 years old,
arrested by the FBI.
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This former iconic figure on Wall Street
has allegedly, but by his own admission,
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destroyed many lives, charities,
and reputations on Wall Street
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and around the world.
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A walk of shame, and shoving.
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Don't push me.
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People think they know this story.
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They think it's a story about one man,
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but when you pull back the curtain,
it's actually about so much more.
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Bernie Madoff
ran the biggest criminal enterprise
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in the history of Wall Street.
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He was a financial sociopath,
a serial financial killer.
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He was kind of like an uncle figure to me.
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He was someone
who I really liked and I trusted,
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and then there's this monster
that's living this lie.
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Trust. Betrayal. Pure evil.
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A hundred years from now,
people will remember this story.
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We're talking about $64 billion.
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When you see that many zeros,
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it's mind-boggling.
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You had to step
through the looking glass
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into this alternate reality
where literally nothing was real.
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It was all fake.
The money went poof.
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Gone.
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It's one thing to lose your life savings.
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But when you lose
our house too, it's terrible.
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How could he fool
so many people for so long?
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What happened was so avoidable,
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and so many people
enabled it to happen because of greed.
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It's about the big banks.
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It's about the regulatory agencies.
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It's about this whole ecosystem
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that completely and utterly failed.
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You're going to put billions
into something, you check everything.
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Even if God sends you a résumé…
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check the references.
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Mr. Madoff,
by your own admission,
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you lied for a living.
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-Isn't that true? You lied for a living.
-Yeah. Yeah.
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Nobody can figure out,
"Why did Bernie Madoff do this?"
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He had a very successful business
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that was the envy
of everybody on Wall Street.
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Everybody says, "Why would Bernie Madoff
commit the largest fraud in history?"
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Nothing in this industry
is what it looks like.
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That's why the industry runs,
because…
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You also have to understand one thing.
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The one thing every one of them was,
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which is everybody in the industry,
is they're greedy.
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We begin our coverage tonight
of what's been called
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the worst financial crisis
in modern times.
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Certainly, the largest financial disaster
in decades in this country.
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In 2008, the economy was being decimated.
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This was Armageddon.
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Wall Street in crisis mode this morning.
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Reeling because
of these bad real estate loans.
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Mortgage brokers
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had been selling mortgages
to people that couldn't afford them.
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Wall Street knew a lot of them were shit,
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packaged them
and sold them to their clients,
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whereupon they blew up.
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Foreclosures across
the country are up a staggering 87%.
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Property values nationwide this year
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could drop more than
half a trillion dollars.
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It's mind-boggling.
Everybody's losing their homes.
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The stock market is just cratering.
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-Every day is worse than the day before.
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The Dow down nearly 450 points.
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We just hit 730 or something.
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That's… We've never seen that.
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Traders in Tokyo
worried about a spreading US recession.
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Every bank was falling to pieces.
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Lehman Brothers says
it will file for Chapter 11 bankruptcy.
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The financial crisis
continues to cause panic.
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We are faced with the prospect
of a global meltdown.
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This was this
once-in-a-century, cataclysmic event
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that was causing carnage
throughout the system,
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and then there was Bernie.
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Now to what turns out to be
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the biggest Ponzi scheme
in the history of Wall Street.
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Fallout from allegations
against Bernie Madoff
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in the realization that as much as
$50 billion investors thought they had,
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is simply gone.
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How do you feel?
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Bernie Madoff was arrested
on Thursday, December 11, 2008.
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Friday morning,
FBI agents show up to Madoff's offices
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in the very upscale Lipstick Building
on the east side of New York.
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We walked
into the lobby of the Lipstick Building,
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and it resembled the scene
from the movie Frankenstein,
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where you have the angry villagers
with their pitchforks and the torches
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wanting to get upstairs
to kill the monster.
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So FBI agents come up
with their raid jackets on,
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and I'm the first agent through the door.
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All the employees
had been corralled on the 19th floor.
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It's just total chaos.
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There's employees crying,
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trying to figure out what's going on.
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The FBI was the lead
criminal investigation agency,
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but we also had IRS,
Department of Labor, accountants,
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the agency that oversees
the brokerage industry, SIPC.
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They start disconnecting people's access.
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I was a little surprised because
it looked like a legitimate business.
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Computers everywhere,
clocks showing different time zones…
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It looked like a legit trading business.
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As we're conducting the search,
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I walk into Bernie's office
and start getting a sense of the man,
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who he is and what he's about.
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To the left are these Lichtenstein prints
all with a bull motif.
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To me,
the bull didn't stand for bull market.
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It actually meant bullshit.
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And right behind his desk,
there is a very modern piece of art,
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and it's a giant screw.
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I think the screw was basically
a big… "screw you" to the world.
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The office has been secured,
we have Bernie Madoff in custody,
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and we just know
a lot of money is missing.
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Our biggest problem was,
we don't know how it happened.
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You have a bunch of employees
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and you don't know
who's guilty, who's innocent.
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We want to know
how many people were victimized.
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How much money was stolen.
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What was the scale of this.
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And we want to know
who else was doing this with him.
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Who are the players?
What is everybody's role?
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Where's the money?
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Who benefited from this crime?
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Because there is no way
you can run a $50 billion Ponzi scheme
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and not have anybody else know about it.
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With Bernie Madoff,
it's very hard to figure out
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where the truth ended and the lies began.
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Look,
I'm not proud that I did what I did.
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I spent a lot of hours
trying to analyze why I did what I did.
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One of my problems was
I always wanted to please everybody.
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When I started doing business,
people showed a lot of faith in me.
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Now, I made them a lot of money,
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and everybody in the industry thought
I was like, this terrific success story,
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which I was.
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Mr. Madoff, do you agree
to the first sentence on page seven?
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That that is an accurate reflection
of your business?
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"When Madoff began
a retail business in 1960…"
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-Yes.
-"…he had about a dozen clients,
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all of whom are family and friends"? Yes.
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Well, let's go back to the beginning.
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Bernie Madoff
is the son of Jewish immigrants.
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His grandparents came over
from Russia and Poland.
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He grows up in Laurelton, Queens,
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just outside of New York City.
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It's important to put
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Madoff's early years
in the right historical context.
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The United States, and most of the world,
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had struggled through the most
horrendous Depression in the '30s.
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And then the war in the '40s.
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A decade and a half
of turbulence, of trauma.
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So, by the '50s,
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there was a hunger for quiet,
for peace, for normality.
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And that hunger
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became this conformist culture
of the American suburbs.
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Most Americans are moving
into a new-moneyed middle-class.
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They're promised an almost
unlimited capacity to consume.
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And that was where Bernie's father
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was able to move the family
to solidly middle-class Queens.
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Bernie's parents
were named Ralph and Sylvia.
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His mother was a homemaker.
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His father worked various odd jobs.
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Bernie is an average kid
who goes to public school.
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He was kind of an awkward guy.
I heard one story in particular.
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He couldn't get this girl
to come out and play with him, right?
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He finally offered her 25 cents,
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and she came out and played with him.
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Bernie learned at a very young age
how to motivate people with money.
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In high school, he was a lifeguard.
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He sees himself
as not only a doer of good,
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but a protector.
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"I'm the go-to guy."
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And he sold
lawn sprinkler equipment on the side.
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He wanted to make money.
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He was determined to be successful.
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Bernie met his future wife, Ruth Alpern,
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at a party in a friend's basement.
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This was a time
of bobby socks and poodle skirts.
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It was a high-school sweetheart romance.
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Ruth was very smart.
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When she graduated from high school,
she went to college,
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which was unusual for women at that time.
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She was beautiful and elegant.
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She was obviously from more money.
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Her father, Saul Alpern, ran a successful
accounting business in New York City,
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so she was like a catch for him.
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Ruth's father didn't think
that Bernie was good enough for her,
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that she could have done better,
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that this kid was just
never going to make much of himself.
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Bernie's own dad
wanted him to be a lawyer,
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and Bernie did well enough in school
to get into law school.
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He spent one year there and then
just couldn't stick it any further.
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Bernie Madoff
lived in the shadow of failure.
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Bernie's family was engulfed in failure.
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Over time,
his father had several businesses.
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They all seemed to fail
for one reason or the other.
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At one point,
a tax lien was put on the family home.
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At another point, his mother had
to go to work at a local blood bank
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to help the family get through.
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This was not how the successful
suburban family was supposed to operate,
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and it instilled in Madoff
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an absolutely non-negotiable
requirement to succeed,
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to not be a failure like his dad.
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All of us have the possibility
of living better than we do right now.
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What he wanted was the fast,
flamboyant success of Wall Street.
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Wall Street,
the financial heart of the nation.
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Nerve center
of American business and industry.
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This was an era on Wall Street when "fast"
and "flamboyant" were the operative words.
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This was the '60s, the go-go years.
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High risk, high returns.
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Young traders, young money managers
flooding into a post-war market.
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Through the investment banking industry,
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we can invest our savings,
vitalize our industrial plants,
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and continue to give ourselves
the steadily rising level
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of goods and services we all want.
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We have the privilege
of underwriting America's future.
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A few weeks
after Bernie and Ruth married,
245
00:15:34,142 --> 00:15:36,436
he decided to plant his flag
246
00:15:36,520 --> 00:15:40,440
in a tiny little desk
in Ruth's father's accounting firm.
247
00:15:41,483 --> 00:15:43,527
He started off with $5,000,
248
00:15:43,610 --> 00:15:49,616
and he registered Bernard L. Madoff
Investment Securities, BLMIS, in 1960.
249
00:15:49,700 --> 00:15:51,660
And Ruth was involved in the business.
250
00:15:51,743 --> 00:15:55,414
She helped with administrative work
and often dealt with the checkbook.
251
00:15:56,748 --> 00:16:00,919
Bernie, from the beginning,
saw himself as a good guy
252
00:16:01,003 --> 00:16:03,255
that was going to go on
and tackle the system
253
00:16:03,338 --> 00:16:05,132
and beat them at their own game.
254
00:16:05,757 --> 00:16:10,095
Bernie began trading
in over-the-counter stocks.
255
00:16:10,178 --> 00:16:13,682
At that time, the stock market,
to most affluent Americans,
256
00:16:13,765 --> 00:16:15,809
meant the New York Stock Exchange.
257
00:16:15,892 --> 00:16:21,189
But there was a huge market,
unseen by most investors,
258
00:16:21,273 --> 00:16:24,609
that didn't have a building,
called the over-the-counter market.
259
00:16:25,193 --> 00:16:29,448
It was comprised of a bunch of dealers
and traders with a telephone,
260
00:16:29,531 --> 00:16:30,574
that was it.
261
00:16:31,241 --> 00:16:35,579
That market was made up
of this garbage bin, if you will,
262
00:16:35,662 --> 00:16:38,081
of companies that
were not reputable enough,
263
00:16:38,165 --> 00:16:41,585
or were too small,
or were frankly disreputable,
264
00:16:41,668 --> 00:16:43,587
traded in what's called the pink sheets,
265
00:16:43,670 --> 00:16:46,673
over the counter,
outside of the New York Stock Exchange.
266
00:16:47,340 --> 00:16:50,385
And Bernie stood ready to buy or sell
267
00:16:50,469 --> 00:16:55,557
in an increasingly large roster
of over-the-counter stocks.
268
00:16:55,640 --> 00:17:02,272
And no one knew exactly what prices
were being charged for those stocks.
269
00:17:02,898 --> 00:17:04,566
Back then,
there were no computers.
270
00:17:04,649 --> 00:17:06,359
The Internet didn't exist.
271
00:17:06,443 --> 00:17:07,652
There was no app for this.
272
00:17:07,736 --> 00:17:11,823
This was literally, you pick up the phone,
you call Bobby in Boston,
273
00:17:11,907 --> 00:17:15,368
you say, "I've got 100 shares."
He says he's gonna buy 100 shares.
274
00:17:15,452 --> 00:17:18,080
You agree on the price over the phone,
275
00:17:18,163 --> 00:17:20,707
and then you literally
mail them the certificates.
276
00:17:20,791 --> 00:17:24,127
This was the Wild West of Wall Street.
277
00:17:24,961 --> 00:17:26,588
The risks were huge.
278
00:17:26,671 --> 00:17:28,840
The potential profits were huge.
279
00:17:28,924 --> 00:17:33,053
You had to have nerves of steel,
ice water in your veins
280
00:17:33,136 --> 00:17:37,140
to be able to navigate this market
day in and day out.
281
00:17:37,224 --> 00:17:38,225
Bernie had those.
282
00:17:39,309 --> 00:17:42,020
It was a very successful
business, and it grew quickly.
283
00:17:43,021 --> 00:17:44,773
But on the side,
284
00:17:44,856 --> 00:17:48,985
he began running this very small
investment advisory business.
285
00:17:51,196 --> 00:17:54,449
Bernie thinks, "In addition
to the over-the-counter business,
286
00:17:54,533 --> 00:17:58,703
I can manage some money for people
acting as a pure investment advisor."
287
00:17:58,787 --> 00:18:01,373
And this is where
you manage people's money.
288
00:18:01,456 --> 00:18:05,919
You make the investments for them
and try to earn them returns,
289
00:18:06,002 --> 00:18:09,131
but you earn fees rather than commissions.
290
00:18:09,214 --> 00:18:12,634
It's much more profitable
than doing commission-based business.
291
00:18:13,802 --> 00:18:16,721
It turns out that
his father-in-law, Saul Alpern,
292
00:18:16,805 --> 00:18:19,891
has a lot of clients that
he'd done accounting business for,
293
00:18:19,975 --> 00:18:21,935
that he started to refer
to his son-in-law.
294
00:18:23,645 --> 00:18:27,149
So, Bernie ended up
with this group of 20 to 24 people
295
00:18:27,232 --> 00:18:28,984
wanting to do investments with him.
296
00:18:29,860 --> 00:18:33,989
The form that Madoff's
early investment advisory business took
297
00:18:34,072 --> 00:18:38,910
was a little unusual, and I might argue,
a little bit outside the lines.
298
00:18:38,994 --> 00:18:40,078
Saul Alpern,
299
00:18:40,162 --> 00:18:44,541
instead of just having Bernie set up
individual accounts for these clients,
300
00:18:44,624 --> 00:18:47,377
he decided to make it easy
on his son-in-law.
301
00:18:47,460 --> 00:18:49,588
He would pool all of their money
302
00:18:49,671 --> 00:18:52,799
and then give that money
to Bernie to invest.
303
00:18:52,883 --> 00:18:56,219
And then when Bernie
reported back the profits,
304
00:18:56,303 --> 00:19:00,765
Saul would allocate the profits
among the investors in the pool.
305
00:19:00,849 --> 00:19:04,269
A careful lawyer would have told
Saul Alpern, "You can't do this."
306
00:19:05,020 --> 00:19:07,731
It was essentially
an unregulated mutual fund.
307
00:19:08,773 --> 00:19:10,650
Beyond around 20 accounts,
308
00:19:10,734 --> 00:19:14,613
you are required to register
with the government, with the SEC.
309
00:19:14,696 --> 00:19:18,074
But Bernie Madoff doesn't register
as an investment advisor.
310
00:19:18,700 --> 00:19:20,368
So, from the very beginning,
311
00:19:20,452 --> 00:19:25,999
you can see the cellular division
that shaped the rest of Bernie's career.
312
00:19:26,082 --> 00:19:29,794
He had a legitimate trading business
in the over-the-counter market.
313
00:19:29,878 --> 00:19:33,965
And on the side, he had
a private investment advisory business
314
00:19:34,049 --> 00:19:35,717
that not many people knew about,
315
00:19:35,800 --> 00:19:40,096
that he wasn't really running according
to all the rules in the rule book.
316
00:19:40,805 --> 00:19:42,474
He's completely driven
317
00:19:42,557 --> 00:19:46,269
to make it on Wall Street
from nowhere, from nothing,
318
00:19:46,353 --> 00:19:51,524
and to avoid the failure that he watched
befall his parents, and rise to the top.
319
00:19:53,068 --> 00:19:55,987
In his unofficial
investment advisory business,
320
00:19:56,071 --> 00:20:02,077
Bernie invested his clients' savings
in wildly speculative stocks.
321
00:20:02,160 --> 00:20:08,291
He was making money, he was taking risks,
he was taking very big risks.
322
00:20:09,084 --> 00:20:11,628
And then came May 1962.
323
00:20:11,711 --> 00:20:15,090
Headline news is made
in a mighty avalanche of selling,
324
00:20:15,173 --> 00:20:17,050
which sees stock prices dive
325
00:20:17,133 --> 00:20:20,136
and more than $20 billion
in paper values lost.
326
00:20:20,220 --> 00:20:22,639
The biggest drop since 1929.
327
00:20:23,306 --> 00:20:27,477
Suddenly,
the market just dropped like a stone,
328
00:20:28,603 --> 00:20:31,606
and the first securities to go up in smoke
329
00:20:31,690 --> 00:20:36,486
are the speculative stocks that Bernie
has bought for these private clients.
330
00:20:37,195 --> 00:20:39,406
They're wiped out almost immediately.
331
00:20:40,365 --> 00:20:43,326
The customers,
theoretically, lost their money.
332
00:20:43,410 --> 00:20:46,830
The total investment
that they had made was $30,000.
333
00:20:46,913 --> 00:20:49,291
I felt guilty because of the fact
334
00:20:49,374 --> 00:20:52,544
that they bought the stock
because I told them to buy the stock.
335
00:20:53,545 --> 00:20:55,755
But, rather than admit
336
00:20:55,839 --> 00:20:59,759
that he had taken ridiculous risks
with their money and lost it all,
337
00:20:59,843 --> 00:21:02,429
he decides to cover them up.
338
00:21:03,138 --> 00:21:06,224
He had to go
to his father-in-law, Saul Alpern,
339
00:21:06,308 --> 00:21:08,184
and borrow $30,000,
340
00:21:08,727 --> 00:21:10,103
and he paid them all back.
341
00:21:11,813 --> 00:21:16,359
He uses the $30,000
to make them whole in their accounts,
342
00:21:16,443 --> 00:21:18,903
and then he lies to them
about what he's done.
343
00:21:18,987 --> 00:21:22,490
The outcome of his lies
was that he looked like a genius.
344
00:21:22,574 --> 00:21:24,784
He looked like an incredible success,
345
00:21:24,868 --> 00:21:28,330
a brilliant strategist that navigated
346
00:21:28,413 --> 00:21:33,418
the worst week in the stock market
since 1929, without losing a nickel.
347
00:21:34,586 --> 00:21:39,299
At that intersection,
he had to accept being a liar
348
00:21:40,133 --> 00:21:41,301
or a failure.
349
00:21:43,678 --> 00:21:46,389
And the choice he made was,
350
00:21:46,473 --> 00:21:48,850
he could live with himself as a liar
351
00:21:49,809 --> 00:21:53,271
much more easily than he could
live with himself as a failure.
352
00:22:12,165 --> 00:22:16,711
The whole world is watching!
353
00:22:17,295 --> 00:22:19,089
And then the 1970s came along.
354
00:22:19,172 --> 00:22:22,217
The attacks slashed
at North Vietnam with renewed fury.
355
00:22:22,300 --> 00:22:25,678
People have got to know whether or not
their president's a crook.
356
00:22:25,762 --> 00:22:27,430
The recession is indeed upon us.
357
00:22:27,514 --> 00:22:30,141
Gas lines of 10
and 12 blocks were everywhere.
358
00:22:30,225 --> 00:22:33,144
The current slide in the economy
could get worse.
359
00:22:33,228 --> 00:22:38,108
You had unemployment rising,
gas prices going up, skyrocketing.
360
00:22:38,191 --> 00:22:41,611
You had inflation
really start to gain steam,
361
00:22:41,694 --> 00:22:43,738
which, all of a sudden,
led to a recession.
362
00:22:43,822 --> 00:22:49,744
Wall Street underwent some of
the most dramatic changes in its history.
363
00:22:50,328 --> 00:22:52,747
It was like
a slow-motion stock market crash.
364
00:22:53,540 --> 00:22:56,209
As Bernie moved into the 1970s,
365
00:22:56,292 --> 00:23:00,130
he decided it was time to move
to an office building at 110 Wall Street,
366
00:23:00,213 --> 00:23:03,842
and his legitimate trading business
became more and more conservative.
367
00:23:04,342 --> 00:23:07,679
Bernie Madoff became
what's called a market maker.
368
00:23:07,762 --> 00:23:09,389
When you buy a stock,
369
00:23:09,472 --> 00:23:11,683
buying 100 shares
from somebody else over there
370
00:23:11,766 --> 00:23:14,519
who's selling 100 shares,
that's not really what's happening.
371
00:23:14,602 --> 00:23:15,979
What's really happening is,
372
00:23:16,062 --> 00:23:19,858
there's a middleman who's actually
already bought those 100 shares.
373
00:23:19,941 --> 00:23:23,153
What you're actually doing
is buying from the middleman,
374
00:23:23,236 --> 00:23:25,738
and that's who Bernie Madoff was,
he was a wholesaler.
375
00:23:25,822 --> 00:23:29,325
He would effectively warehouse stock,
376
00:23:29,868 --> 00:23:33,997
and he would turn around and sell them
when somebody else wanted to buy them,
377
00:23:34,080 --> 00:23:38,668
and he would make a commission,
a couple of cents for every sale.
378
00:23:38,751 --> 00:23:40,545
That's what a market maker is.
379
00:23:41,087 --> 00:23:45,383
Their obligation is to buy and sell shares
in good times or bad.
380
00:23:46,801 --> 00:23:49,679
Bernie's business on
the market-making side grows so quickly
381
00:23:49,762 --> 00:23:51,723
that he hires his brother Peter.
382
00:23:52,765 --> 00:23:56,644
They were really visionaries,
pioneering computerized trading.
383
00:23:59,105 --> 00:24:00,857
When the computer arrived,
384
00:24:00,940 --> 00:24:04,360
it just radically changed
the way Wall Street worked.
385
00:24:04,444 --> 00:24:06,070
It's the beginning of a new age,
386
00:24:06,154 --> 00:24:09,073
launched by the tremendous force
of a revolution.
387
00:24:09,157 --> 00:24:13,995
Computers are so profoundly important
that it altered the path of civilization.
388
00:24:14,871 --> 00:24:17,207
The biggest players
moving into Wall Street,
389
00:24:17,290 --> 00:24:20,168
they didn't want to trade 200 shares.
390
00:24:20,251 --> 00:24:25,048
They wanted to trade 20,000 shares
on a moderate day.
391
00:24:25,715 --> 00:24:30,470
In the '70s, buying and selling stocks
actually took a really long time.
392
00:24:30,553 --> 00:24:32,680
It took, usually, a few weeks.
393
00:24:33,264 --> 00:24:37,644
Wall Street needs people
who can do these trades fast.
394
00:24:37,727 --> 00:24:42,524
That requires computerization,
and Bernie rides that wave.
395
00:24:43,483 --> 00:24:47,779
Using computerized trading,
he could process a trade in three days.
396
00:24:47,862 --> 00:24:49,239
It was just unheard of.
397
00:24:50,156 --> 00:24:53,034
By being able
to speed up his process,
398
00:24:53,117 --> 00:24:56,371
he was able to compete
for big institutional business
399
00:24:56,454 --> 00:24:58,206
in his legitimate operation,
400
00:24:58,289 --> 00:25:00,083
and it gave him a huge edge.
401
00:25:00,917 --> 00:25:03,711
Bernie's brilliance
was that he consolidated
402
00:25:03,795 --> 00:25:09,217
all the off-the-exchange markets,
the pink sheets, sort of small firms,
403
00:25:09,300 --> 00:25:10,843
not reputable type firms,
404
00:25:10,927 --> 00:25:13,388
into what you might call
one computer screen,
405
00:25:13,972 --> 00:25:17,141
in what became the NASDAQ and the NASD.
406
00:25:17,225 --> 00:25:19,185
He legitimized that business.
407
00:25:19,269 --> 00:25:24,649
Today, Apple, Google, Microsoft,
are all NASDAQ companies.
408
00:25:26,276 --> 00:25:29,821
His legitimate brokerage firm
was doing gangbusters,
409
00:25:29,904 --> 00:25:31,698
which made it all the more bizarre
410
00:25:31,781 --> 00:25:36,578
that he was running this very shadowy
investment advisory business
411
00:25:36,661 --> 00:25:39,706
that no one knew about,
which was also growing.
412
00:25:40,915 --> 00:25:43,459
People were hearing about Bernie
and how great he was.
413
00:25:43,543 --> 00:25:45,878
He was going to the Catskills
in the summer,
414
00:25:45,962 --> 00:25:48,840
raising money from friends
and other family members.
415
00:25:48,923 --> 00:25:50,717
They thought he was going to be a star.
416
00:25:50,800 --> 00:25:56,014
He was still getting referrals
from his wife's father, Saul Alpern,
417
00:25:56,097 --> 00:25:59,809
and over the years,
Saul had hired two accountants,
418
00:25:59,892 --> 00:26:02,186
Frank Avellino and Michael Bienes.
419
00:26:02,270 --> 00:26:09,068
When Saul Alpern retires in the 1970s,
they rename the firm Avellino & Bienes,
420
00:26:09,152 --> 00:26:10,194
or A and B.
421
00:26:11,988 --> 00:26:14,198
Michael Bienes
and Frank Avellino
422
00:26:14,282 --> 00:26:17,785
are a match made
somewhere outside of heaven.
423
00:26:18,703 --> 00:26:20,246
Avellino and Bienes certainly knew
424
00:26:20,330 --> 00:26:24,667
that Bernie Madoff was managing money
for Saul's family and friends.
425
00:26:24,751 --> 00:26:30,506
But it was really when Saul retired
that Avellino and Bienes see dollar signs.
426
00:26:30,590 --> 00:26:32,759
They're like kids in a candy store.
427
00:26:33,343 --> 00:26:37,180
They began to construct
one of Bernie's first feeder funds,
428
00:26:37,263 --> 00:26:40,725
collecting money
from all sorts of investors,
429
00:26:40,808 --> 00:26:45,521
corporations, family offices,
and trust departments, individuals,
430
00:26:45,605 --> 00:26:47,774
pooling their money into a fund
431
00:26:47,857 --> 00:26:51,903
and then send the money to Bernie's
unofficial investment advisory business.
432
00:26:53,446 --> 00:26:55,239
They push it to their clients,
433
00:26:55,323 --> 00:26:58,409
to friends of their clients,
to relatives of their clients.
434
00:26:59,577 --> 00:27:02,747
In exchange
for raising that money, they take a fee,
435
00:27:02,830 --> 00:27:06,584
and they start bringing in
a river of money
436
00:27:06,668 --> 00:27:09,128
to Bernie Madoff to manage.
437
00:27:09,671 --> 00:27:12,507
Avellino and Bienes,
they weren't a hedge fund
438
00:27:12,590 --> 00:27:13,591
or a Wall Street fund.
439
00:27:13,675 --> 00:27:16,386
They weren't money managers at all.
They were accountants.
440
00:27:16,469 --> 00:27:19,889
And they don't register
the investment business, which is illegal.
441
00:27:19,972 --> 00:27:22,183
They took money from their clients,
442
00:27:22,266 --> 00:27:26,270
and they put it with a secret manager
whose name couldn't be revealed,
443
00:27:26,354 --> 00:27:29,649
without even telling the clients
what was happening with their money,
444
00:27:29,732 --> 00:27:31,943
and that manager was Bernie Madoff.
445
00:27:35,154 --> 00:27:36,572
By the end of the '70s,
446
00:27:36,656 --> 00:27:40,368
Bernie began to experience
the American success dream.
447
00:27:40,451 --> 00:27:43,329
Bernie and Ruth have two sons,
Andrew and Mark.
448
00:27:43,413 --> 00:27:46,874
He was a family man,
he truly loved his family,
449
00:27:46,958 --> 00:27:50,461
and he was able to move his family
into a very lovely suburb,
450
00:27:50,545 --> 00:27:52,046
Roslyn, Long Island,
451
00:27:52,130 --> 00:27:55,842
one of the wealthier communities
along the coast.
452
00:27:55,925 --> 00:27:57,677
He even splurged as much
453
00:27:57,760 --> 00:28:02,056
as to commute into Manhattan
by seaplane instead of the train
454
00:28:02,140 --> 00:28:05,268
or the Long Island traffic
like everybody else.
455
00:28:12,900 --> 00:28:17,280
We've moved from malaise
to hope, confidence, and opportunity.
456
00:28:20,825 --> 00:28:25,747
Government that has high taxes,
excessive spending, and over-regulation
457
00:28:25,830 --> 00:28:29,375
had thrown a wrench in the works
of our free markets.
458
00:28:29,459 --> 00:28:31,961
Our economic program
for the next four years,
459
00:28:32,044 --> 00:28:34,422
we're going to turn the bull loose.
460
00:28:38,009 --> 00:28:40,303
As the '80s unfolded,
461
00:28:40,386 --> 00:28:44,557
the bull market that began in America
very rapidly became a global phenomenon.
462
00:28:44,640 --> 00:28:46,517
It was the dawn of globalization.
463
00:28:46,601 --> 00:28:48,352
Everyone wanted to be in the stock market,
464
00:28:48,436 --> 00:28:52,857
and Bernie's legitimate trading business
started making major money.
465
00:28:56,986 --> 00:28:58,905
Wall Street in the '80s was crazy.
466
00:29:00,239 --> 00:29:04,327
There was a lot of excitement,
and people were making money.
467
00:29:04,410 --> 00:29:07,789
I heard there was a lot of cocaine,
a lot of drinking,
468
00:29:07,872 --> 00:29:11,042
and a lot of wining and dining.
469
00:29:11,125 --> 00:29:12,710
Every firm was hiring.
470
00:29:13,753 --> 00:29:17,548
I started working for Bernie Madoff
in July of '85.
471
00:29:17,632 --> 00:29:20,510
Bernie had an incredible
mystique about him.
472
00:29:20,593 --> 00:29:22,553
He was revered on Wall Street,
473
00:29:22,637 --> 00:29:24,931
he was on
the Board of Governors of NASDAQ.
474
00:29:25,014 --> 00:29:28,142
He was always jetting off to London
and having meetings.
475
00:29:28,226 --> 00:29:30,061
Bernie would walk into the trading room
476
00:29:30,144 --> 00:29:32,522
and he would buy things,
and the market would go up.
477
00:29:32,605 --> 00:29:34,690
He'd sell things,
and the market would go down,
478
00:29:34,774 --> 00:29:39,195
and he developed a reputation
as being almost all-knowing.
479
00:29:39,821 --> 00:29:43,449
Bernie's legitimate firm
was doing a spectacular business.
480
00:29:43,950 --> 00:29:48,955
He and Ruth move into
a lovely penthouse apartment in Manhattan.
481
00:29:49,038 --> 00:29:51,249
He bought a summer place in Montauk.
482
00:29:51,332 --> 00:29:52,583
He joined a country club.
483
00:29:52,667 --> 00:29:53,960
He bought a boat.
484
00:29:54,627 --> 00:29:57,380
Now Bernie could certainly
look his father-in-law in the eye
485
00:29:57,463 --> 00:29:59,674
and say,
"See, I told you I'd be a success."
486
00:30:00,383 --> 00:30:03,386
You know, I started
my business with literally $500.
487
00:30:03,469 --> 00:30:04,804
I had gone from nothing.
488
00:30:04,887 --> 00:30:06,973
I was this little kid from Queens.
489
00:30:07,056 --> 00:30:08,850
Didn't go to Harvard and so on.
490
00:30:08,933 --> 00:30:12,979
All of a sudden, you know,
by '87, I was very successful.
491
00:30:13,062 --> 00:30:14,105
I was a rich guy.
492
00:30:17,525 --> 00:30:19,861
We were making a lot of money.
493
00:30:19,944 --> 00:30:22,363
We were growing,
we were hiring more traders.
494
00:30:22,446 --> 00:30:25,658
Bernie wanted a more prestigious building,
495
00:30:25,741 --> 00:30:28,995
so we move sometime in the summer of 1987
496
00:30:29,078 --> 00:30:32,290
to 885 3rd Avenue,
to the Lipstick Building.
497
00:30:33,082 --> 00:30:35,042
It's a very unusual building.
498
00:30:35,126 --> 00:30:38,045
It kind of looked like
a lipstick container.
499
00:30:39,213 --> 00:30:43,676
Bernie's move uptown
to this iconic skyscraper
500
00:30:43,759 --> 00:30:46,554
would impress investors.
It would impress employees.
501
00:30:46,637 --> 00:30:48,139
It would even impress regulators.
502
00:30:48,222 --> 00:30:54,020
So this was part of the classy new image
that Bernie was building for himself.
503
00:30:57,440 --> 00:31:01,652
The offices were absolutely
stunning when we first moved in.
504
00:31:01,736 --> 00:31:04,572
Sophisticated, high-tech looking.
505
00:31:04,655 --> 00:31:08,242
It was all windows.
It was all bright lights.
506
00:31:09,368 --> 00:31:14,040
When I started working
for Bernie Madoff in 1987,
507
00:31:14,123 --> 00:31:16,834
it absolutely was a family atmosphere,
508
00:31:16,918 --> 00:31:20,254
because they were
very family-oriented people.
509
00:31:21,923 --> 00:31:25,051
It was a nice atmosphere,
it was very comfortable.
510
00:31:25,134 --> 00:31:26,552
It was very safe.
511
00:31:26,636 --> 00:31:29,680
Almost everybody that worked there
were relatives,
512
00:31:29,764 --> 00:31:31,557
they were friends of relatives.
513
00:31:32,141 --> 00:31:35,353
Bernie's kids, Mark and Andy,
were working there.
514
00:31:36,145 --> 00:31:39,023
Mark and Andy were all-American.
515
00:31:39,106 --> 00:31:41,817
Anybody would have been proud
to have them as children.
516
00:31:42,860 --> 00:31:46,822
I liked his brother, Peter,
he was the compliance officer.
517
00:31:47,698 --> 00:31:50,493
Ruth had an office at the firm.
518
00:31:50,993 --> 00:31:52,578
She was a warm person.
519
00:31:53,079 --> 00:31:55,206
She was a really great mother.
520
00:31:55,289 --> 00:31:58,584
I could see Bernie and Ruth
loved their children very much.
521
00:31:59,085 --> 00:32:03,881
She adored Bernie, and I think
that she was the person he confided in.
522
00:32:04,757 --> 00:32:08,219
Bernie had said once to me,
"Ruth is a great partner."
523
00:32:09,053 --> 00:32:11,222
And Bernie was very generous.
524
00:32:11,722 --> 00:32:13,849
He gave a lot of money to charity.
525
00:32:13,933 --> 00:32:17,019
He paid for the airfare for the honeymoons
526
00:32:17,103 --> 00:32:20,272
for all of their employees
when they got married.
527
00:32:20,356 --> 00:32:22,984
He was on the board of Yeshiva.
528
00:32:23,067 --> 00:32:25,069
He worked with the Special Olympics.
529
00:32:25,152 --> 00:32:27,655
There was a time
he paid for a woman's heart surgery.
530
00:32:28,656 --> 00:32:32,535
The Madoffs took everyone
to Montauk for a weekend in the summer
531
00:32:32,618 --> 00:32:35,413
with all their family
and put them up in hotels.
532
00:32:35,496 --> 00:32:37,206
We'd play volleyball on the beach.
533
00:32:37,289 --> 00:32:40,084
We'd have a real party, a lot of drinking.
534
00:32:40,167 --> 00:32:42,837
We'd dance, and it was fun.
535
00:32:44,171 --> 00:32:46,132
But there was another side of Bernie.
536
00:32:48,718 --> 00:32:53,347
He was meticulous about his appearance,
about his surrounding.
537
00:32:54,140 --> 00:32:55,891
Everything had to be pristine.
538
00:32:55,975 --> 00:32:58,102
If he looked down the trading desk
539
00:32:58,185 --> 00:33:01,480
and he saw a computer monitor
that was a little askew,
540
00:33:01,564 --> 00:33:04,859
he'd have to go and fix it
and make it in line.
541
00:33:04,942 --> 00:33:07,445
Even if you're sitting at the desk,
using it,
542
00:33:07,528 --> 00:33:09,530
he would fix it while he walked by.
543
00:33:09,613 --> 00:33:13,701
You couldn't have silver picture frames
or anything that wasn't black and gray.
544
00:33:13,784 --> 00:33:16,078
You couldn't have plants on your desk.
545
00:33:16,162 --> 00:33:18,247
Everything had to be the same.
546
00:33:20,750 --> 00:33:22,334
As time went on,
547
00:33:23,127 --> 00:33:25,171
he became more intense.
548
00:33:27,006 --> 00:33:30,009
There were definitely days
where you could feel the tension,
549
00:33:30,634 --> 00:33:32,887
and you would just want
to stay away from him.
550
00:33:34,430 --> 00:33:37,141
You never knew whether
he was going to bite your head off.
551
00:33:37,224 --> 00:33:38,893
Son of a bitch.
Will you shut up?!
552
00:33:38,976 --> 00:33:43,439
I remember one time Bernie was
just screaming at his brother, Peter.
553
00:33:44,023 --> 00:33:45,232
Get the fuck out of my office!
554
00:33:45,316 --> 00:33:46,817
I got such a stomachache.
555
00:33:46,901 --> 00:33:49,403
I-I just got up and said, "Please stop."
556
00:33:50,196 --> 00:33:52,615
And Peter would back off,
because Bernie was a bully.
557
00:33:52,698 --> 00:33:54,241
That was another side of him.
558
00:33:55,159 --> 00:33:58,579
I think Peter was probably
a little bit afraid of Bernie,
559
00:33:59,663 --> 00:34:01,957
the way everybody was
a little afraid of Bernie.
560
00:34:02,041 --> 00:34:03,918
He wanted to control you,
561
00:34:04,001 --> 00:34:06,545
and it's because he disapproved of you
562
00:34:07,171 --> 00:34:08,798
that he could control you.
563
00:34:09,715 --> 00:34:12,426
Bernie could flip the switch in a second.
564
00:34:12,510 --> 00:34:17,348
I saw times when he could be
so kind and so caring,
565
00:34:17,431 --> 00:34:19,892
and times where he could be so brutal.
566
00:34:19,975 --> 00:34:24,146
-What the hell do you think you're doing?
-Stop you dead in your tracks.
567
00:34:25,022 --> 00:34:27,191
What the hell
do you think you're doing?!
568
00:34:27,733 --> 00:34:30,152
I think there were
a lot of people in Bernie.
569
00:34:30,236 --> 00:34:31,737
He was a lot of things.
570
00:34:32,571 --> 00:34:34,990
I figured he was under a lot of pressure.
571
00:34:36,617 --> 00:34:39,995
This morning,
the stock market has been in a free fall.
572
00:34:42,206 --> 00:34:44,416
Close this deal, choose…!
573
00:34:44,500 --> 00:34:47,503
In trading rooms
on Wall Street, there was panic.
574
00:34:47,586 --> 00:34:51,215
Sell orders flooded in
from big institutional investors,
575
00:34:51,298 --> 00:34:54,301
from private investors, from mutual funds,
576
00:34:54,385 --> 00:34:56,846
worried about inflation,
rising interest rates,
577
00:34:56,929 --> 00:35:01,267
a declining dollar,
and huge budget and trade deficits.
578
00:35:02,309 --> 00:35:05,813
Monday, October 19, 1987,
579
00:35:05,896 --> 00:35:08,691
was one of the scariest days
I've ever experienced in my life.
580
00:35:09,275 --> 00:35:12,987
The moment I got to work,
and the market opened at 9:30,
581
00:35:13,070 --> 00:35:15,614
until the moment it closed, was bedlam.
582
00:35:16,323 --> 00:35:18,242
Within two hours
of the opening bell,
583
00:35:18,325 --> 00:35:21,412
the Dow Jones Industrial Average
plunged 200 points.
584
00:35:21,495 --> 00:35:24,248
The activity is incredible.
585
00:35:24,331 --> 00:35:28,711
It's a frenzy, and I would say
some fear and panic going on.
586
00:35:29,545 --> 00:35:32,923
During the crash, every firm
on Wall Street was trying to dump stock.
587
00:35:33,007 --> 00:35:38,345
We had so many phones ringing,
we were inundated with orders.
588
00:35:38,429 --> 00:35:40,556
People are screaming,
we're writing tickets.
589
00:35:40,639 --> 00:35:43,267
It just felt like a war zone.
590
00:35:45,311 --> 00:35:48,522
I remember my uncle called me,
and I picked up the phone, and he says,
591
00:35:48,606 --> 00:35:49,982
"Three guys walk into a bar…"
592
00:35:50,065 --> 00:35:53,068
I'm like, "Sam, I can't talk to you now,
goodbye," and I hung up.
593
00:35:54,320 --> 00:35:56,989
We had to maintain an orderly market.
594
00:35:57,072 --> 00:36:00,409
A market maker is someone
who was willing to be the buyer
595
00:36:00,492 --> 00:36:02,745
and the seller of last resort.
596
00:36:02,828 --> 00:36:05,456
So we were the only ones buying.
597
00:36:05,539 --> 00:36:07,708
A lot of firms were not
picking up their phones,
598
00:36:07,791 --> 00:36:10,002
and I remember
very distinctly Bernie yelling,
599
00:36:10,085 --> 00:36:13,547
"Pick up the phone. We're not gonna be
the firm that doesn't pick up."
600
00:36:13,631 --> 00:36:17,968
So we're picking up the phone
and we're buying a lot of stock.
601
00:36:18,052 --> 00:36:21,138
And all I'm doing is pressing buttons
on the computer, down, down,
602
00:36:21,222 --> 00:36:23,349
taking my market down.
603
00:36:23,974 --> 00:36:26,977
It never seemed like
it was going to bottom.
604
00:36:27,061 --> 00:36:30,564
Bedlam reigned at New York
Stock Exchange as frantic traders dealt
605
00:36:30,648 --> 00:36:33,525
with more than half a billion
sell orders flooding Wall Street.
606
00:36:33,609 --> 00:36:35,986
No one has
one particular reason.
607
00:36:36,070 --> 00:36:39,823
There's a kind of dark,
gloomy psychology at work here.
608
00:36:39,907 --> 00:36:41,617
Definitely panic selling.
609
00:36:41,700 --> 00:36:44,286
Panic, complete panic.
Everyone's going crazy.
610
00:36:44,370 --> 00:36:47,957
For brokers and traders,
it was an unmitigated disaster.
611
00:36:48,040 --> 00:36:49,416
Bloodbath.
612
00:36:49,500 --> 00:36:51,001
The sudden collapse
613
00:36:51,085 --> 00:36:54,088
brought back memories
of a fateful October day 58 years ago,
614
00:36:54,171 --> 00:36:58,717
the crash of 1929 that heralded
the beginning of the Great Depression.
615
00:36:59,802 --> 00:37:02,346
It was scary
and it was overwhelming.
616
00:37:02,429 --> 00:37:03,889
It was devastating.
617
00:37:04,515 --> 00:37:07,309
But Bernie never seemed to sweat anything.
618
00:37:07,393 --> 00:37:10,187
He was actually
pretty cool and calm about it.
619
00:37:10,271 --> 00:37:13,274
It was one of those things
that really helped us to revere him,
620
00:37:13,357 --> 00:37:14,775
because this was his money.
621
00:37:14,858 --> 00:37:18,779
His name is the one on the door,
Bernard L. Madoff Investment Securities,
622
00:37:18,862 --> 00:37:22,658
and we were one of the few firms
that honored our commitments.
623
00:37:22,741 --> 00:37:23,826
We stayed open.
624
00:37:24,326 --> 00:37:26,120
Bernie Madoff kept buying,
625
00:37:26,203 --> 00:37:29,623
even as all of the other
market makers on Wall Street,
626
00:37:29,707 --> 00:37:32,876
who had an obligation to buy the stocks,
627
00:37:32,960 --> 00:37:35,963
even when they were falling,
even if they're going to lose money,
628
00:37:36,046 --> 00:37:38,674
that is the obligation of a market maker.
629
00:37:38,757 --> 00:37:40,301
They weren't picking up the phone.
630
00:37:40,384 --> 00:37:43,846
You couldn't get them on the line.
You couldn't make that transaction.
631
00:37:43,929 --> 00:37:45,472
But you could with Bernie Madoff.
632
00:37:46,432 --> 00:37:49,685
The mood on Wall Street
is one of shock and disbelief.
633
00:37:49,768 --> 00:37:53,564
For five years,
the great Bull Market seemed unstoppable.
634
00:37:53,647 --> 00:37:55,482
Confidence had been so high.
635
00:37:56,066 --> 00:37:59,695
Then came the month of October,
and then came Black Monday.
636
00:38:01,030 --> 00:38:02,364
It's not clear
637
00:38:02,448 --> 00:38:06,493
how much money Bernie's
legitimate business lost in the '87 crash,
638
00:38:06,994 --> 00:38:09,621
but the fact that
Bernie was at the cutting edge
639
00:38:09,705 --> 00:38:13,709
of both communications technology
and trading technology allowed him
640
00:38:13,792 --> 00:38:19,923
to keep the Madoff firm open,
functioning, and serving customers.
641
00:38:20,007 --> 00:38:26,055
This won him recognition from the SEC,
from the New York Stock Exchange.
642
00:38:26,138 --> 00:38:29,141
He testified in Congressional hearings,
643
00:38:29,224 --> 00:38:31,310
he helped rewrite the rule book
644
00:38:31,393 --> 00:38:36,106
to keep the market functioning
through a crisis like Black Monday.
645
00:38:36,607 --> 00:38:38,817
People started
talking about Bernie Madoff
646
00:38:38,901 --> 00:38:43,405
as a man of his word,
this trustworthy, loyal guy,
647
00:38:43,489 --> 00:38:45,657
and it crystallized his reputation.
648
00:38:46,158 --> 00:38:48,660
He began serving
on industry boards.
649
00:38:48,744 --> 00:38:51,955
He began being invited
to regulatory roundtables,
650
00:38:52,039 --> 00:38:57,753
and he was elected to three terms
as the chairman of the board of NASDAQ.
651
00:38:57,836 --> 00:39:03,050
And in the early '90s he was a trusted,
respected Wall Street statesman.
652
00:39:04,176 --> 00:39:08,013
Bernie fed on being "the guy."
653
00:39:08,097 --> 00:39:11,600
He liked that pedestal
that people put him on,
654
00:39:12,184 --> 00:39:14,520
and I think as he got more and more of it,
655
00:39:14,603 --> 00:39:17,356
he got more in love with that reverence.
656
00:39:19,483 --> 00:39:21,902
Read my lips,
657
00:39:21,985 --> 00:39:24,321
no new taxes.
658
00:39:24,905 --> 00:39:27,074
Booster, ignition and liftoff.
659
00:39:27,616 --> 00:39:29,410
People are working harder than ever,
660
00:39:29,493 --> 00:39:33,038
spending less time with their children,
working nights and weekends.
661
00:39:33,122 --> 00:39:35,124
A look
at business news this morning.
662
00:39:35,207 --> 00:39:36,834
A rally in technology stocks
663
00:39:36,917 --> 00:39:40,003
helped push the blue chips
deeper into record territory.
664
00:39:40,087 --> 00:39:42,506
I started at Bernie Madoff's firm.
665
00:39:42,589 --> 00:39:44,967
I believe it was 1991.
666
00:39:45,050 --> 00:39:48,303
Bernie Madoff had
a very excellent reputation.
667
00:39:48,387 --> 00:39:51,765
"Bernie's a great guy.
He's very involved in the community."
668
00:39:51,849 --> 00:39:55,060
"He's generous," you know,
"You'd do well working for him."
669
00:39:55,144 --> 00:39:57,896
It was a very bullish time in the market.
670
00:39:57,980 --> 00:40:00,774
This is when
the technology age started exploding.
671
00:40:00,858 --> 00:40:02,401
The Internet came into being.
672
00:40:02,484 --> 00:40:04,736
You had more people
getting involved in the stock market.
673
00:40:04,820 --> 00:40:06,363
Dow Jones has a website.
674
00:40:06,447 --> 00:40:10,659
Real-time numbers,
just as traders see them on Wall Street.
675
00:40:11,577 --> 00:40:14,621
So we got more business,
we had more customer flow.
676
00:40:14,705 --> 00:40:17,499
It was a great time to be in stocks
677
00:40:17,583 --> 00:40:20,544
because they became
a lot more efficient through technology,
678
00:40:20,627 --> 00:40:22,045
and profits started soaring.
679
00:40:23,130 --> 00:40:24,673
Madoff was doing somewhere
680
00:40:24,756 --> 00:40:28,385
between 5 and 7% of the total volume
in the New York Stock Exchange,
681
00:40:28,469 --> 00:40:30,929
which is huge
for a relatively small company.
682
00:40:31,013 --> 00:40:34,975
I don't envision it changing anytime soon
unless the market really cools down.
683
00:40:36,226 --> 00:40:39,938
Bernie's growing
a legitimate market-making business,
684
00:40:40,022 --> 00:40:43,025
and at the same time,
he's also very quietly
685
00:40:43,108 --> 00:40:46,278
been growing his secret
investment advisory business,
686
00:40:46,361 --> 00:40:47,863
which he keeps under the table,
687
00:40:47,946 --> 00:40:50,532
which he keeps separate
from the market-making business.
688
00:40:50,616 --> 00:40:53,952
Initially, returns for investors were 11%,
689
00:40:54,036 --> 00:40:56,914
but he was actually giving
as high as 15 to 19%.
690
00:40:56,997 --> 00:41:00,584
He is always consistently profitable.
691
00:41:01,210 --> 00:41:05,923
What had begun in the mid-'60s
as this little, kind of,
692
00:41:06,006 --> 00:41:08,133
bridge club investment advisory business
693
00:41:08,217 --> 00:41:11,011
has grown and grown and grown.
694
00:41:11,803 --> 00:41:15,807
And Avellino and Bienes continued
funneling a boatload of money
695
00:41:15,891 --> 00:41:17,684
into Bernie Madoff's hands.
696
00:41:18,310 --> 00:41:21,480
Avellino and Bienes
operate their feeder fund
697
00:41:21,563 --> 00:41:23,857
very under the radar, very quiet,
698
00:41:23,941 --> 00:41:26,318
never putting anything in writing,
699
00:41:26,401 --> 00:41:29,446
until one of their subcontractors,
700
00:41:29,530 --> 00:41:34,868
who was setting up pooled investments
and attracting friends and family to it,
701
00:41:34,952 --> 00:41:38,455
breaks the first commandment
of Avellino and Bienes
702
00:41:38,539 --> 00:41:40,040
and puts something in writing.
703
00:41:43,502 --> 00:41:47,381
In 1992,
a brochure was brought to the attention
704
00:41:47,464 --> 00:41:49,508
of the Securities and Exchange Commission.
705
00:41:49,591 --> 00:41:53,971
The SEC is a regulatory agency whose
main mission is to protect investors.
706
00:41:54,054 --> 00:41:56,390
And basically on the brochure it said,
707
00:41:56,473 --> 00:41:59,560
"We offer 100% safe investments."
708
00:41:59,643 --> 00:42:03,188
"We haven't had a losing transaction
in over 20 years,
709
00:42:03,272 --> 00:42:06,900
and they're basically riskless trading."
710
00:42:06,984 --> 00:42:10,237
The SEC looks at the brochure
and immediately realizes
711
00:42:10,320 --> 00:42:11,863
there are significant red flags.
712
00:42:11,947 --> 00:42:16,285
You cannot have
100% safe trading investment.
713
00:42:16,368 --> 00:42:18,078
No such thing as riskless trading.
714
00:42:18,954 --> 00:42:22,624
And their investigation
led to these two guys,
715
00:42:22,708 --> 00:42:24,585
Frank Avellino and Michael Bienes.
716
00:42:25,460 --> 00:42:30,674
So Avellino and Bienes came voluntarily
to the SEC with their lawyer.
717
00:42:32,259 --> 00:42:34,177
They wanted
to take the testimony
718
00:42:34,261 --> 00:42:36,513
of Avellino and Bienes together.
719
00:42:37,514 --> 00:42:39,224
And I'm sitting in the middle,
720
00:42:40,225 --> 00:42:45,522
and I think Bienes was to my left,
Avellino was to my right.
721
00:42:45,606 --> 00:42:48,859
And they get to the point
where they say to them,
722
00:42:48,942 --> 00:42:51,111
"How much money
did you raise for investment?"
723
00:42:51,194 --> 00:42:55,282
I think the SEC was expecting something
like five or 10 million or something,
724
00:42:55,907 --> 00:42:57,576
and they look at each other,
725
00:42:58,619 --> 00:43:02,497
and one of them says, "I think it's about
726
00:43:02,581 --> 00:43:04,875
$444 million."
727
00:43:06,043 --> 00:43:09,963
And I thought the SEC staff
were going to fall out of their chairs.
728
00:43:10,464 --> 00:43:15,427
$444 million from small investors,
that's a lot of money.
729
00:43:15,927 --> 00:43:18,055
This is the early '90s.
That's a lot of money.
730
00:43:18,972 --> 00:43:20,515
They stopped the testimony.
731
00:43:20,599 --> 00:43:23,560
They ran up front to talk
to the head of the office of the SEC,
732
00:43:23,644 --> 00:43:25,729
New York office, and…
733
00:43:26,229 --> 00:43:27,898
"My God! What's going on here?"
734
00:43:27,981 --> 00:43:29,733
They were apoplectic.
735
00:43:29,816 --> 00:43:33,028
The head of the office
I thought was going to have a coronary.
736
00:43:34,780 --> 00:43:38,784
The SEC did suspect
that there was fraud being perpetrated,
737
00:43:38,867 --> 00:43:43,497
but they suspected Avellino and Bienes
were the ones perpetrating the scheme.
738
00:43:44,498 --> 00:43:48,210
And so then Frank Avellino
and Michael Bienes explained that
739
00:43:48,293 --> 00:43:52,881
all the trading decisions had been done
essentially by Bernie Madoff.
740
00:43:52,964 --> 00:43:56,259
They were basically saying,
"Don't look at us, look at Bernie Madoff."
741
00:43:57,302 --> 00:44:00,347
So the SEC seeks documents
from Bernie Madoff.
742
00:44:02,474 --> 00:44:04,476
The SEC
comes sniffing around,
743
00:44:05,018 --> 00:44:07,437
and Madoff gets scared because
744
00:44:07,938 --> 00:44:09,314
it was all a fraud.
745
00:44:13,193 --> 00:44:17,614
Madoff never did any investing
for his investment advisory business.
746
00:44:18,532 --> 00:44:20,826
It involved simply taking people's money
747
00:44:20,909 --> 00:44:23,704
and telling them he was going
to invest it, and he never did.
748
00:44:23,787 --> 00:44:25,872
They were fictitious trades.
749
00:44:25,956 --> 00:44:26,998
It was a Ponzi.
750
00:44:27,541 --> 00:44:31,420
Here, in 1919,
is Charles Ponzi.
751
00:44:32,087 --> 00:44:37,134
Ponzi's proved his boasts he can make
50% profit on investments in 90 days,
752
00:44:37,217 --> 00:44:39,469
and wise men follow him.
753
00:44:39,553 --> 00:44:42,139
When government proves Ponzi a swindler…
754
00:44:44,224 --> 00:44:46,184
A classic definition of a Ponzi
755
00:44:46,268 --> 00:44:48,478
is taking money from Peter
and giving it to Paul.
756
00:44:49,104 --> 00:44:50,439
It's telling Peter,
757
00:44:50,522 --> 00:44:53,316
"I'm gonna take your money,
I'm gonna do something, invest it,
758
00:44:53,400 --> 00:44:54,818
and I'm going to give you a return,"
759
00:44:55,861 --> 00:44:58,363
but I take your money
and I just give it to Paul.
760
00:44:58,905 --> 00:45:01,533
And this process
just goes on and on and on,
761
00:45:01,616 --> 00:45:06,329
because I continually need
new investors to pay back old investors,
762
00:45:06,413 --> 00:45:09,583
and there's no investing,
no business whatsoever going on.
763
00:45:12,377 --> 00:45:17,382
So when the SEC came in, in 1992,
to investigate Avellino and Bienes,
764
00:45:17,883 --> 00:45:20,844
Madoff has to prove to them
that the trades were real.
765
00:45:22,137 --> 00:45:25,640
So, he turns to Frank Dipascali
to create fake trading documents
766
00:45:25,724 --> 00:45:29,060
using historical information
to give to the SEC.
767
00:45:30,353 --> 00:45:33,857
Frank Dipascali was
Madoff's right-hand man.
768
00:45:33,940 --> 00:45:35,650
He'd been with him for many years.
769
00:45:35,734 --> 00:45:37,569
He handled the feeder funds,
770
00:45:37,652 --> 00:45:39,154
and handled a lot of money.
771
00:45:39,738 --> 00:45:42,365
Frank was a real guy's guy,
772
00:45:42,449 --> 00:45:44,284
and he was incredibly bright.
773
00:45:44,367 --> 00:45:48,288
You could cast Frank Dipascali
in a mob movie quite easily.
774
00:45:48,371 --> 00:45:50,999
He was a working-class guy,
775
00:45:51,082 --> 00:45:53,126
and he was incredibly loyal.
776
00:45:54,669 --> 00:45:59,382
Dipascali rises to the occasion
in spectacular fashion.
777
00:45:59,466 --> 00:46:02,511
He starts creating the fake paper trail.
778
00:46:03,136 --> 00:46:07,432
This has to be legitimate-looking
account records, trade logs,
779
00:46:07,516 --> 00:46:09,059
account statements,
780
00:46:09,142 --> 00:46:12,354
and this can't just be paper
that'll fool Aunt Myrtle,
781
00:46:12,437 --> 00:46:15,357
this has to be paper
that will fool the SEC.
782
00:46:16,441 --> 00:46:18,652
When the SEC came calling,
783
00:46:18,735 --> 00:46:21,029
Bernie Madoff showed them
the fake documents.
784
00:46:21,112 --> 00:46:22,823
They believed that they were real.
785
00:46:22,906 --> 00:46:26,159
I don't know how carefully
they scrutinized those documents.
786
00:46:26,243 --> 00:46:28,411
I think a lot of it goes into the mindset.
787
00:46:28,495 --> 00:46:30,622
I mean, what are the chances
that Bernie Madoff,
788
00:46:30,705 --> 00:46:34,251
or any of these guys, to such a degree,
is just faking the whole thing?
789
00:46:34,835 --> 00:46:40,090
And in 1992, the SEC closed the case
without any action whatsoever,
790
00:46:40,173 --> 00:46:42,592
or any real investigation
of Bernie Madoff.
791
00:46:45,720 --> 00:46:48,014
But what they did was, instead,
792
00:46:48,098 --> 00:46:52,269
they forced Avellino and Bienes
to give up their business,
793
00:46:52,352 --> 00:46:55,689
because they were running, essentially,
an unregistered investment firm.
794
00:46:56,606 --> 00:47:00,485
The SEC made the decision that,
"This is structured illegally."
795
00:47:00,569 --> 00:47:03,989
"You must take all the money
out of Bernie's shop
796
00:47:04,072 --> 00:47:06,032
and return it
to all of those individuals."
797
00:47:08,243 --> 00:47:11,538
That's $440 million,
798
00:47:11,621 --> 00:47:15,500
and Bernie doesn't have it
because it's all a fraud.
799
00:47:16,126 --> 00:47:18,003
So he turns, at that point,
800
00:47:18,086 --> 00:47:22,215
to three of his biggest,
longest-standing investors.
801
00:47:23,008 --> 00:47:26,136
Jeffry Picower,
Carl Shapiro, and Norman Levy
802
00:47:26,219 --> 00:47:32,475
were foundational individual investors
in Bernie's investment advisory business.
803
00:47:32,559 --> 00:47:36,104
Over the years, he made them
very, very happy with his results.
804
00:47:36,688 --> 00:47:41,151
So now Bernie persuades them
to help him out.
805
00:47:41,651 --> 00:47:43,570
Whether they knew what he was doing,
806
00:47:43,653 --> 00:47:46,948
or whether they were
truly innocent of his intentions,
807
00:47:47,032 --> 00:47:48,533
they came up with the money,
808
00:47:49,075 --> 00:47:51,870
and so Bernie was able to write checks
809
00:47:51,953 --> 00:47:55,832
for all of Avellino and Bienes' customers.
810
00:47:57,918 --> 00:47:59,377
And guess what happened?
811
00:48:00,462 --> 00:48:02,547
None of his customers
wanted their money back.
812
00:48:02,631 --> 00:48:04,132
They loved what Bernie was doing.
813
00:48:05,383 --> 00:48:08,553
When the SEC closed down
Avellino and Bienes,
814
00:48:09,054 --> 00:48:12,891
many of their clients went
directly to Madoff for investment.
815
00:48:12,974 --> 00:48:14,768
All of a sudden,
Bernie said to me,
816
00:48:14,851 --> 00:48:15,936
"We're gonna be very busy."
817
00:48:16,019 --> 00:48:18,939
He said, "Something happened,
we'll be getting in a lot of calls,
818
00:48:19,022 --> 00:48:20,607
and people are gonna be investing."
819
00:48:21,191 --> 00:48:24,110
A lot of the people were senior citizens,
820
00:48:24,819 --> 00:48:26,905
a lot of them from Florida.
821
00:48:27,447 --> 00:48:29,074
These widows, they'd be like,
822
00:48:29,574 --> 00:48:30,867
"I was told to call."
823
00:48:30,951 --> 00:48:35,080
"I was told to call, and I have
$15,000 that I want to invest."
824
00:48:35,163 --> 00:48:38,041
This went on for days and days and days.
825
00:48:38,750 --> 00:48:41,670
When we closed
the Avellino and Bienes accounts,
826
00:48:41,753 --> 00:48:45,048
I started getting, you know,
a lot of pressure from these people
827
00:48:45,131 --> 00:48:48,510
who were relying upon
that money to live on.
828
00:48:49,260 --> 00:48:51,304
The SEC had told me at the time,
829
00:48:51,388 --> 00:48:54,766
"Look, you want to still do business
with these people, that's fine."
830
00:48:54,849 --> 00:48:57,394
"There's nothing wrong with you
doing business with these people."
831
00:48:58,520 --> 00:49:01,481
Bernie Madoff still
did not register as an investment advisor.
832
00:49:01,564 --> 00:49:03,316
The SEC missed it, and,
833
00:49:03,400 --> 00:49:07,612
unfortunately, they missed
one of the biggest frauds in history.
834
00:49:09,406 --> 00:49:12,450
I had worked very hard
running a natural foods business.
835
00:49:12,534 --> 00:49:15,370
After 20 years,
I decided to sell it and retire.
836
00:49:15,453 --> 00:49:16,955
And I sold it for a million dollars.
837
00:49:17,038 --> 00:49:22,293
So I ended up investing maybe $100,000
with Avellino and Bienes,
838
00:49:22,377 --> 00:49:24,587
and when the SEC busted them,
839
00:49:25,422 --> 00:49:29,634
that's when I first learned that
Avellino and Bienes invested in Madoff.
840
00:49:30,301 --> 00:49:33,263
And when the SEC looked into Madoff,
841
00:49:33,346 --> 00:49:34,889
they found no evidence of fraud,
842
00:49:34,973 --> 00:49:37,892
so I thought there's an opportunity
to invest directly in Madoff.
843
00:49:39,269 --> 00:49:42,063
He promised steady returns,
844
00:49:42,147 --> 00:49:44,065
averaging 9% a year.
845
00:49:44,149 --> 00:49:45,859
It was so attractive.
846
00:49:45,942 --> 00:49:48,737
It wasn't promising the moon,
it was just steady.
847
00:49:49,946 --> 00:49:51,448
I did due diligence.
848
00:49:51,531 --> 00:49:56,077
I would follow stories saying he was
leading the pack in electronic trading.
849
00:49:56,161 --> 00:49:59,372
He was someone who
was a mover and shaker.
850
00:50:00,957 --> 00:50:05,420
The fact that the SEC found
no evidence of wrongdoing was, to me,
851
00:50:05,503 --> 00:50:08,006
putting a stamp of approval on Madoff,
852
00:50:08,089 --> 00:50:12,927
so I sent a wire for $900,000 to Madoff.
853
00:50:16,556 --> 00:50:20,185
All of a sudden,
it's no longer Avellino and Bienes
854
00:50:20,268 --> 00:50:22,437
pooling the money
and handing it to Bernie.
855
00:50:22,520 --> 00:50:24,981
It's thousands of people handing money
856
00:50:25,065 --> 00:50:28,443
to Bernie's unregistered
investment advisory business.
857
00:50:28,526 --> 00:50:31,404
His name got around
largely by word of mouth.
858
00:50:32,030 --> 00:50:34,491
You get an introduction
at the country club,
859
00:50:34,574 --> 00:50:37,077
you get an introduction
on this philanthropy board.
860
00:50:37,660 --> 00:50:41,539
He's becoming better known
in the world of elite money managers.
861
00:50:41,623 --> 00:50:43,750
And they're all saying
the same thing.
862
00:50:43,833 --> 00:50:45,627
"You gotta put your money with Bernie."
863
00:50:45,710 --> 00:50:48,004
"We don't know how he's doing it,
but it's magic."
864
00:50:49,380 --> 00:50:51,966
Madoff's
unregistered investment business
865
00:50:52,050 --> 00:50:57,263
attracts endowments from
very well-known Jewish universities,
866
00:50:57,347 --> 00:51:00,558
and philanthropists like Elie Wiesel,
a Holocaust survivor,
867
00:51:00,642 --> 00:51:02,811
and of course, some very wealthy families,
868
00:51:02,894 --> 00:51:06,064
among them the Katz family
and the Wilpon family,
869
00:51:06,147 --> 00:51:08,483
who are the owners of the New York Mets.
870
00:51:08,983 --> 00:51:11,569
And this is
when the fundamental nature
871
00:51:11,653 --> 00:51:13,613
of the Ponzi scheme has to change.
872
00:51:13,696 --> 00:51:15,573
It's a whole different ballgame.
873
00:51:15,657 --> 00:51:17,951
He was able to fool the SEC.
874
00:51:18,034 --> 00:51:21,454
He had just survived an investigation
without a scratch,
875
00:51:21,538 --> 00:51:24,916
and so he was emboldened
and felt he was untouchable.
876
00:51:24,999 --> 00:51:26,501
The sky was the limit.
877
00:51:26,584 --> 00:51:28,670
The legitimate
trading business gives Madoff
878
00:51:28,753 --> 00:51:31,047
the credibility of being successful,
879
00:51:31,131 --> 00:51:35,260
and he's now got about 5,000 clients
in the investment advisory business.
880
00:51:35,343 --> 00:51:38,763
So he needs to scale up the Ponzi scheme.
881
00:51:38,847 --> 00:51:40,515
He needs a lot more space
882
00:51:40,598 --> 00:51:43,893
to keep the Ponzi separate from
the legitimate side of the business.
883
00:51:44,561 --> 00:51:46,938
So he subleases some space
884
00:51:48,565 --> 00:51:51,651
on the 17th floor
of the Lipstick Building.
885
00:51:52,735 --> 00:51:57,157
A little warren of offices
where Frank Dipascali is king.
886
00:51:58,074 --> 00:52:04,080
Messy, cluttered, nothing like
the elegant, stately offices upstairs.
887
00:52:05,415 --> 00:52:10,253
This is where the Ponzi scheme will grow
exponentially in the years ahead
888
00:52:11,462 --> 00:52:13,423
into a fraud on steroids.