[contemplating music playing]
[Jeff] Sometime around 2005,
my mother and I were at Palm Beach Country Club.
It was a beautiful day. We played golf.
[crack]
[Jeff] And we went upstairs to the balcony to eat lunch.
We were seated,
and there was only one other couple there,
and it was Bernie Madoff and his wife, Ruth.
And my mother immediately noticed.
"Oh, it's Bernie."
She went up and started talking, "Hi," and introduced me.
"This is Jeff, my son. He has an account with you."
And I shook Mr. Madoff's hand.
And I was, like, in awe.
He was the god of Palm Beach.
He was the god of finance.
We went back to the table,
and my mother, in her fashion, said,
"Oh, what a wonderful man."
But then she said, "There's just one thing about him though."
"He never looks you in the eye."
[contemplating music continues]
[Jeff] My mother got it before anybody.
She just didn't put it together.
Because this god was a demon, a devil.
[reporters questioning indistinctly]
[reporter] Bernie Madoff has been arrested.
He's the founder of Bernie Madoff Investment Securities.
He's 70 years old.
He is a fixture on Wall Street.
Bernie Madoff, 70 years old, arrested by the FBI.
This former iconic figure on Wall Street has allegedly, but by his own admission,
destroyed many lives, charities, and reputations on Wall Street
and around the world.
[reporter] A walk of shame, and shoving.
[Madoff] Don't push me.
[Andrew Ross Sorkin] People think they know this story.
They think it's a story about one man,
but when you pull back the curtain, it's actually about so much more.
[atmospheric music playing]
[Jim Campbell] Bernie Madoff ran the biggest criminal enterprise
in the history of Wall Street.
He was a financial sociopath, a serial financial killer.
[Andrew Cohen] He was kind of like an uncle figure to me.
He was someone who I really liked and I trusted,
and then there's this monster that's living this lie.
Trust. Betrayal. Pure evil.
A hundred years from now, people will remember this story.
[Bruce Dubinsky] We're talking about $64 billion.
When you see that many zeros,
it's mind-boggling.
[Sorkin] You had to step through the looking glass
into this alternate reality where literally nothing was real.
[Dubinsky] It was all fake. The money went poof.
Gone.
[Gordon Bennett] It's one thing to lose your life savings.
[voice breaking] But when you lose our house too, it's terrible.
[Diana B. Henriques] How could he fool so many people for so long?
What happened was so avoidable,
and so many people enabled it to happen because of greed.
[Sorkin] It's about the big banks.
It's about the regulatory agencies.
It's about this whole ecosystem
that completely and utterly failed.
[Jeff] You're going to put billions into something, you check everything.
Even if God sends you a résumé…
check the references.
[attorney] Mr. Madoff, by your own admission,
you lied for a living.
-Isn't that true? You lied for a living. -[Madoff] Yeah. Yeah.
Nobody can figure out, "Why did Bernie Madoff do this?"
He had a very successful business
that was the envy of everybody on Wall Street.
Everybody says, "Why would Bernie Madoff commit the largest fraud in history?"
Nothing in this industry is what it looks like.
That's why the industry runs, because… [chuckles]
You also have to understand one thing.
The one thing every one of them was,
which is everybody in the industry, is they're greedy.
[theme music playing]
[indistinct shouting]
We begin our coverage tonight of what's been called
the worst financial crisis in modern times.
Certainly, the largest financial disaster in decades in this country.
In 2008, the economy was being decimated.
This was Armageddon.
Wall Street in crisis mode this morning.
[reporter] Reeling because of these bad real estate loans.
[Campbell] Mortgage brokers
had been selling mortgages to people that couldn't afford them.
Wall Street knew a lot of them were shit,
packaged them and sold them to their clients,
whereupon they blew up.
[reporter 1] Foreclosures across the country are up a staggering 87%.
[reporter 2] Property values nationwide this year
could drop more than half a trillion dollars.
[Sorkin] It's mind-boggling. Everybody's losing their homes.
The stock market is just cratering.
-Every day is worse than the day before. -[shouting]
[reporter 3] The Dow down nearly 450 points.
We just hit 730 or something.
That's… We've never seen that.
[reporter 4] Traders in Tokyo worried about a spreading US recession.
[Sorkin] Every bank was falling to pieces.
[reporter 5] Lehman Brothers says it will file for Chapter 11 bankruptcy.
[reporter 6] The financial crisis continues to cause panic.
We are faced with the prospect of a global meltdown.
[Sorkin] This was this once-in-a-century, cataclysmic event
that was causing carnage throughout the system,
and then there was Bernie.
Now to what turns out to be
the biggest Ponzi scheme in the history of Wall Street.
Fallout from allegations against Bernie Madoff
in the realization that as much as $50 billion investors thought they had,
is simply gone.
[reporter] How do you feel?
[Keith Kelly] Bernie Madoff was arrested on Thursday, December 11, 2008.
Friday morning, FBI agents show up to Madoff's offices
in the very upscale Lipstick Building on the east side of New York.
[Steven N. Garfinkel] We walked into the lobby of the Lipstick Building,
and it resembled the scene from the movie Frankenstein,
where you have the angry villagers with their pitchforks and the torches
wanting to get upstairs to kill the monster.
[Kelly] So FBI agents come up with their raid jackets on,
and I'm the first agent through the door.
[suspenseful music playing]
[Kelly] All the employees had been corralled on the 19th floor.
It's just total chaos.
There's employees crying,
trying to figure out what's going on.
The FBI was the lead criminal investigation agency,
but we also had IRS, Department of Labor, accountants,
the agency that oversees the brokerage industry, SIPC.
They start disconnecting people's access.
I was a little surprised because it looked like a legitimate business.
Computers everywhere, clocks showing different time zones…
It looked like a legit trading business.
[Kelly] As we're conducting the search,
I walk into Bernie's office and start getting a sense of the man,
who he is and what he's about.
To the left are these Lichtenstein prints all with a bull motif.
To me, the bull didn't stand for bull market.
It actually meant bullshit.
And right behind his desk, there is a very modern piece of art,
and it's a giant screw.
I think the screw was basically a big… "screw you" to the world.
The office has been secured, we have Bernie Madoff in custody,
and we just know a lot of money is missing.
Our biggest problem was, we don't know how it happened.
You have a bunch of employees
and you don't know who's guilty, who's innocent.
[Garfinkel] We want to know how many people were victimized.
How much money was stolen.
What was the scale of this.
And we want to know who else was doing this with him.
Who are the players? What is everybody's role?
Where's the money?
Who benefited from this crime?
Because there is no way you can run a $50 billion Ponzi scheme
and not have anybody else know about it.
[ominous music playing]
[Erin Arvedlund] With Bernie Madoff, it's very hard to figure out
where the truth ended and the lies began.
[Madoff] Look, I'm not proud that I did what I did.
I spent a lot of hours trying to analyze why I did what I did.
One of my problems was I always wanted to please everybody.
When I started doing business, people showed a lot of faith in me.
Now, I made them a lot of money,
and everybody in the industry thought I was like, this terrific success story,
which I was.
[attorney] Mr. Madoff, do you agree to the first sentence on page seven?
That that is an accurate reflection of your business?
"When Madoff began a retail business in 1960…"
-[attorney] Yes. -"…he had about a dozen clients,
all of whom are family and friends"? Yes.
[Madoff] Well, let's go back to the beginning.
[evocative music playing]
[Arvedlund] Bernie Madoff is the son of Jewish immigrants.
His grandparents came over from Russia and Poland.
He grows up in Laurelton, Queens,
just outside of New York City.
[Henriques] It's important to put
Madoff's early years in the right historical context.
The United States, and most of the world,
had struggled through the most horrendous Depression in the '30s.
And then the war in the '40s.
A decade and a half of turbulence, of trauma.
So, by the '50s,
there was a hunger for quiet, for peace, for normality.
And that hunger
became this conformist culture of the American suburbs.
[announcer] Most Americans are moving into a new-moneyed middle-class.
They're promised an almost unlimited capacity to consume.
[Henriques] And that was where Bernie's father
was able to move the family to solidly middle-class Queens.
[Arvedlund] Bernie's parents were named Ralph and Sylvia.
His mother was a homemaker.
His father worked various odd jobs.
Bernie is an average kid who goes to public school.
[Campbell] He was kind of an awkward guy. I heard one story in particular.
He couldn't get this girl to come out and play with him, right?
He finally offered her 25 cents,
and she came out and played with him.
Bernie learned at a very young age how to motivate people with money.
In high school, he was a lifeguard.
He sees himself as not only a doer of good,
but a protector.
"I'm the go-to guy."
[Henriques] And he sold lawn sprinkler equipment on the side.
He wanted to make money.
He was determined to be successful.
[rock & roll music playing]
[Henriques] Bernie met his future wife, Ruth Alpern,
at a party in a friend's basement.
This was a time of bobby socks and poodle skirts.
It was a high-school sweetheart romance.
[Arvedlund] Ruth was very smart.
When she graduated from high school, she went to college,
which was unusual for women at that time.
[Campbell] She was beautiful and elegant.
She was obviously from more money.
Her father, Saul Alpern, ran a successful accounting business in New York City,
so she was like a catch for him.
[Arvedlund] Ruth's father didn't think that Bernie was good enough for her,
that she could have done better,
that this kid was just never going to make much of himself.
[Henriques] Bernie's own dad wanted him to be a lawyer,
and Bernie did well enough in school to get into law school.
He spent one year there and then just couldn't stick it any further.
[Campbell] Bernie Madoff lived in the shadow of failure.
Bernie's family was engulfed in failure.
Over time, his father had several businesses.
They all seemed to fail for one reason or the other.
[Henriques] At one point, a tax lien was put on the family home.
At another point, his mother had to go to work at a local blood bank
to help the family get through.
This was not how the successful suburban family was supposed to operate,
and it instilled in Madoff
an absolutely non-negotiable requirement to succeed,
to not be a failure like his dad.
[announcer] All of us have the possibility of living better than we do right now.
What he wanted was the fast, flamboyant success of Wall Street.
[announcer 1] Wall Street, the financial heart of the nation.
[announcer 2] Nerve center of American business and industry.
This was an era on Wall Street when "fast" and "flamboyant" were the operative words.
This was the '60s, the go-go years.
High risk, high returns.
Young traders, young money managers flooding into a post-war market.
[announcer] Through the investment banking industry,
we can invest our savings, vitalize our industrial plants,
and continue to give ourselves the steadily rising level
of goods and services we all want.
We have the privilege of underwriting America's future.
[evocative choral music playing]
[Henriques] A few weeks after Bernie and Ruth married,
he decided to plant his flag
in a tiny little desk in Ruth's father's accounting firm.
[Campbell] He started off with $5,000,
and he registered Bernard L. Madoff Investment Securities, BLMIS, in 1960.
And Ruth was involved in the business.
She helped with administrative work and often dealt with the checkbook.
Bernie, from the beginning, saw himself as a good guy
that was going to go on and tackle the system
and beat them at their own game.
[Henriques] Bernie began trading in over-the-counter stocks.
At that time, the stock market, to most affluent Americans,
meant the New York Stock Exchange.
But there was a huge market, unseen by most investors,
that didn't have a building, called the over-the-counter market.
It was comprised of a bunch of dealers and traders with a telephone,
that was it.
[Campbell] That market was made up of this garbage bin, if you will,
of companies that were not reputable enough,
or were too small, or were frankly disreputable,
traded in what's called the pink sheets,
over the counter, outside of the New York Stock Exchange.
[Henriques] And Bernie stood ready to buy or sell
in an increasingly large roster of over-the-counter stocks.
And no one knew exactly what prices were being charged for those stocks.
[Sorkin] Back then, there were no computers.
The Internet didn't exist.
There was no app for this.
This was literally, you pick up the phone, you call Bobby in Boston,
you say, "I've got 100 shares." He says he's gonna buy 100 shares.
You agree on the price over the phone,
and then you literally mail them the certificates.
This was the Wild West of Wall Street.
[Henriques] The risks were huge.
The potential profits were huge.
You had to have nerves of steel, ice water in your veins
to be able to navigate this market day in and day out.
Bernie had those.
[Arvedlund] It was a very successful business, and it grew quickly.
But on the side,
he began running this very small investment advisory business.
[Campbell] Bernie thinks, "In addition to the over-the-counter business,
I can manage some money for people acting as a pure investment advisor."
And this is where you manage people's money.
You make the investments for them and try to earn them returns,
but you earn fees rather than commissions.
It's much more profitable than doing commission-based business.
It turns out that his father-in-law, Saul Alpern,
has a lot of clients that he'd done accounting business for,
that he started to refer to his son-in-law.
So, Bernie ended up with this group of 20 to 24 people
wanting to do investments with him.
[Henriques] The form that Madoff's early investment advisory business took
was a little unusual, and I might argue, a little bit outside the lines.
Saul Alpern,
instead of just having Bernie set up individual accounts for these clients,
he decided to make it easy on his son-in-law.
He would pool all of their money
and then give that money to Bernie to invest.
And then when Bernie reported back the profits,
Saul would allocate the profits among the investors in the pool.
A careful lawyer would have told Saul Alpern, "You can't do this."
It was essentially an unregulated mutual fund.
[Campbell] Beyond around 20 accounts,
you are required to register with the government, with the SEC.
But Bernie Madoff doesn't register as an investment advisor.
[Henriques] So, from the very beginning,
you can see the cellular division that shaped the rest of Bernie's career.
He had a legitimate trading business in the over-the-counter market.
And on the side, he had a private investment advisory business
that not many people knew about,
that he wasn't really running according to all the rules in the rule book.
[Campbell] He's completely driven
to make it on Wall Street from nowhere, from nothing,
and to avoid the failure that he watched befall his parents, and rise to the top.
[Henriques] In his unofficial investment advisory business,
Bernie invested his clients' savings in wildly speculative stocks.
He was making money, he was taking risks, he was taking very big risks.
And then came May 1962.
[announcer] Headline news is made in a mighty avalanche of selling,
which sees stock prices dive
and more than $20 billion in paper values lost.
The biggest drop since 1929.
[Henriques] Suddenly, the market just dropped like a stone,
and the first securities to go up in smoke
are the speculative stocks that Bernie has bought for these private clients.
They're wiped out almost immediately.
[Madoff] The customers, theoretically, lost their money.
The total investment that they had made was $30,000.
I felt guilty because of the fact
that they bought the stock because I told them to buy the stock.
[Henriques] But, rather than admit
that he had taken ridiculous risks with their money and lost it all,
he decides to cover them up.
[Campbell] He had to go to his father-in-law, Saul Alpern,
and borrow $30,000,
and he paid them all back.
[Henriques] He uses the $30,000 to make them whole in their accounts,
and then he lies to them about what he's done.
The outcome of his lies was that he looked like a genius.
He looked like an incredible success,
a brilliant strategist that navigated
the worst week in the stock market since 1929, without losing a nickel.
At that intersection, he had to accept being a liar
or a failure.
And the choice he made was,
he could live with himself as a liar
much more easily than he could live with himself as a failure.
[contemplating music playing]
[indistinct police radio chatter]
[clamoring]
[indistinct chanting]
[rock music playing]
[chanting] The whole world is watching!
[Sorkin] And then the 1970s came along.
[announcer] The attacks slashed at North Vietnam with renewed fury.
People have got to know whether or not their president's a crook.
The recession is indeed upon us.
[Prisendorf] Gas lines of 10 and 12 blocks were everywhere.
The current slide in the economy could get worse.
[Sorkin] You had unemployment rising, gas prices going up, skyrocketing.
You had inflation really start to gain steam,
which, all of a sudden, led to a recession.
[Henriques] Wall Street underwent some of the most dramatic changes in its history.
It was like a slow-motion stock market crash.
As Bernie moved into the 1970s,
he decided it was time to move to an office building at 110 Wall Street,
and his legitimate trading business became more and more conservative.
[Sorkin] Bernie Madoff became what's called a market maker.
When you buy a stock,
buying 100 shares from somebody else over there
who's selling 100 shares, that's not really what's happening.
What's really happening is,
there's a middleman who's actually already bought those 100 shares.
What you're actually doing is buying from the middleman,
and that's who Bernie Madoff was, he was a wholesaler.
He would effectively warehouse stock,
and he would turn around and sell them when somebody else wanted to buy them,
and he would make a commission, a couple of cents for every sale.
That's what a market maker is.
Their obligation is to buy and sell shares in good times or bad.
[Arvedlund] Bernie's business on the market-making side grows so quickly
that he hires his brother Peter.
They were really visionaries, pioneering computerized trading.
[Henriques] When the computer arrived,
it just radically changed the way Wall Street worked.
[reporter] It's the beginning of a new age,
launched by the tremendous force of a revolution.
Computers are so profoundly important that it altered the path of civilization.
[Henriques] The biggest players moving into Wall Street,
they didn't want to trade 200 shares.
They wanted to trade 20,000 shares on a moderate day.
In the '70s, buying and selling stocks actually took a really long time.
It took, usually, a few weeks.
[Henriques] Wall Street needs people who can do these trades fast.
That requires computerization, and Bernie rides that wave.
[Arvedlund] Using computerized trading, he could process a trade in three days.
It was just unheard of.
[Henriques] By being able to speed up his process,
he was able to compete for big institutional business
in his legitimate operation,
and it gave him a huge edge.
[Campbell] Bernie's brilliance was that he consolidated
all the off-the-exchange markets, the pink sheets, sort of small firms,
not reputable type firms,
into what you might call one computer screen,
in what became the NASDAQ and the NASD.
He legitimized that business.
Today, Apple, Google, Microsoft, are all NASDAQ companies.
[Arvedlund] His legitimate brokerage firm was doing gangbusters,
which made it all the more bizarre
that he was running this very shadowy investment advisory business
that no one knew about, which was also growing.
People were hearing about Bernie and how great he was.
He was going to the Catskills in the summer,
raising money from friends and other family members.
They thought he was going to be a star.
He was still getting referrals from his wife's father, Saul Alpern,
and over the years, Saul had hired two accountants,
Frank Avellino and Michael Bienes.
When Saul Alpern retires in the 1970s, they rename the firm Avellino & Bienes,
or A and B.
[Henriques] Michael Bienes and Frank Avellino
are a match made somewhere outside of heaven.
Avellino and Bienes certainly knew
that Bernie Madoff was managing money for Saul's family and friends.
But it was really when Saul retired that Avellino and Bienes see dollar signs.
They're like kids in a candy store.
They began to construct one of Bernie's first feeder funds,
collecting money from all sorts of investors,
corporations, family offices, and trust departments, individuals,
pooling their money into a fund
and then send the money to Bernie's unofficial investment advisory business.
They push it to their clients,
to friends of their clients, to relatives of their clients.
[Arvedlund] In exchange for raising that money, they take a fee,
and they start bringing in a river of money
to Bernie Madoff to manage.
[Campbell] Avellino and Bienes, they weren't a hedge fund
or a Wall Street fund.
They weren't money managers at all. They were accountants.
And they don't register the investment business, which is illegal.
They took money from their clients,
and they put it with a secret manager whose name couldn't be revealed,
without even telling the clients what was happening with their money,
and that manager was Bernie Madoff.
[funky music playing]
[Henriques] By the end of the '70s,
Bernie began to experience the American success dream.
Bernie and Ruth have two sons, Andrew and Mark.
He was a family man, he truly loved his family,
and he was able to move his family into a very lovely suburb,
Roslyn, Long Island,
one of the wealthier communities along the coast.
He even splurged as much
as to commute into Manhattan by seaplane instead of the train
or the Long Island traffic like everybody else.
[Ronald Reagan] We've moved from malaise to hope, confidence, and opportunity.
[crowd cheering]
Government that has high taxes, excessive spending, and over-regulation
had thrown a wrench in the works of our free markets.
Our economic program for the next four years,
we're going to turn the bull loose.
-[crowd cheering] -[bell ringing]
[Henriques] As the '80s unfolded,
the bull market that began in America very rapidly became a global phenomenon.
It was the dawn of globalization.
Everyone wanted to be in the stock market,
and Bernie's legitimate trading business started making major money.
[indistinct chatter]
[Ellen Hales] Wall Street in the '80s was crazy.
There was a lot of excitement, and people were making money.
I heard there was a lot of cocaine, a lot of drinking,
and a lot of wining and dining.
Every firm was hiring.
I started working for Bernie Madoff in July of '85.
Bernie had an incredible mystique about him.
He was revered on Wall Street,
he was on the Board of Governors of NASDAQ.
He was always jetting off to London and having meetings.
Bernie would walk into the trading room
and he would buy things, and the market would go up.
He'd sell things, and the market would go down,
and he developed a reputation as being almost all-knowing.
[Henriques] Bernie's legitimate firm was doing a spectacular business.
He and Ruth move into a lovely penthouse apartment in Manhattan.
He bought a summer place in Montauk.
He joined a country club.
He bought a boat.
Now Bernie could certainly look his father-in-law in the eye
and say, "See, I told you I'd be a success."
[Madoff] You know, I started my business with literally $500.
I had gone from nothing.
I was this little kid from Queens.
Didn't go to Harvard and so on.
All of a sudden, you know, by '87, I was very successful.
I was a rich guy.
[camera shutter clicks]
[Hales] We were making a lot of money.
We were growing, we were hiring more traders.
Bernie wanted a more prestigious building,
so we move sometime in the summer of 1987
to 885 3rd Avenue, to the Lipstick Building.
It's a very unusual building.
It kind of looked like a lipstick container.
[Henriques] Bernie's move uptown to this iconic skyscraper
would impress investors. It would impress employees.
It would even impress regulators.
So this was part of the classy new image that Bernie was building for himself.
[compelling music playing]
[Hales] The offices were absolutely stunning when we first moved in.
Sophisticated, high-tech looking.
It was all windows. It was all bright lights.
[Eleanor Squillari] When I started working for Bernie Madoff in 1987,
it absolutely was a family atmosphere,
because they were very family-oriented people.
It was a nice atmosphere, it was very comfortable.
It was very safe.
Almost everybody that worked there were relatives,
they were friends of relatives.
Bernie's kids, Mark and Andy, were working there.
Mark and Andy were all-American.
Anybody would have been proud to have them as children.
I liked his brother, Peter, he was the compliance officer.
Ruth had an office at the firm.
She was a warm person.
She was a really great mother.
I could see Bernie and Ruth loved their children very much.
She adored Bernie, and I think that she was the person he confided in.
Bernie had said once to me, "Ruth is a great partner."
And Bernie was very generous.
[Hales] He gave a lot of money to charity.
He paid for the airfare for the honeymoons
for all of their employees when they got married.
[Squillari] He was on the board of Yeshiva.
He worked with the Special Olympics.
There was a time he paid for a woman's heart surgery.
[Hales] The Madoffs took everyone to Montauk for a weekend in the summer
with all their family and put them up in hotels.
We'd play volleyball on the beach.
We'd have a real party, a lot of drinking.
We'd dance, and it was fun.
But there was another side of Bernie.
He was meticulous about his appearance, about his surrounding.
[Hales] Everything had to be pristine.
If he looked down the trading desk
and he saw a computer monitor that was a little askew,
he'd have to go and fix it and make it in line.
Even if you're sitting at the desk, using it,
he would fix it while he walked by.
You couldn't have silver picture frames or anything that wasn't black and gray.
You couldn't have plants on your desk.
Everything had to be the same.
[Squillari] As time went on,
he became more intense.
[Hales] There were definitely days where you could feel the tension,
and you would just want to stay away from him.
[unsettling music playing]
[Hales] You never knew whether he was going to bite your head off.
[echoing] Son of a bitch. Will you shut up?!
I remember one time Bernie was just screaming at his brother, Peter.
Get the fuck out of my office!
[Squillari] I got such a stomachache.
I-I just got up and said, "Please stop."
And Peter would back off, because Bernie was a bully.
That was another side of him.
[Hales] I think Peter was probably a little bit afraid of Bernie,
the way everybody was a little afraid of Bernie.
[Squillari] He wanted to control you,
and it's because he disapproved of you
that he could control you.
Bernie could flip the switch in a second.
I saw times when he could be so kind and so caring,
and times where he could be so brutal.
-What the hell do you think you're doing? -[Squillari] Stop you dead in your tracks.
[echoing] What the hell do you think you're doing?!
I think there were a lot of people in Bernie.
He was a lot of things.
I figured he was under a lot of pressure.
[reporter] This morning, the stock market has been in a free fall.
[clamoring]
Close this deal, choose…!
[reporter] In trading rooms on Wall Street, there was panic.
Sell orders flooded in from big institutional investors,
from private investors, from mutual funds,
worried about inflation, rising interest rates,
a declining dollar, and huge budget and trade deficits.
[Hales] Monday, October 19, 1987,
was one of the scariest days I've ever experienced in my life.
The moment I got to work, and the market opened at 9:30,
until the moment it closed, was bedlam.
[reporter 1] Within two hours of the opening bell,
the Dow Jones Industrial Average plunged 200 points.
[reporter 2] The activity is incredible.
It's a frenzy, and I would say some fear and panic going on.
[Hales] During the crash, every firm on Wall Street was trying to dump stock.
We had so many phones ringing, we were inundated with orders.
People are screaming, we're writing tickets.
It just felt like a war zone.
I remember my uncle called me, and I picked up the phone, and he says,
"Three guys walk into a bar…"
I'm like, "Sam, I can't talk to you now, goodbye," and I hung up.
We had to maintain an orderly market.
A market maker is someone who was willing to be the buyer
and the seller of last resort.
So we were the only ones buying.
A lot of firms were not picking up their phones,
and I remember very distinctly Bernie yelling,
"Pick up the phone. We're not gonna be the firm that doesn't pick up."
So we're picking up the phone and we're buying a lot of stock.
And all I'm doing is pressing buttons on the computer, down, down,
taking my market down.
It never seemed like it was going to bottom.
[reporter 3] Bedlam reigned at New York Stock Exchange as frantic traders dealt
with more than half a billion sell orders flooding Wall Street.
[reporter 4] No one has one particular reason.
There's a kind of dark, gloomy psychology at work here.
Definitely panic selling.
Panic, complete panic. Everyone's going crazy.
[reporter 4] For brokers and traders, it was an unmitigated disaster.
Bloodbath.
[reporter 3] The sudden collapse
brought back memories of a fateful October day 58 years ago,
the crash of 1929 that heralded the beginning of the Great Depression.
[Hales] It was scary and it was overwhelming.
It was devastating.
But Bernie never seemed to sweat anything.
He was actually pretty cool and calm about it.
It was one of those things that really helped us to revere him,
because this was his money.
His name is the one on the door, Bernard L. Madoff Investment Securities,
and we were one of the few firms that honored our commitments.
We stayed open.
[Sorkin] Bernie Madoff kept buying,
even as all of the other market makers on Wall Street,
who had an obligation to buy the stocks,
even when they were falling, even if they're going to lose money,
that is the obligation of a market maker.
They weren't picking up the phone.
You couldn't get them on the line. You couldn't make that transaction.
But you could with Bernie Madoff.
[reporter] The mood on Wall Street is one of shock and disbelief.
For five years, the great Bull Market seemed unstoppable.
Confidence had been so high.
Then came the month of October, and then came Black Monday.
[Henriques] It's not clear
how much money Bernie's legitimate business lost in the '87 crash,
but the fact that Bernie was at the cutting edge
of both communications technology and trading technology allowed him
to keep the Madoff firm open, functioning, and serving customers.
This won him recognition from the SEC, from the New York Stock Exchange.
He testified in Congressional hearings,
he helped rewrite the rule book
to keep the market functioning through a crisis like Black Monday.
[Sorkin] People started talking about Bernie Madoff
as a man of his word, this trustworthy, loyal guy,
and it crystallized his reputation.
[Henriques] He began serving on industry boards.
He began being invited to regulatory roundtables,
and he was elected to three terms as the chairman of the board of NASDAQ.
And in the early '90s he was a trusted, respected Wall Street statesman.
Bernie fed on being "the guy."
He liked that pedestal that people put him on,
and I think as he got more and more of it,
he got more in love with that reverence.
Read my lips,
no new taxes.
[reporter] Booster, ignition and liftoff.
People are working harder than ever,
spending less time with their children, working nights and weekends.
[Jane Robelot] A look at business news this morning.
A rally in technology stocks
helped push the blue chips deeper into record territory.
[Andrew Cohen] I started at Bernie Madoff's firm.
I believe it was 1991.
Bernie Madoff had a very excellent reputation.
"Bernie's a great guy. He's very involved in the community."
"He's generous," you know, "You'd do well working for him."
It was a very bullish time in the market.
This is when the technology age started exploding.
The Internet came into being.
You had more people getting involved in the stock market.
[reporter 1] Dow Jones has a website.
[reporter 2] Real-time numbers, just as traders see them on Wall Street.
[Cohen] So we got more business, we had more customer flow.
It was a great time to be in stocks
because they became a lot more efficient through technology,
and profits started soaring.
Madoff was doing somewhere
between 5 and 7% of the total volume in the New York Stock Exchange,
which is huge for a relatively small company.
I don't envision it changing anytime soon unless the market really cools down.
[Campbell] Bernie's growing a legitimate market-making business,
and at the same time, he's also very quietly
been growing his secret investment advisory business,
which he keeps under the table,
which he keeps separate from the market-making business.
Initially, returns for investors were 11%,
but he was actually giving as high as 15 to 19%.
He is always consistently profitable.
[Henriques] What had begun in the mid-'60s as this little, kind of,
bridge club investment advisory business
has grown and grown and grown.
And Avellino and Bienes continued funneling a boatload of money
into Bernie Madoff's hands.
Avellino and Bienes operate their feeder fund
very under the radar, very quiet,
never putting anything in writing,
until one of their subcontractors,
who was setting up pooled investments and attracting friends and family to it,
breaks the first commandment of Avellino and Bienes
and puts something in writing.
[H. David Kotz] In 1992, a brochure was brought to the attention
of the Securities and Exchange Commission.
The SEC is a regulatory agency whose main mission is to protect investors.
And basically on the brochure it said,
"We offer 100% safe investments."
"We haven't had a losing transaction in over 20 years,
and they're basically riskless trading."
The SEC looks at the brochure and immediately realizes
there are significant red flags.
You cannot have 100% safe trading investment.
No such thing as riskless trading.
And their investigation led to these two guys,
Frank Avellino and Michael Bienes.
So Avellino and Bienes came voluntarily to the SEC with their lawyer.
[Ira Lee Sorkin] They wanted to take the testimony
of Avellino and Bienes together.
And I'm sitting in the middle,
and I think Bienes was to my left, Avellino was to my right.
And they get to the point where they say to them,
"How much money did you raise for investment?"
I think the SEC was expecting something like five or 10 million or something,
and they look at each other,
and one of them says, "I think it's about
$444 million."
And I thought the SEC staff were going to fall out of their chairs.
$444 million from small investors, that's a lot of money.
This is the early '90s. That's a lot of money.
They stopped the testimony.
They ran up front to talk to the head of the office of the SEC,
New York office, and…
"My God! What's going on here?"
They were apoplectic.
The head of the office I thought was going to have a coronary.
[Kotz] The SEC did suspect that there was fraud being perpetrated,
but they suspected Avellino and Bienes were the ones perpetrating the scheme.
And so then Frank Avellino and Michael Bienes explained that
all the trading decisions had been done essentially by Bernie Madoff.
They were basically saying, "Don't look at us, look at Bernie Madoff."
So the SEC seeks documents from Bernie Madoff.
[Bruce Dubinsky] The SEC comes sniffing around,
and Madoff gets scared because
it was all a fraud.
[dramatic music playing]
[Dubinsky] Madoff never did any investing for his investment advisory business.
It involved simply taking people's money
and telling them he was going to invest it, and he never did.
They were fictitious trades.
It was a Ponzi.
[announcer] Here, in 1919, is Charles Ponzi.
Ponzi's proved his boasts he can make 50% profit on investments in 90 days,
and wise men follow him.
When government proves Ponzi a swindler…
[Dubinsky] A classic definition of a Ponzi
is taking money from Peter and giving it to Paul.
It's telling Peter,
"I'm gonna take your money, I'm gonna do something, invest it,
and I'm going to give you a return,"
but I take your money and I just give it to Paul.
And this process just goes on and on and on,
because I continually need new investors to pay back old investors,
and there's no investing, no business whatsoever going on.
So when the SEC came in, in 1992, to investigate Avellino and Bienes,
Madoff has to prove to them that the trades were real.
So, he turns to Frank Dipascali to create fake trading documents
using historical information to give to the SEC.
Frank Dipascali was Madoff's right-hand man.
He'd been with him for many years.
He handled the feeder funds,
and handled a lot of money.
[Hales] Frank was a real guy's guy,
and he was incredibly bright.
You could cast Frank Dipascali in a mob movie quite easily.
He was a working-class guy,
and he was incredibly loyal.
Dipascali rises to the occasion in spectacular fashion.
He starts creating the fake paper trail.
This has to be legitimate-looking account records, trade logs,
account statements,
and this can't just be paper that'll fool Aunt Myrtle,
this has to be paper that will fool the SEC.
[Kotz] When the SEC came calling,
Bernie Madoff showed them the fake documents.
They believed that they were real.
I don't know how carefully they scrutinized those documents.
I think a lot of it goes into the mindset.
I mean, what are the chances that Bernie Madoff,
or any of these guys, to such a degree, is just faking the whole thing?
And in 1992, the SEC closed the case without any action whatsoever,
or any real investigation of Bernie Madoff.
But what they did was, instead,
they forced Avellino and Bienes to give up their business,
because they were running, essentially, an unregistered investment firm.
The SEC made the decision that, "This is structured illegally."
"You must take all the money out of Bernie's shop
and return it to all of those individuals."
[Henriques] That's $440 million,
and Bernie doesn't have it because it's all a fraud.
So he turns, at that point,
to three of his biggest, longest-standing investors.
Jeffry Picower, Carl Shapiro, and Norman Levy
were foundational individual investors in Bernie's investment advisory business.
Over the years, he made them very, very happy with his results.
So now Bernie persuades them to help him out.
Whether they knew what he was doing,
or whether they were truly innocent of his intentions,
they came up with the money,
and so Bernie was able to write checks
for all of Avellino and Bienes' customers.
[Campbell] And guess what happened?
None of his customers wanted their money back.
They loved what Bernie was doing.
[tense music playing]
When the SEC closed down Avellino and Bienes,
many of their clients went directly to Madoff for investment.
[Squillari] All of a sudden, Bernie said to me,
"We're gonna be very busy."
He said, "Something happened, we'll be getting in a lot of calls,
and people are gonna be investing."
A lot of the people were senior citizens,
a lot of them from Florida.
These widows, they'd be like,
"I was told to call."
"I was told to call, and I have $15,000 that I want to invest."
This went on for days and days and days.
[Madoff] When we closed the Avellino and Bienes accounts,
I started getting, you know, a lot of pressure from these people
who were relying upon that money to live on.
The SEC had told me at the time,
"Look, you want to still do business with these people, that's fine."
"There's nothing wrong with you doing business with these people."
[Kotz] Bernie Madoff still did not register as an investment advisor.
The SEC missed it, and,
unfortunately, they missed one of the biggest frauds in history.
[tense music continues]
[Gordon Bennett] I had worked very hard running a natural foods business.
After 20 years, I decided to sell it and retire.
And I sold it for a million dollars.
So I ended up investing maybe $100,000 with Avellino and Bienes,
and when the SEC busted them,
that's when I first learned that Avellino and Bienes invested in Madoff.
And when the SEC looked into Madoff,
they found no evidence of fraud,
so I thought there's an opportunity to invest directly in Madoff.
He promised steady returns,
averaging 9% a year.
It was so attractive.
It wasn't promising the moon, it was just steady.
I did due diligence.
I would follow stories saying he was leading the pack in electronic trading.
He was someone who was a mover and shaker.
The fact that the SEC found no evidence of wrongdoing was, to me,
putting a stamp of approval on Madoff,
so I sent a wire for $900,000 to Madoff.
[tense music builds]
[Henriques] All of a sudden, it's no longer Avellino and Bienes
pooling the money and handing it to Bernie.
It's thousands of people handing money
to Bernie's unregistered investment advisory business.
His name got around largely by word of mouth.
You get an introduction at the country club,
you get an introduction on this philanthropy board.
He's becoming better known in the world of elite money managers.
[Campbell] And they're all saying the same thing.
"You gotta put your money with Bernie."
"We don't know how he's doing it, but it's magic."
[Arvedlund] Madoff's unregistered investment business
attracts endowments from very well-known Jewish universities,
and philanthropists like Elie Wiesel, a Holocaust survivor,
and of course, some very wealthy families,
among them the Katz family and the Wilpon family,
who are the owners of the New York Mets.
[Campbell] And this is when the fundamental nature
of the Ponzi scheme has to change.
It's a whole different ballgame.
[Sorkin] He was able to fool the SEC.
He had just survived an investigation without a scratch,
and so he was emboldened and felt he was untouchable.
The sky was the limit.
[Campbell] The legitimate trading business gives Madoff
the credibility of being successful,
and he's now got about 5,000 clients in the investment advisory business.
So he needs to scale up the Ponzi scheme.
He needs a lot more space
to keep the Ponzi separate from the legitimate side of the business.
[Henriques] So he subleases some space
on the 17th floor of the Lipstick Building.
A little warren of offices where Frank Dipascali is king.
Messy, cluttered, nothing like the elegant, stately offices upstairs.
This is where the Ponzi scheme will grow exponentially in the years ahead
into a fraud on steroids.
[suspenseful music playing]
[closing theme music playing]