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[contemplating music playing]
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[Jeff] 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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[crack]
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[Jeff] 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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[contemplating music continues]
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[Jeff] 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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[reporters questioning indistinctly]
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[reporter]
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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[reporter] A walk of shame, and shoving.
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[Madoff] Don't push me.
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[Andrew Ross Sorkin]
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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[atmospheric music playing]
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[Jim Campbell] 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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[Andrew Cohen]
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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[Bruce Dubinsky]
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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[Sorkin] 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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[Dubinsky] It was all fake.
The money went poof.
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Gone.
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[Gordon Bennett]
It's one thing to lose your life savings.
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[voice breaking] But when you lose
our house too, it's terrible.
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[Diana B. Henriques] 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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[Sorkin] 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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[Jeff] 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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[attorney] 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.
-[Madoff] 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… [chuckles]
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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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[theme music playing]
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[indistinct shouting]
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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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[reporter] Reeling because
of these bad real estate loans.
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[Campbell] 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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[reporter 1] Foreclosures across
the country are up a staggering 87%.
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[reporter 2]
Property values nationwide this year
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could drop more than
half a trillion dollars.
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[Sorkin] 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.
-[shouting]
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[reporter 3]
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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[reporter 4] Traders in Tokyo
worried about a spreading US recession.
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[Sorkin] Every bank was falling to pieces.
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[reporter 5] Lehman Brothers says
it will file for Chapter 11 bankruptcy.
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[reporter 6] 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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[Sorkin] 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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[reporter] How do you feel?
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[Keith Kelly] 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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[Steven N. Garfinkel] 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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[Kelly] 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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[suspenseful music playing]
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[Kelly] 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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[Kelly] 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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[Garfinkel] 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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[ominous music playing]
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[Erin Arvedlund] 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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[Madoff] 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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[attorney] 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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-[attorney] Yes.
-"…he had about a dozen clients,
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all of whom are family and friends"? Yes.
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[Madoff]
Well, let's go back to the beginning.
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[evocative music playing]
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[Arvedlund] 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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[Henriques] 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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[announcer] 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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[Henriques]
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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[Arvedlund] 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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[Campbell] 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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[Henriques] 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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[rock & roll music playing]
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[Henriques]
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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[Arvedlund] 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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[Campbell] 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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[Arvedlund] 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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[Henriques] 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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[Campbell] 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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[Henriques] 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,
239
00:14:24,281 --> 00:14:27,200
and it instilled in Madoff
240
00:14:27,284 --> 00:14:32,581
an absolutely non-negotiable
requirement to succeed,
241
00:14:33,206 --> 00:14:36,793
to not be a failure like his dad.
242
00:14:36,877 --> 00:14:41,006
[announcer] All of us have the possibility
of living better than we do right now.
243
00:14:42,090 --> 00:14:48,013
What he wanted was the fast,
flamboyant success of Wall Street.
244
00:14:49,348 --> 00:14:51,808
[announcer 1] Wall Street,
the financial heart of the nation.
245
00:14:51,892 --> 00:14:54,937
[announcer 2] Nerve center
of American business and industry.
246
00:14:55,020 --> 00:14:59,608
This was an era on Wall Street when "fast"
and "flamboyant" were the operative words.
247
00:15:00,275 --> 00:15:03,570
This was the '60s, the go-go years.
248
00:15:03,654 --> 00:15:05,906
High risk, high returns.
249
00:15:05,989 --> 00:15:11,328
Young traders, young money managers
flooding into a post-war market.
250
00:15:11,411 --> 00:15:13,664
[announcer]
Through the investment banking industry,
251
00:15:13,747 --> 00:15:17,918
we can invest our savings,
vitalize our industrial plants,
252
00:15:18,001 --> 00:15:21,171
and continue to give ourselves
the steadily rising level
253
00:15:21,254 --> 00:15:23,382
of goods and services we all want.
254
00:15:23,966 --> 00:15:28,178
We have the privilege
of underwriting America's future.
255
00:15:29,304 --> 00:15:31,139
[evocative choral music playing]
256
00:15:31,223 --> 00:15:34,059
[Henriques] A few weeks
after Bernie and Ruth married,
257
00:15:34,142 --> 00:15:36,436
he decided to plant his flag
258
00:15:36,520 --> 00:15:40,440
in a tiny little desk
in Ruth's father's accounting firm.
259
00:15:41,483 --> 00:15:43,527
[Campbell] He started off with $5,000,
260
00:15:43,610 --> 00:15:49,616
and he registered Bernard L. Madoff
Investment Securities, BLMIS, in 1960.
261
00:15:49,700 --> 00:15:51,660
And Ruth was involved in the business.
262
00:15:51,743 --> 00:15:55,414
She helped with administrative work
and often dealt with the checkbook.
263
00:15:56,748 --> 00:16:00,919
Bernie, from the beginning,
saw himself as a good guy
264
00:16:01,003 --> 00:16:03,255
that was going to go on
and tackle the system
265
00:16:03,338 --> 00:16:05,132
and beat them at their own game.
266
00:16:05,757 --> 00:16:10,095
[Henriques] Bernie began trading
in over-the-counter stocks.
267
00:16:10,178 --> 00:16:13,682
At that time, the stock market,
to most affluent Americans,
268
00:16:13,765 --> 00:16:15,809
meant the New York Stock Exchange.
269
00:16:15,892 --> 00:16:21,189
But there was a huge market,
unseen by most investors,
270
00:16:21,273 --> 00:16:24,609
that didn't have a building,
called the over-the-counter market.
271
00:16:25,193 --> 00:16:29,448
It was comprised of a bunch of dealers
and traders with a telephone,
272
00:16:29,531 --> 00:16:30,574
that was it.
273
00:16:31,241 --> 00:16:35,579
[Campbell] That market was made up
of this garbage bin, if you will,
274
00:16:35,662 --> 00:16:38,081
of companies that
were not reputable enough,
275
00:16:38,165 --> 00:16:41,585
or were too small,
or were frankly disreputable,
276
00:16:41,668 --> 00:16:43,587
traded in what's called the pink sheets,
277
00:16:43,670 --> 00:16:46,673
over the counter,
outside of the New York Stock Exchange.
278
00:16:47,340 --> 00:16:50,385
[Henriques]
And Bernie stood ready to buy or sell
279
00:16:50,469 --> 00:16:55,557
in an increasingly large roster
of over-the-counter stocks.
280
00:16:55,640 --> 00:17:02,272
And no one knew exactly what prices
were being charged for those stocks.
281
00:17:02,898 --> 00:17:04,566
[Sorkin] Back then,
there were no computers.
282
00:17:04,649 --> 00:17:06,359
The Internet didn't exist.
283
00:17:06,443 --> 00:17:07,652
There was no app for this.
284
00:17:07,736 --> 00:17:11,823
This was literally, you pick up the phone,
you call Bobby in Boston,
285
00:17:11,907 --> 00:17:15,368
you say, "I've got 100 shares."
He says he's gonna buy 100 shares.
286
00:17:15,452 --> 00:17:18,080
You agree on the price over the phone,
287
00:17:18,163 --> 00:17:20,707
and then you literally
mail them the certificates.
288
00:17:20,791 --> 00:17:24,127
This was the Wild West of Wall Street.
289
00:17:24,961 --> 00:17:26,588
[Henriques] The risks were huge.
290
00:17:26,671 --> 00:17:28,840
The potential profits were huge.
291
00:17:28,924 --> 00:17:33,053
You had to have nerves of steel,
ice water in your veins
292
00:17:33,136 --> 00:17:37,140
to be able to navigate this market
day in and day out.
293
00:17:37,224 --> 00:17:38,225
Bernie had those.
294
00:17:39,309 --> 00:17:42,020
[Arvedlund] It was a very successful
business, and it grew quickly.
295
00:17:43,021 --> 00:17:44,773
But on the side,
296
00:17:44,856 --> 00:17:48,985
he began running this very small
investment advisory business.
297
00:17:51,196 --> 00:17:54,449
[Campbell] Bernie thinks, "In addition
to the over-the-counter business,
298
00:17:54,533 --> 00:17:58,703
I can manage some money for people
acting as a pure investment advisor."
299
00:17:58,787 --> 00:18:01,373
And this is where
you manage people's money.
300
00:18:01,456 --> 00:18:05,919
You make the investments for them
and try to earn them returns,
301
00:18:06,002 --> 00:18:09,131
but you earn fees rather than commissions.
302
00:18:09,214 --> 00:18:12,634
It's much more profitable
than doing commission-based business.
303
00:18:13,802 --> 00:18:16,721
It turns out that
his father-in-law, Saul Alpern,
304
00:18:16,805 --> 00:18:19,891
has a lot of clients that
he'd done accounting business for,
305
00:18:19,975 --> 00:18:21,935
that he started to refer
to his son-in-law.
306
00:18:23,645 --> 00:18:27,149
So, Bernie ended up
with this group of 20 to 24 people
307
00:18:27,232 --> 00:18:28,984
wanting to do investments with him.
308
00:18:29,860 --> 00:18:33,989
[Henriques] The form that Madoff's
early investment advisory business took
309
00:18:34,072 --> 00:18:38,910
was a little unusual, and I might argue,
a little bit outside the lines.
310
00:18:38,994 --> 00:18:40,078
Saul Alpern,
311
00:18:40,162 --> 00:18:44,541
instead of just having Bernie set up
individual accounts for these clients,
312
00:18:44,624 --> 00:18:47,377
he decided to make it easy
on his son-in-law.
313
00:18:47,460 --> 00:18:49,588
He would pool all of their money
314
00:18:49,671 --> 00:18:52,799
and then give that money
to Bernie to invest.
315
00:18:52,883 --> 00:18:56,219
And then when Bernie
reported back the profits,
316
00:18:56,303 --> 00:19:00,765
Saul would allocate the profits
among the investors in the pool.
317
00:19:00,849 --> 00:19:04,269
A careful lawyer would have told
Saul Alpern, "You can't do this."
318
00:19:05,020 --> 00:19:07,731
It was essentially
an unregulated mutual fund.
319
00:19:08,773 --> 00:19:10,650
[Campbell] Beyond around 20 accounts,
320
00:19:10,734 --> 00:19:14,613
you are required to register
with the government, with the SEC.
321
00:19:14,696 --> 00:19:18,074
But Bernie Madoff doesn't register
as an investment advisor.
322
00:19:18,700 --> 00:19:20,368
[Henriques] So, from the very beginning,
323
00:19:20,452 --> 00:19:25,999
you can see the cellular division
that shaped the rest of Bernie's career.
324
00:19:26,082 --> 00:19:29,794
He had a legitimate trading business
in the over-the-counter market.
325
00:19:29,878 --> 00:19:33,965
And on the side, he had
a private investment advisory business
326
00:19:34,049 --> 00:19:35,717
that not many people knew about,
327
00:19:35,800 --> 00:19:40,096
that he wasn't really running according
to all the rules in the rule book.
328
00:19:40,805 --> 00:19:42,474
[Campbell] He's completely driven
329
00:19:42,557 --> 00:19:46,269
to make it on Wall Street
from nowhere, from nothing,
330
00:19:46,353 --> 00:19:51,524
and to avoid the failure that he watched
befall his parents, and rise to the top.
331
00:19:53,068 --> 00:19:55,987
[Henriques] In his unofficial
investment advisory business,
332
00:19:56,071 --> 00:20:02,077
Bernie invested his clients' savings
in wildly speculative stocks.
333
00:20:02,160 --> 00:20:08,291
He was making money, he was taking risks,
he was taking very big risks.
334
00:20:09,084 --> 00:20:11,628
And then came May 1962.
335
00:20:11,711 --> 00:20:15,090
[announcer] Headline news is made
in a mighty avalanche of selling,
336
00:20:15,173 --> 00:20:17,050
which sees stock prices dive
337
00:20:17,133 --> 00:20:20,136
and more than $20 billion
in paper values lost.
338
00:20:20,220 --> 00:20:22,639
The biggest drop since 1929.
339
00:20:23,306 --> 00:20:27,477
[Henriques] Suddenly,
the market just dropped like a stone,
340
00:20:28,603 --> 00:20:31,606
and the first securities to go up in smoke
341
00:20:31,690 --> 00:20:36,486
are the speculative stocks that Bernie
has bought for these private clients.
342
00:20:37,195 --> 00:20:39,406
They're wiped out almost immediately.
343
00:20:40,365 --> 00:20:43,326
[Madoff] The customers,
theoretically, lost their money.
344
00:20:43,410 --> 00:20:46,830
The total investment
that they had made was $30,000.
345
00:20:46,913 --> 00:20:49,291
I felt guilty because of the fact
346
00:20:49,374 --> 00:20:52,544
that they bought the stock
because I told them to buy the stock.
347
00:20:53,545 --> 00:20:55,755
[Henriques] But, rather than admit
348
00:20:55,839 --> 00:20:59,759
that he had taken ridiculous risks
with their money and lost it all,
349
00:20:59,843 --> 00:21:02,429
he decides to cover them up.
350
00:21:03,138 --> 00:21:06,224
[Campbell] He had to go
to his father-in-law, Saul Alpern,
351
00:21:06,308 --> 00:21:08,184
and borrow $30,000,
352
00:21:08,727 --> 00:21:10,103
and he paid them all back.
353
00:21:11,813 --> 00:21:16,359
[Henriques] He uses the $30,000
to make them whole in their accounts,
354
00:21:16,443 --> 00:21:18,903
and then he lies to them
about what he's done.
355
00:21:18,987 --> 00:21:22,490
The outcome of his lies
was that he looked like a genius.
356
00:21:22,574 --> 00:21:24,784
He looked like an incredible success,
357
00:21:24,868 --> 00:21:28,330
a brilliant strategist that navigated
358
00:21:28,413 --> 00:21:33,418
the worst week in the stock market
since 1929, without losing a nickel.
359
00:21:34,586 --> 00:21:39,299
At that intersection,
he had to accept being a liar
360
00:21:40,133 --> 00:21:41,301
or a failure.
361
00:21:43,678 --> 00:21:46,389
And the choice he made was,
362
00:21:46,473 --> 00:21:48,850
he could live with himself as a liar
363
00:21:49,809 --> 00:21:53,271
much more easily than he could
live with himself as a failure.
364
00:21:53,355 --> 00:21:57,067
[contemplating music playing]
365
00:22:01,613 --> 00:22:04,032
[indistinct police radio chatter]
366
00:22:04,115 --> 00:22:06,826
[clamoring]
367
00:22:07,410 --> 00:22:09,788
[indistinct chanting]
368
00:22:09,871 --> 00:22:12,082
[rock music playing]
369
00:22:12,165 --> 00:22:16,711
[chanting] The whole world is watching!
370
00:22:17,295 --> 00:22:19,089
[Sorkin] And then the 1970s came along.
371
00:22:19,172 --> 00:22:22,217
[announcer] The attacks slashed
at North Vietnam with renewed fury.
372
00:22:22,300 --> 00:22:25,678
People have got to know whether or not
their president's a crook.
373
00:22:25,762 --> 00:22:27,430
The recession is indeed upon us.
374
00:22:27,514 --> 00:22:30,141
[Prisendorf] Gas lines of 10
and 12 blocks were everywhere.
375
00:22:30,225 --> 00:22:33,144
The current slide in the economy
could get worse.
376
00:22:33,228 --> 00:22:38,108
[Sorkin] You had unemployment rising,
gas prices going up, skyrocketing.
377
00:22:38,191 --> 00:22:41,611
You had inflation
really start to gain steam,
378
00:22:41,694 --> 00:22:43,738
which, all of a sudden,
led to a recession.
379
00:22:43,822 --> 00:22:49,744
[Henriques] Wall Street underwent some of
the most dramatic changes in its history.
380
00:22:50,328 --> 00:22:52,747
It was like
a slow-motion stock market crash.
381
00:22:53,540 --> 00:22:56,209
As Bernie moved into the 1970s,
382
00:22:56,292 --> 00:23:00,130
he decided it was time to move
to an office building at 110 Wall Street,
383
00:23:00,213 --> 00:23:03,842
and his legitimate trading business
became more and more conservative.
384
00:23:04,342 --> 00:23:07,679
[Sorkin] Bernie Madoff became
what's called a market maker.
385
00:23:07,762 --> 00:23:09,389
When you buy a stock,
386
00:23:09,472 --> 00:23:11,683
buying 100 shares
from somebody else over there
387
00:23:11,766 --> 00:23:14,519
who's selling 100 shares,
that's not really what's happening.
388
00:23:14,602 --> 00:23:15,979
What's really happening is,
389
00:23:16,062 --> 00:23:19,858
there's a middleman who's actually
already bought those 100 shares.
390
00:23:19,941 --> 00:23:23,153
What you're actually doing
is buying from the middleman,
391
00:23:23,236 --> 00:23:25,738
and that's who Bernie Madoff was,
he was a wholesaler.
392
00:23:25,822 --> 00:23:29,325
He would effectively warehouse stock,
393
00:23:29,868 --> 00:23:33,997
and he would turn around and sell them
when somebody else wanted to buy them,
394
00:23:34,080 --> 00:23:38,668
and he would make a commission,
a couple of cents for every sale.
395
00:23:38,751 --> 00:23:40,545
That's what a market maker is.
396
00:23:41,087 --> 00:23:45,383
Their obligation is to buy and sell shares
in good times or bad.
397
00:23:46,801 --> 00:23:49,679
[Arvedlund] Bernie's business on
the market-making side grows so quickly
398
00:23:49,762 --> 00:23:51,723
that he hires his brother Peter.
399
00:23:52,765 --> 00:23:56,644
They were really visionaries,
pioneering computerized trading.
400
00:23:59,105 --> 00:24:00,857
[Henriques] When the computer arrived,
401
00:24:00,940 --> 00:24:04,360
it just radically changed
the way Wall Street worked.
402
00:24:04,444 --> 00:24:06,070
[reporter]
It's the beginning of a new age,
403
00:24:06,154 --> 00:24:09,073
launched by the tremendous force
of a revolution.
404
00:24:09,157 --> 00:24:13,995
Computers are so profoundly important
that it altered the path of civilization.
405
00:24:14,871 --> 00:24:17,207
[Henriques] The biggest players
moving into Wall Street,
406
00:24:17,290 --> 00:24:20,168
they didn't want to trade 200 shares.
407
00:24:20,251 --> 00:24:25,048
They wanted to trade 20,000 shares
on a moderate day.
408
00:24:25,715 --> 00:24:30,470
In the '70s, buying and selling stocks
actually took a really long time.
409
00:24:30,553 --> 00:24:32,680
It took, usually, a few weeks.
410
00:24:33,264 --> 00:24:37,644
[Henriques] Wall Street needs people
who can do these trades fast.
411
00:24:37,727 --> 00:24:42,524
That requires computerization,
and Bernie rides that wave.
412
00:24:43,483 --> 00:24:47,779
[Arvedlund] Using computerized trading,
he could process a trade in three days.
413
00:24:47,862 --> 00:24:49,239
It was just unheard of.
414
00:24:50,156 --> 00:24:53,034
[Henriques] By being able
to speed up his process,
415
00:24:53,117 --> 00:24:56,371
he was able to compete
for big institutional business
416
00:24:56,454 --> 00:24:58,206
in his legitimate operation,
417
00:24:58,289 --> 00:25:00,083
and it gave him a huge edge.
418
00:25:00,917 --> 00:25:03,711
[Campbell] Bernie's brilliance
was that he consolidated
419
00:25:03,795 --> 00:25:09,217
all the off-the-exchange markets,
the pink sheets, sort of small firms,
420
00:25:09,300 --> 00:25:10,843
not reputable type firms,
421
00:25:10,927 --> 00:25:13,388
into what you might call
one computer screen,
422
00:25:13,972 --> 00:25:17,141
in what became the NASDAQ and the NASD.
423
00:25:17,225 --> 00:25:19,185
He legitimized that business.
424
00:25:19,269 --> 00:25:24,649
Today, Apple, Google, Microsoft,
are all NASDAQ companies.
425
00:25:26,276 --> 00:25:29,821
[Arvedlund] His legitimate brokerage firm
was doing gangbusters,
426
00:25:29,904 --> 00:25:31,698
which made it all the more bizarre
427
00:25:31,781 --> 00:25:36,578
that he was running this very shadowy
investment advisory business
428
00:25:36,661 --> 00:25:39,706
that no one knew about,
which was also growing.
429
00:25:40,915 --> 00:25:43,459
People were hearing about Bernie
and how great he was.
430
00:25:43,543 --> 00:25:45,878
He was going to the Catskills
in the summer,
431
00:25:45,962 --> 00:25:48,840
raising money from friends
and other family members.
432
00:25:48,923 --> 00:25:50,717
They thought he was going to be a star.
433
00:25:50,800 --> 00:25:56,014
He was still getting referrals
from his wife's father, Saul Alpern,
434
00:25:56,097 --> 00:25:59,809
and over the years,
Saul had hired two accountants,
435
00:25:59,892 --> 00:26:02,186
Frank Avellino and Michael Bienes.
436
00:26:02,270 --> 00:26:09,068
When Saul Alpern retires in the 1970s,
they rename the firm Avellino & Bienes,
437
00:26:09,152 --> 00:26:10,194
or A and B.
438
00:26:11,988 --> 00:26:14,198
[Henriques] Michael Bienes
and Frank Avellino
439
00:26:14,282 --> 00:26:17,785
are a match made
somewhere outside of heaven.
440
00:26:18,703 --> 00:26:20,246
Avellino and Bienes certainly knew
441
00:26:20,330 --> 00:26:24,667
that Bernie Madoff was managing money
for Saul's family and friends.
442
00:26:24,751 --> 00:26:30,506
But it was really when Saul retired
that Avellino and Bienes see dollar signs.
443
00:26:30,590 --> 00:26:32,759
They're like kids in a candy store.
444
00:26:33,343 --> 00:26:37,180
They began to construct
one of Bernie's first feeder funds,
445
00:26:37,263 --> 00:26:40,725
collecting money
from all sorts of investors,
446
00:26:40,808 --> 00:26:45,521
corporations, family offices,
and trust departments, individuals,
447
00:26:45,605 --> 00:26:47,774
pooling their money into a fund
448
00:26:47,857 --> 00:26:51,903
and then send the money to Bernie's
unofficial investment advisory business.
449
00:26:53,446 --> 00:26:55,239
They push it to their clients,
450
00:26:55,323 --> 00:26:58,409
to friends of their clients,
to relatives of their clients.
451
00:26:59,577 --> 00:27:02,747
[Arvedlund] In exchange
for raising that money, they take a fee,
452
00:27:02,830 --> 00:27:06,584
and they start bringing in
a river of money
453
00:27:06,668 --> 00:27:09,128
to Bernie Madoff to manage.
454
00:27:09,671 --> 00:27:12,507
[Campbell] Avellino and Bienes,
they weren't a hedge fund
455
00:27:12,590 --> 00:27:13,591
or a Wall Street fund.
456
00:27:13,675 --> 00:27:16,386
They weren't money managers at all.
They were accountants.
457
00:27:16,469 --> 00:27:19,889
And they don't register
the investment business, which is illegal.
458
00:27:19,972 --> 00:27:22,183
They took money from their clients,
459
00:27:22,266 --> 00:27:26,270
and they put it with a secret manager
whose name couldn't be revealed,
460
00:27:26,354 --> 00:27:29,649
without even telling the clients
what was happening with their money,
461
00:27:29,732 --> 00:27:31,943
and that manager was Bernie Madoff.
462
00:27:32,652 --> 00:27:35,071
[funky music playing]
463
00:27:35,154 --> 00:27:36,572
[Henriques] By the end of the '70s,
464
00:27:36,656 --> 00:27:40,368
Bernie began to experience
the American success dream.
465
00:27:40,451 --> 00:27:43,329
Bernie and Ruth have two sons,
Andrew and Mark.
466
00:27:43,413 --> 00:27:46,874
He was a family man,
he truly loved his family,
467
00:27:46,958 --> 00:27:50,461
and he was able to move his family
into a very lovely suburb,
468
00:27:50,545 --> 00:27:52,046
Roslyn, Long Island,
469
00:27:52,130 --> 00:27:55,842
one of the wealthier communities
along the coast.
470
00:27:55,925 --> 00:27:57,677
He even splurged as much
471
00:27:57,760 --> 00:28:02,056
as to commute into Manhattan
by seaplane instead of the train
472
00:28:02,140 --> 00:28:05,268
or the Long Island traffic
like everybody else.
473
00:28:12,900 --> 00:28:17,280
[Ronald Reagan] We've moved from malaise
to hope, confidence, and opportunity.
474
00:28:17,363 --> 00:28:20,742
[crowd cheering]
475
00:28:20,825 --> 00:28:25,747
Government that has high taxes,
excessive spending, and over-regulation
476
00:28:25,830 --> 00:28:29,375
had thrown a wrench in the works
of our free markets.
477
00:28:29,459 --> 00:28:31,961
Our economic program
for the next four years,
478
00:28:32,044 --> 00:28:34,422
we're going to turn the bull loose.
479
00:28:34,505 --> 00:28:37,925
-[crowd cheering]
-[bell ringing]
480
00:28:38,009 --> 00:28:40,303
[Henriques] As the '80s unfolded,
481
00:28:40,386 --> 00:28:44,557
the bull market that began in America
very rapidly became a global phenomenon.
482
00:28:44,640 --> 00:28:46,517
It was the dawn of globalization.
483
00:28:46,601 --> 00:28:48,352
Everyone wanted to be in the stock market,
484
00:28:48,436 --> 00:28:52,857
and Bernie's legitimate trading business
started making major money.
485
00:28:52,940 --> 00:28:56,402
[indistinct chatter]
486
00:28:56,986 --> 00:28:58,905
[Ellen Hales]
Wall Street in the '80s was crazy.
487
00:29:00,239 --> 00:29:04,327
There was a lot of excitement,
and people were making money.
488
00:29:04,410 --> 00:29:07,789
I heard there was a lot of cocaine,
a lot of drinking,
489
00:29:07,872 --> 00:29:11,042
and a lot of wining and dining.
490
00:29:11,125 --> 00:29:12,710
Every firm was hiring.
491
00:29:13,753 --> 00:29:17,548
I started working for Bernie Madoff
in July of '85.
492
00:29:17,632 --> 00:29:20,510
Bernie had an incredible
mystique about him.
493
00:29:20,593 --> 00:29:22,553
He was revered on Wall Street,
494
00:29:22,637 --> 00:29:24,931
he was on
the Board of Governors of NASDAQ.
495
00:29:25,014 --> 00:29:28,142
He was always jetting off to London
and having meetings.
496
00:29:28,226 --> 00:29:30,061
Bernie would walk into the trading room
497
00:29:30,144 --> 00:29:32,522
and he would buy things,
and the market would go up.
498
00:29:32,605 --> 00:29:34,690
He'd sell things,
and the market would go down,
499
00:29:34,774 --> 00:29:39,195
and he developed a reputation
as being almost all-knowing.
500
00:29:39,821 --> 00:29:43,449
[Henriques] Bernie's legitimate firm
was doing a spectacular business.
501
00:29:43,950 --> 00:29:48,955
He and Ruth move into
a lovely penthouse apartment in Manhattan.
502
00:29:49,038 --> 00:29:51,249
He bought a summer place in Montauk.
503
00:29:51,332 --> 00:29:52,583
He joined a country club.
504
00:29:52,667 --> 00:29:53,960
He bought a boat.
505
00:29:54,627 --> 00:29:57,380
Now Bernie could certainly
look his father-in-law in the eye
506
00:29:57,463 --> 00:29:59,674
and say,
"See, I told you I'd be a success."
507
00:30:00,383 --> 00:30:03,386
[Madoff] You know, I started
my business with literally $500.
508
00:30:03,469 --> 00:30:04,804
I had gone from nothing.
509
00:30:04,887 --> 00:30:06,973
I was this little kid from Queens.
510
00:30:07,056 --> 00:30:08,850
Didn't go to Harvard and so on.
511
00:30:08,933 --> 00:30:12,979
All of a sudden, you know,
by '87, I was very successful.
512
00:30:13,062 --> 00:30:14,105
I was a rich guy.
513
00:30:14,188 --> 00:30:15,523
[camera shutter clicks]
514
00:30:17,525 --> 00:30:19,861
[Hales] We were making a lot of money.
515
00:30:19,944 --> 00:30:22,363
We were growing,
we were hiring more traders.
516
00:30:22,446 --> 00:30:25,658
Bernie wanted a more prestigious building,
517
00:30:25,741 --> 00:30:28,995
so we move sometime in the summer of 1987
518
00:30:29,078 --> 00:30:32,290
to 885 3rd Avenue,
to the Lipstick Building.
519
00:30:33,082 --> 00:30:35,042
It's a very unusual building.
520
00:30:35,126 --> 00:30:38,045
It kind of looked like
a lipstick container.
521
00:30:39,213 --> 00:30:43,676
[Henriques] Bernie's move uptown
to this iconic skyscraper
522
00:30:43,759 --> 00:30:46,554
would impress investors.
It would impress employees.
523
00:30:46,637 --> 00:30:48,139
It would even impress regulators.
524
00:30:48,222 --> 00:30:54,020
So this was part of the classy new image
that Bernie was building for himself.
525
00:30:54,103 --> 00:30:57,356
[compelling music playing]
526
00:30:57,440 --> 00:31:01,652
[Hales] The offices were absolutely
stunning when we first moved in.
527
00:31:01,736 --> 00:31:04,572
Sophisticated, high-tech looking.
528
00:31:04,655 --> 00:31:08,242
It was all windows.
It was all bright lights.
529
00:31:09,368 --> 00:31:14,040
[Eleanor Squillari] When I started working
for Bernie Madoff in 1987,
530
00:31:14,123 --> 00:31:16,834
it absolutely was a family atmosphere,
531
00:31:16,918 --> 00:31:20,254
because they were
very family-oriented people.
532
00:31:21,923 --> 00:31:25,051
It was a nice atmosphere,
it was very comfortable.
533
00:31:25,134 --> 00:31:26,552
It was very safe.
534
00:31:26,636 --> 00:31:29,680
Almost everybody that worked there
were relatives,
535
00:31:29,764 --> 00:31:31,557
they were friends of relatives.
536
00:31:32,141 --> 00:31:35,353
Bernie's kids, Mark and Andy,
were working there.
537
00:31:36,145 --> 00:31:39,023
Mark and Andy were all-American.
538
00:31:39,106 --> 00:31:41,817
Anybody would have been proud
to have them as children.
539
00:31:42,860 --> 00:31:46,822
I liked his brother, Peter,
he was the compliance officer.
540
00:31:47,698 --> 00:31:50,493
Ruth had an office at the firm.
541
00:31:50,993 --> 00:31:52,578
She was a warm person.
542
00:31:53,079 --> 00:31:55,206
She was a really great mother.
543
00:31:55,289 --> 00:31:58,584
I could see Bernie and Ruth
loved their children very much.
544
00:31:59,085 --> 00:32:03,881
She adored Bernie, and I think
that she was the person he confided in.
545
00:32:04,757 --> 00:32:08,219
Bernie had said once to me,
"Ruth is a great partner."
546
00:32:09,053 --> 00:32:11,222
And Bernie was very generous.
547
00:32:11,722 --> 00:32:13,849
[Hales] He gave a lot of money to charity.
548
00:32:13,933 --> 00:32:17,019
He paid for the airfare for the honeymoons
549
00:32:17,103 --> 00:32:20,272
for all of their employees
when they got married.
550
00:32:20,356 --> 00:32:22,984
[Squillari]
He was on the board of Yeshiva.
551
00:32:23,067 --> 00:32:25,069
He worked with the Special Olympics.
552
00:32:25,152 --> 00:32:27,655
There was a time
he paid for a woman's heart surgery.
553
00:32:28,656 --> 00:32:32,535
[Hales] The Madoffs took everyone
to Montauk for a weekend in the summer
554
00:32:32,618 --> 00:32:35,413
with all their family
and put them up in hotels.
555
00:32:35,496 --> 00:32:37,206
We'd play volleyball on the beach.
556
00:32:37,289 --> 00:32:40,084
We'd have a real party, a lot of drinking.
557
00:32:40,167 --> 00:32:42,837
We'd dance, and it was fun.
558
00:32:44,171 --> 00:32:46,132
But there was another side of Bernie.
559
00:32:48,718 --> 00:32:53,347
He was meticulous about his appearance,
about his surrounding.
560
00:32:54,140 --> 00:32:55,891
[Hales] Everything had to be pristine.
561
00:32:55,975 --> 00:32:58,102
If he looked down the trading desk
562
00:32:58,185 --> 00:33:01,480
and he saw a computer monitor
that was a little askew,
563
00:33:01,564 --> 00:33:04,859
he'd have to go and fix it
and make it in line.
564
00:33:04,942 --> 00:33:07,445
Even if you're sitting at the desk,
using it,
565
00:33:07,528 --> 00:33:09,530
he would fix it while he walked by.
566
00:33:09,613 --> 00:33:13,701
You couldn't have silver picture frames
or anything that wasn't black and gray.
567
00:33:13,784 --> 00:33:16,078
You couldn't have plants on your desk.
568
00:33:16,162 --> 00:33:18,247
Everything had to be the same.
569
00:33:20,750 --> 00:33:22,334
[Squillari] As time went on,
570
00:33:23,127 --> 00:33:25,171
he became more intense.
571
00:33:27,006 --> 00:33:30,009
[Hales] There were definitely days
where you could feel the tension,
572
00:33:30,634 --> 00:33:32,887
and you would just want
to stay away from him.
573
00:33:32,970 --> 00:33:34,346
[unsettling music playing]
574
00:33:34,430 --> 00:33:37,141
[Hales] You never knew whether
he was going to bite your head off.
575
00:33:37,224 --> 00:33:38,893
[echoing] Son of a bitch.
Will you shut up?!
576
00:33:38,976 --> 00:33:43,439
I remember one time Bernie was
just screaming at his brother, Peter.
577
00:33:44,023 --> 00:33:45,232
Get the fuck out of my office!
578
00:33:45,316 --> 00:33:46,817
[Squillari] I got such a stomachache.
579
00:33:46,901 --> 00:33:49,403
I-I just got up and said, "Please stop."
580
00:33:50,196 --> 00:33:52,615
And Peter would back off,
because Bernie was a bully.
581
00:33:52,698 --> 00:33:54,241
That was another side of him.
582
00:33:55,159 --> 00:33:58,579
[Hales] I think Peter was probably
a little bit afraid of Bernie,
583
00:33:59,663 --> 00:34:01,957
the way everybody was
a little afraid of Bernie.
584
00:34:02,041 --> 00:34:03,918
[Squillari] He wanted to control you,
585
00:34:04,001 --> 00:34:06,545
and it's because he disapproved of you
586
00:34:07,171 --> 00:34:08,798
that he could control you.
587
00:34:09,715 --> 00:34:12,426
Bernie could flip the switch in a second.
588
00:34:12,510 --> 00:34:17,348
I saw times when he could be
so kind and so caring,
589
00:34:17,431 --> 00:34:19,892
and times where he could be so brutal.
590
00:34:19,975 --> 00:34:24,146
-What the hell do you think you're doing?
-[Squillari] Stop you dead in your tracks.
591
00:34:25,022 --> 00:34:27,191
[echoing] What the hell
do you think you're doing?!
592
00:34:27,733 --> 00:34:30,152
I think there were
a lot of people in Bernie.
593
00:34:30,236 --> 00:34:31,737
He was a lot of things.
594
00:34:32,571 --> 00:34:34,990
I figured he was under a lot of pressure.
595
00:34:36,617 --> 00:34:39,995
[reporter] This morning,
the stock market has been in a free fall.
596
00:34:40,079 --> 00:34:42,123
[clamoring]
597
00:34:42,206 --> 00:34:44,416
Close this deal, choose…!
598
00:34:44,500 --> 00:34:47,503
[reporter] In trading rooms
on Wall Street, there was panic.
599
00:34:47,586 --> 00:34:51,215
Sell orders flooded in
from big institutional investors,
600
00:34:51,298 --> 00:34:54,301
from private investors, from mutual funds,
601
00:34:54,385 --> 00:34:56,846
worried about inflation,
rising interest rates,
602
00:34:56,929 --> 00:35:01,267
a declining dollar,
and huge budget and trade deficits.
603
00:35:02,309 --> 00:35:05,813
[Hales] Monday, October 19, 1987,
604
00:35:05,896 --> 00:35:08,691
was one of the scariest days
I've ever experienced in my life.
605
00:35:09,275 --> 00:35:12,987
The moment I got to work,
and the market opened at 9:30,
606
00:35:13,070 --> 00:35:15,614
until the moment it closed, was bedlam.
607
00:35:16,323 --> 00:35:18,242
[reporter 1] Within two hours
of the opening bell,
608
00:35:18,325 --> 00:35:21,412
the Dow Jones Industrial Average
plunged 200 points.
609
00:35:21,495 --> 00:35:24,248
[reporter 2] The activity is incredible.
610
00:35:24,331 --> 00:35:28,711
It's a frenzy, and I would say
some fear and panic going on.
611
00:35:29,545 --> 00:35:32,923
[Hales] During the crash, every firm
on Wall Street was trying to dump stock.
612
00:35:33,007 --> 00:35:38,345
We had so many phones ringing,
we were inundated with orders.
613
00:35:38,429 --> 00:35:40,556
People are screaming,
we're writing tickets.
614
00:35:40,639 --> 00:35:43,267
It just felt like a war zone.
615
00:35:45,311 --> 00:35:48,522
I remember my uncle called me,
and I picked up the phone, and he says,
616
00:35:48,606 --> 00:35:49,982
"Three guys walk into a bar…"
617
00:35:50,065 --> 00:35:53,068
I'm like, "Sam, I can't talk to you now,
goodbye," and I hung up.
618
00:35:54,320 --> 00:35:56,989
We had to maintain an orderly market.
619
00:35:57,072 --> 00:36:00,409
A market maker is someone
who was willing to be the buyer
620
00:36:00,492 --> 00:36:02,745
and the seller of last resort.
621
00:36:02,828 --> 00:36:05,456
So we were the only ones buying.
622
00:36:05,539 --> 00:36:07,708
A lot of firms were not
picking up their phones,
623
00:36:07,791 --> 00:36:10,002
and I remember
very distinctly Bernie yelling,
624
00:36:10,085 --> 00:36:13,547
"Pick up the phone. We're not gonna be
the firm that doesn't pick up."
625
00:36:13,631 --> 00:36:17,968
So we're picking up the phone
and we're buying a lot of stock.
626
00:36:18,052 --> 00:36:21,138
And all I'm doing is pressing buttons
on the computer, down, down,
627
00:36:21,222 --> 00:36:23,349
taking my market down.
628
00:36:23,974 --> 00:36:26,977
It never seemed like
it was going to bottom.
629
00:36:27,061 --> 00:36:30,564
[reporter 3] Bedlam reigned at New York
Stock Exchange as frantic traders dealt
630
00:36:30,648 --> 00:36:33,525
with more than half a billion
sell orders flooding Wall Street.
631
00:36:33,609 --> 00:36:35,986
[reporter 4] No one has
one particular reason.
632
00:36:36,070 --> 00:36:39,823
There's a kind of dark,
gloomy psychology at work here.
633
00:36:39,907 --> 00:36:41,617
Definitely panic selling.
634
00:36:41,700 --> 00:36:44,286
Panic, complete panic.
Everyone's going crazy.
635
00:36:44,370 --> 00:36:47,957
[reporter 4] For brokers and traders,
it was an unmitigated disaster.
636
00:36:48,040 --> 00:36:49,416
Bloodbath.
637
00:36:49,500 --> 00:36:51,001
[reporter 3] The sudden collapse
638
00:36:51,085 --> 00:36:54,088
brought back memories
of a fateful October day 58 years ago,
639
00:36:54,171 --> 00:36:58,717
the crash of 1929 that heralded
the beginning of the Great Depression.
640
00:36:59,802 --> 00:37:02,346
[Hales] It was scary
and it was overwhelming.
641
00:37:02,429 --> 00:37:03,889
It was devastating.
642
00:37:04,515 --> 00:37:07,309
But Bernie never seemed to sweat anything.
643
00:37:07,393 --> 00:37:10,187
He was actually
pretty cool and calm about it.
644
00:37:10,271 --> 00:37:13,274
It was one of those things
that really helped us to revere him,
645
00:37:13,357 --> 00:37:14,775
because this was his money.
646
00:37:14,858 --> 00:37:18,779
His name is the one on the door,
Bernard L. Madoff Investment Securities,
647
00:37:18,862 --> 00:37:22,658
and we were one of the few firms
that honored our commitments.
648
00:37:22,741 --> 00:37:23,826
We stayed open.
649
00:37:24,326 --> 00:37:26,120
[Sorkin] Bernie Madoff kept buying,
650
00:37:26,203 --> 00:37:29,623
even as all of the other
market makers on Wall Street,
651
00:37:29,707 --> 00:37:32,876
who had an obligation to buy the stocks,
652
00:37:32,960 --> 00:37:35,963
even when they were falling,
even if they're going to lose money,
653
00:37:36,046 --> 00:37:38,674
that is the obligation of a market maker.
654
00:37:38,757 --> 00:37:40,301
They weren't picking up the phone.
655
00:37:40,384 --> 00:37:43,846
You couldn't get them on the line.
You couldn't make that transaction.
656
00:37:43,929 --> 00:37:45,472
But you could with Bernie Madoff.
657
00:37:46,432 --> 00:37:49,685
[reporter] The mood on Wall Street
is one of shock and disbelief.
658
00:37:49,768 --> 00:37:53,564
For five years,
the great Bull Market seemed unstoppable.
659
00:37:53,647 --> 00:37:55,482
Confidence had been so high.
660
00:37:56,066 --> 00:37:59,695
Then came the month of October,
and then came Black Monday.
661
00:38:01,030 --> 00:38:02,364
[Henriques] It's not clear
662
00:38:02,448 --> 00:38:06,493
how much money Bernie's
legitimate business lost in the '87 crash,
663
00:38:06,994 --> 00:38:09,621
but the fact that
Bernie was at the cutting edge
664
00:38:09,705 --> 00:38:13,709
of both communications technology
and trading technology allowed him
665
00:38:13,792 --> 00:38:19,923
to keep the Madoff firm open,
functioning, and serving customers.
666
00:38:20,007 --> 00:38:26,055
This won him recognition from the SEC,
from the New York Stock Exchange.
667
00:38:26,138 --> 00:38:29,141
He testified in Congressional hearings,
668
00:38:29,224 --> 00:38:31,310
he helped rewrite the rule book
669
00:38:31,393 --> 00:38:36,106
to keep the market functioning
through a crisis like Black Monday.
670
00:38:36,607 --> 00:38:38,817
[Sorkin] People started
talking about Bernie Madoff
671
00:38:38,901 --> 00:38:43,405
as a man of his word,
this trustworthy, loyal guy,
672
00:38:43,489 --> 00:38:45,657
and it crystallized his reputation.
673
00:38:46,158 --> 00:38:48,660
[Henriques] He began serving
on industry boards.
674
00:38:48,744 --> 00:38:51,955
He began being invited
to regulatory roundtables,
675
00:38:52,039 --> 00:38:57,753
and he was elected to three terms
as the chairman of the board of NASDAQ.
676
00:38:57,836 --> 00:39:03,050
And in the early '90s he was a trusted,
respected Wall Street statesman.
677
00:39:04,176 --> 00:39:08,013
Bernie fed on being "the guy."
678
00:39:08,097 --> 00:39:11,600
He liked that pedestal
that people put him on,
679
00:39:12,184 --> 00:39:14,520
and I think as he got more and more of it,
680
00:39:14,603 --> 00:39:17,356
he got more in love with that reverence.
681
00:39:19,483 --> 00:39:21,902
Read my lips,
682
00:39:21,985 --> 00:39:24,321
no new taxes.
683
00:39:24,905 --> 00:39:27,074
[reporter] Booster, ignition and liftoff.
684
00:39:27,616 --> 00:39:29,410
People are working harder than ever,
685
00:39:29,493 --> 00:39:33,038
spending less time with their children,
working nights and weekends.
686
00:39:33,122 --> 00:39:35,124
[Jane Robelot] A look
at business news this morning.
687
00:39:35,207 --> 00:39:36,834
A rally in technology stocks
688
00:39:36,917 --> 00:39:40,003
helped push the blue chips
deeper into record territory.
689
00:39:40,087 --> 00:39:42,506
[Andrew Cohen]
I started at Bernie Madoff's firm.
690
00:39:42,589 --> 00:39:44,967
I believe it was 1991.
691
00:39:45,050 --> 00:39:48,303
Bernie Madoff had
a very excellent reputation.
692
00:39:48,387 --> 00:39:51,765
"Bernie's a great guy.
He's very involved in the community."
693
00:39:51,849 --> 00:39:55,060
"He's generous," you know,
"You'd do well working for him."
694
00:39:55,144 --> 00:39:57,896
It was a very bullish time in the market.
695
00:39:57,980 --> 00:40:00,774
This is when
the technology age started exploding.
696
00:40:00,858 --> 00:40:02,401
The Internet came into being.
697
00:40:02,484 --> 00:40:04,736
You had more people
getting involved in the stock market.
698
00:40:04,820 --> 00:40:06,363
[reporter 1] Dow Jones has a website.
699
00:40:06,447 --> 00:40:10,659
[reporter 2] Real-time numbers,
just as traders see them on Wall Street.
700
00:40:11,577 --> 00:40:14,621
[Cohen] So we got more business,
we had more customer flow.
701
00:40:14,705 --> 00:40:17,499
It was a great time to be in stocks
702
00:40:17,583 --> 00:40:20,544
because they became
a lot more efficient through technology,
703
00:40:20,627 --> 00:40:22,045
and profits started soaring.
704
00:40:23,130 --> 00:40:24,673
Madoff was doing somewhere
705
00:40:24,756 --> 00:40:28,385
between 5 and 7% of the total volume
in the New York Stock Exchange,
706
00:40:28,469 --> 00:40:30,929
which is huge
for a relatively small company.
707
00:40:31,013 --> 00:40:34,975
I don't envision it changing anytime soon
unless the market really cools down.
708
00:40:36,226 --> 00:40:39,938
[Campbell] Bernie's growing
a legitimate market-making business,
709
00:40:40,022 --> 00:40:43,025
and at the same time,
he's also very quietly
710
00:40:43,108 --> 00:40:46,278
been growing his secret
investment advisory business,
711
00:40:46,361 --> 00:40:47,863
which he keeps under the table,
712
00:40:47,946 --> 00:40:50,532
which he keeps separate
from the market-making business.
713
00:40:50,616 --> 00:40:53,952
Initially, returns for investors were 11%,
714
00:40:54,036 --> 00:40:56,914
but he was actually giving
as high as 15 to 19%.
715
00:40:56,997 --> 00:41:00,584
He is always consistently profitable.
716
00:41:01,210 --> 00:41:05,923
[Henriques] What had begun in the mid-'60s
as this little, kind of,
717
00:41:06,006 --> 00:41:08,133
bridge club investment advisory business
718
00:41:08,217 --> 00:41:11,011
has grown and grown and grown.
719
00:41:11,803 --> 00:41:15,807
And Avellino and Bienes continued
funneling a boatload of money
720
00:41:15,891 --> 00:41:17,684
into Bernie Madoff's hands.
721
00:41:18,310 --> 00:41:21,480
Avellino and Bienes
operate their feeder fund
722
00:41:21,563 --> 00:41:23,857
very under the radar, very quiet,
723
00:41:23,941 --> 00:41:26,318
never putting anything in writing,
724
00:41:26,401 --> 00:41:29,446
until one of their subcontractors,
725
00:41:29,530 --> 00:41:34,868
who was setting up pooled investments
and attracting friends and family to it,
726
00:41:34,952 --> 00:41:38,455
breaks the first commandment
of Avellino and Bienes
727
00:41:38,539 --> 00:41:40,040
and puts something in writing.
728
00:41:43,502 --> 00:41:47,381
[H. David Kotz] In 1992,
a brochure was brought to the attention
729
00:41:47,464 --> 00:41:49,508
of the Securities and Exchange Commission.
730
00:41:49,591 --> 00:41:53,971
The SEC is a regulatory agency whose
main mission is to protect investors.
731
00:41:54,054 --> 00:41:56,390
And basically on the brochure it said,
732
00:41:56,473 --> 00:41:59,560
"We offer 100% safe investments."
733
00:41:59,643 --> 00:42:03,188
"We haven't had a losing transaction
in over 20 years,
734
00:42:03,272 --> 00:42:06,900
and they're basically riskless trading."
735
00:42:06,984 --> 00:42:10,237
The SEC looks at the brochure
and immediately realizes
736
00:42:10,320 --> 00:42:11,863
there are significant red flags.
737
00:42:11,947 --> 00:42:16,285
You cannot have
100% safe trading investment.
738
00:42:16,368 --> 00:42:18,078
No such thing as riskless trading.
739
00:42:18,954 --> 00:42:22,624
And their investigation
led to these two guys,
740
00:42:22,708 --> 00:42:24,585
Frank Avellino and Michael Bienes.
741
00:42:25,460 --> 00:42:30,674
So Avellino and Bienes came voluntarily
to the SEC with their lawyer.
742
00:42:32,259 --> 00:42:34,177
[Ira Lee Sorkin] They wanted
to take the testimony
743
00:42:34,261 --> 00:42:36,513
of Avellino and Bienes together.
744
00:42:37,514 --> 00:42:39,224
And I'm sitting in the middle,
745
00:42:40,225 --> 00:42:45,522
and I think Bienes was to my left,
Avellino was to my right.
746
00:42:45,606 --> 00:42:48,859
And they get to the point
where they say to them,
747
00:42:48,942 --> 00:42:51,111
"How much money
did you raise for investment?"
748
00:42:51,194 --> 00:42:55,282
I think the SEC was expecting something
like five or 10 million or something,
749
00:42:55,907 --> 00:42:57,576
and they look at each other,
750
00:42:58,619 --> 00:43:02,497
and one of them says, "I think it's about
751
00:43:02,581 --> 00:43:04,875
$444 million."
752
00:43:06,043 --> 00:43:09,963
And I thought the SEC staff
were going to fall out of their chairs.
753
00:43:10,464 --> 00:43:15,427
$444 million from small investors,
that's a lot of money.
754
00:43:15,927 --> 00:43:18,055
This is the early '90s.
That's a lot of money.
755
00:43:18,972 --> 00:43:20,515
They stopped the testimony.
756
00:43:20,599 --> 00:43:23,560
They ran up front to talk
to the head of the office of the SEC,
757
00:43:23,644 --> 00:43:25,729
New York office, and…
758
00:43:26,229 --> 00:43:27,898
"My God! What's going on here?"
759
00:43:27,981 --> 00:43:29,733
They were apoplectic.
760
00:43:29,816 --> 00:43:33,028
The head of the office
I thought was going to have a coronary.
761
00:43:34,780 --> 00:43:38,784
[Kotz] The SEC did suspect
that there was fraud being perpetrated,
762
00:43:38,867 --> 00:43:43,497
but they suspected Avellino and Bienes
were the ones perpetrating the scheme.
763
00:43:44,498 --> 00:43:48,210
And so then Frank Avellino
and Michael Bienes explained that
764
00:43:48,293 --> 00:43:52,881
all the trading decisions had been done
essentially by Bernie Madoff.
765
00:43:52,964 --> 00:43:56,259
They were basically saying,
"Don't look at us, look at Bernie Madoff."
766
00:43:57,302 --> 00:44:00,347
So the SEC seeks documents
from Bernie Madoff.
767
00:44:02,474 --> 00:44:04,476
[Bruce Dubinsky] The SEC
comes sniffing around,
768
00:44:05,018 --> 00:44:07,437
and Madoff gets scared because
769
00:44:07,938 --> 00:44:09,314
it was all a fraud.
770
00:44:09,398 --> 00:44:13,110
[dramatic music playing]
771
00:44:13,193 --> 00:44:17,614
[Dubinsky] Madoff never did any investing
for his investment advisory business.
772
00:44:18,532 --> 00:44:20,826
It involved simply taking people's money
773
00:44:20,909 --> 00:44:23,704
and telling them he was going
to invest it, and he never did.
774
00:44:23,787 --> 00:44:25,872
They were fictitious trades.
775
00:44:25,956 --> 00:44:26,998
It was a Ponzi.
776
00:44:27,541 --> 00:44:31,420
[announcer] Here, in 1919,
is Charles Ponzi.
777
00:44:32,087 --> 00:44:37,134
Ponzi's proved his boasts he can make
50% profit on investments in 90 days,
778
00:44:37,217 --> 00:44:39,469
and wise men follow him.
779
00:44:39,553 --> 00:44:42,139
When government proves Ponzi a swindler…
780
00:44:44,224 --> 00:44:46,184
[Dubinsky] A classic definition of a Ponzi
781
00:44:46,268 --> 00:44:48,478
is taking money from Peter
and giving it to Paul.
782
00:44:49,104 --> 00:44:50,439
It's telling Peter,
783
00:44:50,522 --> 00:44:53,316
"I'm gonna take your money,
I'm gonna do something, invest it,
784
00:44:53,400 --> 00:44:54,818
and I'm going to give you a return,"
785
00:44:55,861 --> 00:44:58,363
but I take your money
and I just give it to Paul.
786
00:44:58,905 --> 00:45:01,533
And this process
just goes on and on and on,
787
00:45:01,616 --> 00:45:06,329
because I continually need
new investors to pay back old investors,
788
00:45:06,413 --> 00:45:09,583
and there's no investing,
no business whatsoever going on.
789
00:45:12,377 --> 00:45:17,382
So when the SEC came in, in 1992,
to investigate Avellino and Bienes,
790
00:45:17,883 --> 00:45:20,844
Madoff has to prove to them
that the trades were real.
791
00:45:22,137 --> 00:45:25,640
So, he turns to Frank Dipascali
to create fake trading documents
792
00:45:25,724 --> 00:45:29,060
using historical information
to give to the SEC.
793
00:45:30,353 --> 00:45:33,857
Frank Dipascali was
Madoff's right-hand man.
794
00:45:33,940 --> 00:45:35,650
He'd been with him for many years.
795
00:45:35,734 --> 00:45:37,569
He handled the feeder funds,
796
00:45:37,652 --> 00:45:39,154
and handled a lot of money.
797
00:45:39,738 --> 00:45:42,365
[Hales] Frank was a real guy's guy,
798
00:45:42,449 --> 00:45:44,284
and he was incredibly bright.
799
00:45:44,367 --> 00:45:48,288
You could cast Frank Dipascali
in a mob movie quite easily.
800
00:45:48,371 --> 00:45:50,999
He was a working-class guy,
801
00:45:51,082 --> 00:45:53,126
and he was incredibly loyal.
802
00:45:54,669 --> 00:45:59,382
Dipascali rises to the occasion
in spectacular fashion.
803
00:45:59,466 --> 00:46:02,511
He starts creating the fake paper trail.
804
00:46:03,136 --> 00:46:07,432
This has to be legitimate-looking
account records, trade logs,
805
00:46:07,516 --> 00:46:09,059
account statements,
806
00:46:09,142 --> 00:46:12,354
and this can't just be paper
that'll fool Aunt Myrtle,
807
00:46:12,437 --> 00:46:15,357
this has to be paper
that will fool the SEC.
808
00:46:16,441 --> 00:46:18,652
[Kotz] When the SEC came calling,
809
00:46:18,735 --> 00:46:21,029
Bernie Madoff showed them
the fake documents.
810
00:46:21,112 --> 00:46:22,823
They believed that they were real.
811
00:46:22,906 --> 00:46:26,159
I don't know how carefully
they scrutinized those documents.
812
00:46:26,243 --> 00:46:28,411
I think a lot of it goes into the mindset.
813
00:46:28,495 --> 00:46:30,622
I mean, what are the chances
that Bernie Madoff,
814
00:46:30,705 --> 00:46:34,251
or any of these guys, to such a degree,
is just faking the whole thing?
815
00:46:34,835 --> 00:46:40,090
And in 1992, the SEC closed the case
without any action whatsoever,
816
00:46:40,173 --> 00:46:42,592
or any real investigation
of Bernie Madoff.
817
00:46:45,720 --> 00:46:48,014
But what they did was, instead,
818
00:46:48,098 --> 00:46:52,269
they forced Avellino and Bienes
to give up their business,
819
00:46:52,352 --> 00:46:55,689
because they were running, essentially,
an unregistered investment firm.
820
00:46:56,606 --> 00:47:00,485
The SEC made the decision that,
"This is structured illegally."
821
00:47:00,569 --> 00:47:03,989
"You must take all the money
out of Bernie's shop
822
00:47:04,072 --> 00:47:06,032
and return it
to all of those individuals."
823
00:47:08,243 --> 00:47:11,538
[Henriques] That's $440 million,
824
00:47:11,621 --> 00:47:15,500
and Bernie doesn't have it
because it's all a fraud.
825
00:47:16,126 --> 00:47:18,003
So he turns, at that point,
826
00:47:18,086 --> 00:47:22,215
to three of his biggest,
longest-standing investors.
827
00:47:23,008 --> 00:47:26,136
Jeffry Picower,
Carl Shapiro, and Norman Levy
828
00:47:26,219 --> 00:47:32,475
were foundational individual investors
in Bernie's investment advisory business.
829
00:47:32,559 --> 00:47:36,104
Over the years, he made them
very, very happy with his results.
830
00:47:36,688 --> 00:47:41,151
So now Bernie persuades them
to help him out.
831
00:47:41,651 --> 00:47:43,570
Whether they knew what he was doing,
832
00:47:43,653 --> 00:47:46,948
or whether they were
truly innocent of his intentions,
833
00:47:47,032 --> 00:47:48,533
they came up with the money,
834
00:47:49,075 --> 00:47:51,870
and so Bernie was able to write checks
835
00:47:51,953 --> 00:47:55,832
for all of Avellino and Bienes' customers.
836
00:47:57,918 --> 00:47:59,377
[Campbell] And guess what happened?
837
00:48:00,462 --> 00:48:02,547
None of his customers
wanted their money back.
838
00:48:02,631 --> 00:48:04,132
They loved what Bernie was doing.
839
00:48:04,215 --> 00:48:05,300
[tense music playing]
840
00:48:05,383 --> 00:48:08,553
When the SEC closed down
Avellino and Bienes,
841
00:48:09,054 --> 00:48:12,891
many of their clients went
directly to Madoff for investment.
842
00:48:12,974 --> 00:48:14,768
[Squillari] All of a sudden,
Bernie said to me,
843
00:48:14,851 --> 00:48:15,936
"We're gonna be very busy."
844
00:48:16,019 --> 00:48:18,939
He said, "Something happened,
we'll be getting in a lot of calls,
845
00:48:19,022 --> 00:48:20,607
and people are gonna be investing."
846
00:48:21,191 --> 00:48:24,110
A lot of the people were senior citizens,
847
00:48:24,819 --> 00:48:26,905
a lot of them from Florida.
848
00:48:27,447 --> 00:48:29,074
These widows, they'd be like,
849
00:48:29,574 --> 00:48:30,867
"I was told to call."
850
00:48:30,951 --> 00:48:35,080
"I was told to call, and I have
$15,000 that I want to invest."
851
00:48:35,163 --> 00:48:38,041
This went on for days and days and days.
852
00:48:38,750 --> 00:48:41,670
[Madoff] When we closed
the Avellino and Bienes accounts,
853
00:48:41,753 --> 00:48:45,048
I started getting, you know,
a lot of pressure from these people
854
00:48:45,131 --> 00:48:48,510
who were relying upon
that money to live on.
855
00:48:49,260 --> 00:48:51,304
The SEC had told me at the time,
856
00:48:51,388 --> 00:48:54,766
"Look, you want to still do business
with these people, that's fine."
857
00:48:54,849 --> 00:48:57,394
"There's nothing wrong with you
doing business with these people."
858
00:48:58,520 --> 00:49:01,481
[Kotz] Bernie Madoff still
did not register as an investment advisor.
859
00:49:01,564 --> 00:49:03,316
The SEC missed it, and,
860
00:49:03,400 --> 00:49:07,612
unfortunately, they missed
one of the biggest frauds in history.
861
00:49:07,696 --> 00:49:09,322
[tense music continues]
862
00:49:09,406 --> 00:49:12,450
[Gordon Bennett] I had worked very hard
running a natural foods business.
863
00:49:12,534 --> 00:49:15,370
After 20 years,
I decided to sell it and retire.
864
00:49:15,453 --> 00:49:16,955
And I sold it for a million dollars.
865
00:49:17,038 --> 00:49:22,293
So I ended up investing maybe $100,000
with Avellino and Bienes,
866
00:49:22,377 --> 00:49:24,587
and when the SEC busted them,
867
00:49:25,422 --> 00:49:29,634
that's when I first learned that
Avellino and Bienes invested in Madoff.
868
00:49:30,301 --> 00:49:33,263
And when the SEC looked into Madoff,
869
00:49:33,346 --> 00:49:34,889
they found no evidence of fraud,
870
00:49:34,973 --> 00:49:37,892
so I thought there's an opportunity
to invest directly in Madoff.
871
00:49:39,269 --> 00:49:42,063
He promised steady returns,
872
00:49:42,147 --> 00:49:44,065
averaging 9% a year.
873
00:49:44,149 --> 00:49:45,859
It was so attractive.
874
00:49:45,942 --> 00:49:48,737
It wasn't promising the moon,
it was just steady.
875
00:49:49,946 --> 00:49:51,448
I did due diligence.
876
00:49:51,531 --> 00:49:56,077
I would follow stories saying he was
leading the pack in electronic trading.
877
00:49:56,161 --> 00:49:59,372
He was someone who
was a mover and shaker.
878
00:50:00,957 --> 00:50:05,420
The fact that the SEC found
no evidence of wrongdoing was, to me,
879
00:50:05,503 --> 00:50:08,006
putting a stamp of approval on Madoff,
880
00:50:08,089 --> 00:50:12,927
so I sent a wire for $900,000 to Madoff.
881
00:50:13,011 --> 00:50:14,929
[tense music builds]
882
00:50:16,556 --> 00:50:20,185
[Henriques] All of a sudden,
it's no longer Avellino and Bienes
883
00:50:20,268 --> 00:50:22,437
pooling the money
and handing it to Bernie.
884
00:50:22,520 --> 00:50:24,981
It's thousands of people handing money
885
00:50:25,065 --> 00:50:28,443
to Bernie's unregistered
investment advisory business.
886
00:50:28,526 --> 00:50:31,404
His name got around
largely by word of mouth.
887
00:50:32,030 --> 00:50:34,491
You get an introduction
at the country club,
888
00:50:34,574 --> 00:50:37,077
you get an introduction
on this philanthropy board.
889
00:50:37,660 --> 00:50:41,539
He's becoming better known
in the world of elite money managers.
890
00:50:41,623 --> 00:50:43,750
[Campbell] And they're all saying
the same thing.
891
00:50:43,833 --> 00:50:45,627
"You gotta put your money with Bernie."
892
00:50:45,710 --> 00:50:48,004
"We don't know how he's doing it,
but it's magic."
893
00:50:49,380 --> 00:50:51,966
[Arvedlund] Madoff's
unregistered investment business
894
00:50:52,050 --> 00:50:57,263
attracts endowments from
very well-known Jewish universities,
895
00:50:57,347 --> 00:51:00,558
and philanthropists like Elie Wiesel,
a Holocaust survivor,
896
00:51:00,642 --> 00:51:02,811
and of course, some very wealthy families,
897
00:51:02,894 --> 00:51:06,064
among them the Katz family
and the Wilpon family,
898
00:51:06,147 --> 00:51:08,483
who are the owners of the New York Mets.
899
00:51:08,983 --> 00:51:11,569
[Campbell] And this is
when the fundamental nature
900
00:51:11,653 --> 00:51:13,613
of the Ponzi scheme has to change.
901
00:51:13,696 --> 00:51:15,573
It's a whole different ballgame.
902
00:51:15,657 --> 00:51:17,951
[Sorkin] He was able to fool the SEC.
903
00:51:18,034 --> 00:51:21,454
He had just survived an investigation
without a scratch,
904
00:51:21,538 --> 00:51:24,916
and so he was emboldened
and felt he was untouchable.
905
00:51:24,999 --> 00:51:26,501
The sky was the limit.
906
00:51:26,584 --> 00:51:28,670
[Campbell] The legitimate
trading business gives Madoff
907
00:51:28,753 --> 00:51:31,047
the credibility of being successful,
908
00:51:31,131 --> 00:51:35,260
and he's now got about 5,000 clients
in the investment advisory business.
909
00:51:35,343 --> 00:51:38,763
So he needs to scale up the Ponzi scheme.
910
00:51:38,847 --> 00:51:40,515
He needs a lot more space
911
00:51:40,598 --> 00:51:43,893
to keep the Ponzi separate from
the legitimate side of the business.
912
00:51:44,561 --> 00:51:46,938
[Henriques] So he subleases some space
913
00:51:48,565 --> 00:51:51,651
on the 17th floor
of the Lipstick Building.
914
00:51:52,735 --> 00:51:57,157
A little warren of offices
where Frank Dipascali is king.
915
00:51:58,074 --> 00:52:04,080
Messy, cluttered, nothing like
the elegant, stately offices upstairs.
916
00:52:05,415 --> 00:52:10,253
This is where the Ponzi scheme will grow
exponentially in the years ahead
917
00:52:11,462 --> 00:52:13,423
into a fraud on steroids.
918
00:52:13,506 --> 00:52:15,508
[suspenseful music playing]
919
00:52:26,436 --> 00:52:30,064
[closing theme music playing]