It has been a week
since Bernie Madoff turned himself in to the FBI.
This guy had enormous credibility.
- One of the biggest market makers. -If you can't trust him…
-One of the founders of the NASDAQ. -…who do you trust?
How could he pull this off by himself?
It seems almost impossible. It has to be that people were included.
Whether they knew what they were doing
-becomes a larger question. -Or not. Right.
One of the unique things about the Madoff investigation
was the fact that it started with a confession and an arrest,
but we knew we had to get more.
So as we were doing our investigation,
we went to the 17th floor,
and we were like…
"Holy shit."
It was almost like walking into a time warp.
It looked like the mid-1980s.
You had these old, big mainframe computers.
There's reams of paper everywhere.
There are file cabinets, boxes.
There are faxes that have come in requesting redemptions.
There are documents laying everywhere.
Very messy,
which is a stark comparison to the 19th floor, which was pristine.
The thing that always struck me was the dot matrix printer.
He had this old-school paper, you know, where you tore off the sides of it.
If you invest with any large brokerage firm,
nobody gets a statement on dot matrix paper.
On one desk I found a stack of 5x8 index cards
with handwritten columns depicting cash activity.
Withdrawal, deposit, ending balance.
And the ending balances,
I see four and a half million, and I'm thinking, "Gee, that's a big number."
When I looked at it closer, I realized it was four and a half billion.
And that's when I realized
this is not an ordinary white-collar crime.
I started working for Madoff around 1992, in computer operations.
When I first went for the interview at the office,
it was a good conversation,
and the salary that they offered me, I was very happy with the salary.
It was like, double the amount that I made at Federal Express,
and um, I wasn't working out in the rain.
I was working in a nice office building,
and I was more than excited.
But also I was very nervous because it was just something that
I wasn't used to.
When I first started, I worked on the 19th floor.
Everything was on the 19th floor at that time.
The 19th floor was beautiful.
It was all glass, all black and silver decor.
Then we moved to the 17th floor.
The 17th floor was totally different.
When you started doing the,
we'll call it the fraudulent investment advisory business,
you moved the people who did that to a separate floor?
That's correct.
We moved the whole advisory side down to the 17th floor.
That was in the, uh, '90s.
I worked nights, so I saw a lot of the grimy stuff that was going on.
I could see where there was some things that were kind of sketchy.
They had an area called the cage.
And the cage is where everything was going down.
You go in there and you'll see them got, like, six-packs in there,
and at that time, you could smoke inside.
Now I see people coming in smashed and go in the back with their mistresses,
or some guys who did coke in there, or whatever.
And I thought that was really crazy, you know? I was like, "Wow."
I was real naive to a lot of this stuff because of the fact that
we still had very heavy hitters in the company who are working down there,
like Bernie Madoff and Frank.
The investment advisory side,
or the 17th floor, as it's referred to,
was basically supervised by Frank DiPascali.
He just ran pretty much everything down on that floor.
Is it fair to say that Frank was in charge of the 17th floor?
Yes. He was very talented when it came to, uh, helping to build the system.
He did pretty much everything.
Frank DiPascali was a guy that you would expect to run numbers
or be shooting craps in the street.
He was definitely, you know, a smart guy, but, you know, like, a streetwise guy.
If Frank had been a mobster,
he would have been the one telling people who to hit.
Frank was Italian, he came from Queens.
I was Italian, I came from Brooklyn.
I couldn't relate to him.
And I should have, I should have.
But we were different.
I remember hearing that Frank was working in a gas station
before working at Madoff, and that he didn't complete college.
If you were going to have somebody run your investment advisory business,
I would certainly think it would be somebody who was educated.
I could just never understand it.
It was very clear that Bernie respected Frank a lot.
And for Frank, this was an opportunity to make more money than he ever imagined,
and live the lifestyle he always wanted.
I'm not sure a kid from Howard Beach could have had the kind of yacht he had
and the house in Jersey the way he had,
doing anything else but working for Bernie Madoff.
Then there was Annette Bongiorno.
Annette… I don't really know what she did.
I knew that she was a heavy hitter and she was a snazzy woman.
Yeah, she dressed nice.
I know Annette was making very good money.
I know she used to have a little drawer with cash in it.
And she would be like, "Go in the drawer and get such-and-such
and order you and such-and-such dinner."
And it was a nice little stack of money she had in there.
Annette was a working-class woman from Queens, and not a lot of education.
A lot of the people that were on the 17th floor,
Bernie got them in when they were very young, very impressionable.
So they would be incredibly loyal
and deferential to him and do whatever he asked.
Annette worshipped Bernie.
And I think she would have taken a bullet for him.
She had her little team downstairs that she controlled,
and Bernie seemed to rely on her quite heavily,
particularly with his biggest clients.
Let's turn to Annette. That's Annette Bongiorno?
Yes.
And what were Annette's day-to-day responsibilities?
She handled the…
uh… the big clients.
And how long did Ms. Bongiorno work for you?
Probably 30-some odd years.
No matter what Bernie was doing,
he would drop what he was doing to talk with her.
And I remember thinking at the time, "Boy, Bernie really takes care of her."
He's very loyal to his longtime employees.
She was always going to Palm Beach.
She was always getting some new car.
She lived quite a life, we thought at the time,
for somebody who was a secretary and a clerk, kind of, from Queens.
The investment advisory down on the 17th floor was always very busy.
There was always mailings going out.
It was like a buzz of activity going on.
And it was divided into two spaces.
Annette had one side, Frank had another
with the computer guys, Jerry O'Hara and George Perez.
My supervisor was Jerry O'Hara.
Yeah, he looked over my work.
As a computer operator, I was to print out, like,
these statements for certain stock or securities,
but the printers were not fast.
They were very slow, like, dot matrix printers and stuff.
A typical day on the 17th floor,
I would print out probably 700 statements at night.
If I had issues with printing,
I would call them, and they would troubleshoot it.
They wouldn't be like, "Leave it till the morning."
They would want to get it done right then.
If it came out smudged or wasn't done the right way, they would print it over,
and then we would mail them out to the different clients.
They ran a tight ship with every little detail that went on.
One of the reasons I chose to be in silhouette is because
I don't want to be part of anything that's still going on with that case.
I know the Madoffs did some very bad things to some people,
and I feel bad for the people they did it to,
but they were good people to me,
and I can't say nothing bad about them.
Bernie Madoff's fraud was not a complex fraud.
It involved simply taking people's money,
telling them he was going to invest it, and he never did.
So, to continue the Ponzi and perpetrate this fraud,
he had his handful of soldiers at the investment advisory side of the business,
create fake trades.
It was very easy to create a fictitious trade
if you know what it traded for yesterday.
It's like going to the horse races and betting on yesterday's horse race.
It was just a key punch operation.
People sat around and key-punched this historical information into the computer
to make it look like they bought Amazon a month ago
and sold it yesterday at a profit.
George Perez and Jerry O'Hara had computer programs
that took the information from the fake trades
and put them on a customer statement,
so when you, the customer, got it, it looked real.
The complexity was how many clients he had to deal with in the '90s and 2000s.
Almost 5,000 clients.
It was a paper mill.
It's an iterative process of punching in fake trades,
seeing what the returns look like,
shredding those statements,
punching in new trades with different prices
to make the returns even better,
and then eventually mailing those to customers.
Mr. Madoff, importantly, never provided electronic access
for people to access their account statements.
He didn't want people to have electronic access
to see what was going on behind the curtain.
The 17th floor really operated, in a sense, like a bookie operation,
and somebody had to keep track of all the money in and out.
Jodi Crupi was another one of these um, unsophisticated types
that Bernie brought in to be an instrumental part of the scheme.
Her job, towards the end, was to manage what was called "Jodi's pad."
It was actually a tally done every day
of the ins and outs of cashflow from the JP Morgan bank account,
known as the infamous 703 account,
which represents the last three digits of the account number,
which we now know as the Ponzi account.
And every day at the end of business, the tally would be delivered to Bernie,
so Bernie knew exactly what came in and what went out.
This was very important to Mr. Madoff,
obviously, when you're running a Ponzi, to understand how much money you have
to make sure you get enough cash on hand to meet some of these withdrawal requests.
That's why the 17th floor was so important for Bernie Madoff.
When you control a few people that you can keep quiet for a long time,
that's how you can perpetrate this fraud for four decades or longer.
The investment advisory business,
down on the 17th floor,
nobody had access to it except the employees who worked down there.
I had a card key because I would have to go back and forth for Bernie.
And even when I went down, nobody encouraged you to stay.
Nobody wanted to have a conversation.
The 17th floor was a real enigma.
I don't know that we… The people that I knew on the trading floor,
that we ever really knew what went on down there.
We didn't talk about the trading side to them,
and they didn't talk about whatever they were doing on their side.
Madoff was a family-dominated firm,
so Bernie was the top of everything.
His family had all the key positions on the 19th floor.
His younger brother, Peter, was the compliance officer,
and Bernie gave his sons, Mark and Andy, both very young, a lot of responsibility.
They ran the trading floor.
His sons both worked for the firm since the day they graduated college.
And because they were Madoffs, we had to listen to them.
I thought I was a, you know, much better trader than Mark,
but I couldn't beat him in an argument because he was Mark Madoff.
Andy'd joke with me, he said, "This is nepotism central."
Mark and Andy both felt
that they needed to understand the whole business,
including what Bernie was doing on the 17th floor
with the investment advisory business,
and Bernie wouldn't talk to them about it.
There was this line that Bernie had drawn
that separated the boys from what he was doing on 17.
As far as I know, Mark and Andy weren't allowed on the 17th floor,
and it really bothered them.
I remember thinking how kind of strange it was
that he would seem more interested in pulling Frank in
than he was his own sons.
Bernie basically told them,
"I'll manage my side of the business. You manage yours. Mind your business."
Even his own sons couldn't question him.
Since at least the late 1800s,
the sign of real success on Wall Street and in the world of finance in New York,
was to be able to play golf all winter.
To go somewhere where it was warm and sunny,
to get away from the New York slush.
Bernie and Ruth set their sights on Palm Beach,
which was one of the most exclusive enclaves
along the eastern coast of Florida.
They purchased a home there
and began to participate in the seasonal social life of Palm Beach.
And Bernie and Ruth were accepted as members to the Palm Beach Country Club.
The Palm Beach Country Club, unlike a few competing clubs of longer standing,
was open to both Jews and non-Jews.
Most of the Jewish families turned there for their country club membership.
I had many congregants
who were members of the Palm Beach Country Club.
I came to America after being a dissident, or what we used to call refusenik.
I'm originally from the former Soviet Union.
When I applied for the position to be the rabbi of Temple Emanu-El,
they said, "Rabbi, do you own a tuxedo?"
I said, "What? I rented a tuxedo a couple of times in my life."
They said "No, no, no, you will need at least one tuxedo,
because you will go to a lot of fundraising events."
Because Palm Beach is one of the major capitals of fundraising in the world,
including Jewish causes.
From what I understand,
to join the club, you have to show your charitable contributions,
in addition to the $300,000, which you will never see.
This is just to join, to show, "Yes, I believe in this club."
So, fundraising is a very important part of life in Palm Beach,
and that probably is the reason why he ended up here.
It is an interesting question. Why did Bernie Madoff pick Palm Beach?
He did not go to Silicon Valley.
He did not go to Bedford, New York or Scarsdale.
Because in Palm Beach, Jews are allowed only in one club,
and this is where Madoff discovered
that this is a very easy way for him to get new investors.
Make it very exclusive.
And from what I remember, people said, "It's impossible to get in."
Somebody would come and say, "I want to invest a million dollars."
He says, "No."
He would turn people down.
He created this excitement
that you had to go through somebody who knows somebody who knows somebody,
maybe he will take your money.
He did you a favor to take your five million dollars.
He was brilliant.
Did you solicit new investment advisory customers?
-No. Why not?
Because the firm was in a position
that we were always turning away investors.
We never, uh, never solicited new monies coming in.
As a matter of fact, we tried to return monies at times,
but met resistance with clients.
My father invested all of his money with Bernie Madoff.
He was so impressed by Bernie Madoff.
I mean, really, really impressed.
The dream of Jewish people like my father
was to earn money, invest it and live off the interest.
Originally, it was just my father, my mother, sister and myself,
put a certain amount of money in,
got a return the next quarter.
My father said, "Okay, let's put another investment in."
And now we included my brother-in-law and my wife.
And by the time 2008 rolled around,
my kids were in it,
my nieces and nephews were in it,
and some of their kids.
So this was my father's pride and joy.
It was a legacy for him to provide to his family,
and he was extremely proud of it.
My father, he had a stack of statements
from this Bernie Madoff company,
and he says, "Look at this, look at how much you're making."
He says, "This guy is brilliant."
And I said, "Dad, I don't understand this."
"How come everybody else is getting 8%, 7%,
and you're getting 15?"
And he said,
the typical,
"Don't worry your pretty little head."
A lot of his procedures and methods struck me as odd.
When he supposedly bought stock at all these companies,
we wouldn't get confirmations for maybe two, three weeks afterwards.
We didn't question it, but we certainly didn't get it in a timely fashion.
And it was very difficult to communicate with them.
Basically, one of the rules we learned early on was
he was pretty much the Soup Nazi.
Excuse me, I-I-I think you forgot my bread.
-You want bread? -Yes, please.
Three dollars!
-What? -No soup for you!
"You're asking too many questions? No soup for you."
"I'm gonna send your check back." That's exactly the way it was.
Customers would never call me
and ask me to discuss their statement with them.
It was not something that I would discuss with the customer.
If they called me up and said to me, "I want my money back,"
I would say to them, "If you force me to sell it out, I'll sell it out."
"I'm sending your money back, don't come back."
People said, "Oh no, no, no, that's okay."
"Whatever you're doing is fine. Just keep it going."
So, they were buying into something that had a track record.
It was five, 10, 15, 20 years going when they got involved.
So what's there to doubt?
Did people trust him more because he was Jewish?
Yes. Perhaps there is an element of, "Oh, he's one of us."
"He's a contributing member of the society, of the community."
But we need to know Jewish history.
Jewish people were not welcome in most places on Earth,
and especially in Palm Beach.
For many years,
it was impossible to buy a house,
it was impossible to get into any of the clubs,
even famous hotels, until 1960s, '65, I think.
There was a sign there, "No Jews, no dogs."
It wasn't a religious thing, it was a social thing
that the Jewish community learned to build a wall around themselves.
They weren't against other people,
they just didn't trust them that they'd be treated fairly.
They trusted Bernie because everybody they knew trusted Bernie.
And it was inconceivable to them that one of their own would defraud them.
I remember one time the receptionist called me up.
She says, "You're not gonna believe this." A couple of elderly women came in,
and they wanted to meet Bernie, and he came out,
and she says, "You'd think they met a movie star."
Some of these elderly people could be very sweet.
You know, I guess he was like…
He could be their Jewish son.
He was taking care of them, investing their money.
They admired him.
I did.
You had people who were wealthy,
and people who weren't and it was their life savings,
but it wasn't necessarily just Jewish people, it was everybody.
By this point, Bernie's investment advisory business has grown,
word-of-mouth, largely, grown and grown and grown.
So, Bernie is collecting names,
moving in more significant circles.
That allows him to really tap into this burgeoning world of hedge funds.
Now, the original name for hedge funds was "hedged funds."
And a fund that was hedged was simply a fund
that wasn't betting on everything just going up.
It had taken stakes in the market if prices went down.
So, you've hedged your bets.
Hedge funds had been around for a long time,
but through the '80s and into the '90s,
there's a sea change in the world of retail investors.
This is when Silicon Valley startups are starting to be so attractive,
when professional mutual fund managers are saying,
"You know, I can make a lot more money running a hedge fund."
However, as they became more popular,
as every Tom, Dick, and Harry decided he could be a hedge fund manager too,
this original, classic strategy of hedging your bets
was thrown out the window.
They were simply collecting money in a pool
and investing it with somebody like Bernie Madoff.
Jeffrey Tucker, who was a former SEC regulator,
and Walter Noel,
a classic prep-school-bred aristocrat on Wall Street,
had teamed up to form Fairfield Greenwich, a hedge fund.
And Jeffrey Tucker's, um, father-in-law, knew Madoff,
and made the introduction.
So, Walter Noel, Jeffrey Tucker, they go to visit Bernie,
and Bernie's right-hand man, Frank DiPascali.
Madoff explains his split-strike conversion strategy to them.
But in the parlance of Wall Street, it was simply called a bull spread.
It was a strategy that you use to ride a bull market up,
but to put a floor under your losses
so that you wouldn't lose too much.
And that's what Bernie started to market.
Bernie deliberately made it seem complex,
but it seemed to give them what they wanted from Bernie:
consistent returns.
But what really appeals to them
is something they'd never seen before in the burgeoning world of hedge funds:
the fee structure was luscious.
The rule was 2 and 20.
The manager, that is, Fairfield Greenwich,
would get 2% of all the assets invested, just right off the top.
That's their annual fee for managing your money.
And then, they would get 20% of the profits they made for you.
In a normal world with a normal money manager,
Walter Noel and Jeffrey Tucker would have to split their fee,
the fee they collected from their investors, with Madoff.
But Madoff doesn't require that.
Madoff lets them keep the entire fee
without paying him anything but commissions
on the trades he's supposedly making for them.
To call this unusual would be a vast understatement.
It was unprecedented.
It was the most attractive deal
a hedge fund manager could find on the planet.
Now, to give him credit, Jeffrey Tucker asks questions.
He's the due diligence guy.
But, at this point, Bernie firmly adopts the strategy that will serve him so well.
"If you've got all those questions, maybe you should take your money out."
"You know, I don't have time for this."
And so, Fairfield Greenwich decided to invest with Bernie Madoff.
Fairfield Greenwich was really Bernie's first big hedge fund client.
I worked for Fairfield Greenwich Group founder Walter Noel
from 1987 to 1998.
I think that Walter Noel and his family were very pretentious.
When Walter first started out,
he tried to pretend that he was rich because they wanted to be in high society.
I heard that he would refinance his mortgage constantly.
He would rent out his house to help defray the expenses of a vacation in Europe.
He did his own lawn for a while.
And his mother-in-law was giving his wife some money to help her each month.
But Walter was very good at selling himself.
He lived an aspirational lifestyle.
So, he made sure that he was at the right clubs and he was very gregarious
and was very much into networking with people.
I thought, "Well, okay, that's kind of harmless, because so what?"
Then Bernie Madoff came on the scene,
and that's when things just exploded.
It was like finding the goose that laid the golden egg.
The money started to really roll in very quickly, and a lot of it.
And he stopped mowing his own lawn. He stopped renting his house out.
Bernie experienced this avalanche of cash flowing in
from the hedge fund world.
Part of that was just the curious and glamorous structure
of the Walter Noel family.
He had five gorgeous daughters.
Each of them seemed to marry into the moneyed aristocracy
of a different part of the globe.
One married a Latin American heir,
another married a Swiss investor
who had great ties in Latin America and the Middle East.
So, with Fairfield Greenwich and all of these sons-in-law,
Bernie had, like, instant global credibility
and access to global cash.
It took me a long time to understand
what was so special about Bernie Madoff's trades.
And then one of Walter's clients wanted to see what stocks were in that portfolio.
So, he hands me seven pages
that were printed on a dot matrix printer,
on thin paper and in very poor quality ink.
And I thought to myself, "What a schlock operation."
I mean, it looked like he was working out of his basement
with cinder block walls.
This was not the way a statement looks,
because every statement from a bank,
from a brokerage house, from a credit union,
is on premium paper, and it's got a nice, big, color logo,
and it's got a lot of fine print, and it's got a phone number where to call
if there's a problem or if you have a question.
Bernie Madoff statements had none of that.
Hedge funds are important to Madoff's Ponzi scheme
because it was a way to funnel money in.
So, the hedge funds were basically feeder funds,
collecting money from other investors,
and then they would put that money in, on behalf of those investors, into Madoff.
And so the question then is how many of these feeder funds were complicit,
or whether they turned a blind eye
and just stuck their head in the sand and said,
"Look, as long as I'm getting the returns, I'm not gonna ask any more questions."
But you certainly have to question, you know,
what was going through their mind at that point, uh,
when they invested with Bernie Madoff.
So, Mr. Madoff promised some of the larger individual clients
a higher rate of return.
Those were kind of the big four, so to speak.
You had agreements with Norman Levy, Carl Shapiro…
Right.
With Jeffry Picower? -Yes.
-And Stanley Chais? -Right.
I had a very special relationship with the big four clients, all right?
Picower was a little bit different.
I asked Madoff whether he thought anybody among his big investors
knew what he was doing.
And the one name he came up with was Picower.
He said, "I think he knew."
"We never discussed it. Never confronted one another."
Jeffry Picower was a longtime client of Mr. Madoff's,
dating back over 30 years.
He was a lawyer, he was an accountant,
who started his career selling tax shelters.
Picower is kind of this shadowy figure.
He invested north of $600 million in his Madoff account,
and then between 1998 and 2003, Picower begins drawing money out.
And the amount of money that he was taking out was really quite staggering.
Hundreds of millions of dollars at a time.
A billion dollars in one particular year.
It had to have been very difficult for Bernie to deal with.
He had to raise the money to cover Picower's withdrawals. In fact,
at one point, virtually all the money that Fairfield Greenwich, the feeder fund,
was steering into Bernie's hands,
Bernie was turning around and paying out to Jeffry Picower.
If you look at the entire length of their relationship,
Picower took out $7 billion from Bernie's investment advisory business.
And yet Bernie becomes totally dependent on Picower,
because while Picower was extracting billions of dollars,
he also puts money in, even if it's just for a brief period of time,
when the Ponzi's threatened by periodic cash crunches,
bailing Madoff out when he needed to be bailed out.
And as a result, Picower comes to have the power to extort Bernie.
He's both Bernie's savior, if you will,
and Bernie's deep, enraging enemy,
because Bernie, as the ultimate control freak,
has allowed somebody to basically control him.
For instance, while Picower was taking real gains in cash out of the business,
he would call in fake losses to Annette Bongiorno,
and literally would say, "I need losses."
"It's the end of the year. I don't want to report gains,"
and then have fictitious losses made
so he didn't have to pay taxes on that money that he was taking out.
I asked Bernie,
"Why would you let yourself be at the mercy of this guy?"
He basically said, "Jim, you've heard the expression,
'keep your friends close and your enemies closer.'"
Bernie's own suspicion was
that Jeffry Picower had twigged to what he was doing,
understood that Bernie couldn't say no to him,
and was going to milk his Madoff account for everything he could.
And indeed, no one made more money,
no one got richer from the Madoff Ponzi scheme,
than Jeffry Picower did, not even Madoff.
I admitted to doing enough things that were totally embarrassing and wrong
that I regret,
but this was my own doing.
No one had a gun to my head.
You had to understand, unless you knew me
and you know my relationship with these people,
my four big clients, being the greedy people that they were,
never wanted to close out the transaction.
I'm a reporter.
Been covering business since the 1990s,
and I came to work at Barron's Magazine in 2000,
and I wanted to start writing more about hedge funds,
which were not as big of a deal as they are today.
And one day, I got a phone call from a guy who was a very good source of mine.
He said, "You should write about Bernie Madoff's hedge fund."
"It never loses money."
And that made me prick up my ears,
because never in history had there been a hedge fund
-that never lost money on Wall Street.
Online companies
were among the biggest losers on Wall Street this past week.
And the carnage is just beginning.
Former high-flyers that once fetched $30, $40, $50 a share
can now be had for a few bucks.
In the early 2000s,
the dot-com bubble had just burst.
So, the stock market was cratering.
At the same time,
Bernie Madoff's hedge fund was apparently consistently making money,
which was also strange.
Why would his particular hedge fund be the only one that was making money?
So, I wanted to find out more about Madoff's hedge fund.
As part of my research,
we found an offering document for Fairfield Greenwich.
An offering document is really just
a prospectus or an investment pitch
that a fund gives to potential clients
that explains a trading strategy.
So, in the spring of 2001,
at that time you could actually go to the Exchange
and go down onto the trading floor,
and I would interview traders and say, "Have you heard of this guy?"
"Has anyone done business with this billion-dollar hedge fund
run by Bernie Madoff?"
And the strange part was that nobody had done any trading with them.
And I started asking private banks,
"Hey, do you have any wealthy people who invest in this hedge fund?"
And over the course of it,
I started noticing some very strange things.
So, for instance, when I interviewed some clients of a private bank, they said,
"You know, we have been told we can invest in Bernie's hedge fund,
but we can't tell anyone he's our money manager."
It's a red flag when your money manager tells you,
"Don't tell anyone I'm running your money," because
most portfolio managers want to crow about their returns.
I went to lunch with somebody who worked at Merrill Lynch,
and he was kind of a banker to the wealthy, and he said,
"I can't look at the books, I can't do any due diligence."
"However, if I tell my clients
that I want to pull them out of Madoff's fund,
they're gonna fire me."
This scenario was repeated over and over and over.
As part of my reporting, I also called Fairfield Greenwich,
and I spoke with Jeffrey Tucker.
And he dismissed me and said,
"There's no reason why you should be writing a story."
"This is a private fund."
"It's not open to retail or mom-and-pop investors."
And Barron's is very much a magazine read by the public.
But some investors avoided Madoff.
For instance, Goldman Sachs,
Salomon Brothers.
They refused to do business with Madoff.
They said, "We can't figure this out. There's something weird about this."
So my expectation was that it would be easy to get an interview with Bernie
because most money managers wanted to be interviewed.
It was considered, you know, kind of a career win
if you were profiled in Barron's Magazine.
But I-- I could not get through to him.
I tried the back door, I tried the front door, uh…
I just could not get the guy to give me an interview.
It was a couple days before publication…
…and I left a message and said,
"We're going to write this story whether you talk to me or not."
And,
bang, he was on the phone.
As I remember it, Bernie Madoff was very smooth.
Seemed surprised that I would be interested in writing about his fund.
He pretty much gave me the brush-off and said,
"I can't tell you about my strategy, it's proprietary."
And kind of patted me on the head and sent me on my way.
And, because I had, really, no answer from him,
so all we could really do was raise questions.
How did he do it?
How did he make money?
You know, what was the strategy?
Why does he tell people not to tell anyone he has a hedge fund?
Why does he give up all this money in fees?
I knew in my gut that there was something not right,
but that was all I had at that point.
After the article came out, it was May of 2001,
I thought,
you know, "Yes! I've won the Pulitzer."
Um, but I didn't get a single phone call.
I thought maybe I'd get an angry, you know, response
from Bernie or his lawyers,
but it was total silence.
What I didn't know was that
Bernie went on to his trading floor
with a copy of my story and said,
"This woman's an idiot."
"I don't want to hear anything about it. It's total baloney, let's move on."
I said to Bernie,
"But it's in the paper. People are going to mention it."
He goes, "We're not discussing this."
Bernie never liked to be associated with any bad publicity.
Any time a reporter called or a piece was written about Bernie,
he'd get very uptight.
That's just the way he was.
In his mind, if we don't discuss it,
it's okay. It's not real.
That's it. No mention of it.
Up until the spring of 2001,
Bernie Madoff had managed to keep his entire investment advisory business
almost completely off the public radar.
He was keeping everything very quiet, very shadowy, very hidden
until the more formidable pages of Barron's Magazine comes out.
Now, it's important to note
that the story did not accuse Bernie Madoff of doing anything illegal,
but it did produce questions among their investors.
After my article came out,
it really spooked Jeffrey Tucker from Fairfield Greenwich.
He started to have doubts.
So he demanded a meeting.
This is a precarious moment for both Jeffrey Tucker and Bernie Madoff,
because they have such a symbiotic relationship.
Tucker and Fairfield Greenwich have invested billions of dollars,
and Bernie is supposedly investing these billions of dollars.
The meeting was an awkward encounter.
"Bernie, I need to talk with you about what's been reported."
It was imperative that he reassure Tucker,
but it's classic Madoff
that he reassured him by appearing not in the least bit worried.
And Bernie has his right-hand man, Frank DiPascali, there with him,
and they show him a paper trade ledger,
showing the different trades that have been made in their account over time.
Well, Jeffrey Tucker, this was not his first rodeo.
He was a former regulator, he was a lawyer.
Anybody can print out a stack of paper that says certain trades have been made.
He needs more.
At which point, Bernie and Frank fire up the computer
and they show him that they have an account with a regulator called DTC,
which is the Depository Trust Company.
This is essentially a bank account for every broker on Wall Street.
They say, "If you really, you know, are worried about where your money is,
just know that we have this account and you can check your portfolio anytime."
"So," Bernie says, "Pick a stock,
pick any one of these trades."
"Which one would you like to check on?"
"Well, check on our trades in AOL." "Sure."
Frank punches a few keys,
up pops what looks like a page of Fairfield Greenwich's transactions in AOL.
Showing exactly the number of shares Jeffrey Tucker expected to find there.
I mean, you could have heard the sigh of relief around the world.
It's all there.
Nothing to worry about.
And he goes away really placated and reassured.
Now in reality, of course,
this was all a sham.
This was a Potemkin village of a DTC account.
Now, what had actually happened is,
Frank DiPascali had hijacked the legitimate clearing house feed
from the legitimate firm upstairs
and had woven fake trades into it
so that he could summon it up, show it to Jeffrey Tucker,
and reassure him that, in fact, his AOL stock was safe and sound.
So he had created a perfect replica.
Madoff and DiPascali really had a remarkable relationship,
in that,
DiPascali was able… to intuit
what Madoff would need
and what Madoff could best use to cover up his fraud.
There was one amazing episode
where an accountant for a fund asks DiPascali
to see the trade ledger for a random date,
and DiPascali says, "Oh sure, sure,"
and says, "We need a trade ledger."
Well, his minions there frantically go into action.
They create a fake trade ledger.
It prints off the printer, this huge stack of paper,
but, oh wait, it's too pristine, it's too clean.
They toss that wad of paper around the office like a beach ball
until it looks sufficiently ragged and thumbed and well-used.
But, oh wait, it's hot off the printer.
That's a problem.
So they chill it in the office refrigerator.
And, of course it's completely convincing to the accountant.
So, this kind of stagecraft, you can't call it anything else,
just seemed to fit like a hand into a glove
uh, for what Madoff needed to reassure his investors.
Even before Madoff himself knew what he needed.
"I am standing here today
to say, that from the early 1990s
until December of 2008,
I helped Bernie Madoff and other people
carry out the fraud that hurt thousands of people."
"There was one simple fact that Bernie Madoff knew,
that I knew, and that other people knew,
but that we never told the clients,
nor did we tell the regulators like the SEC."
"No purchases or sales of securities were actually taking place in their accounts."
"It was all fake. It was all fictitious."
"It was wrong, and I knew it was wrong at the time."
This fraud went on for decades.
But without the proper paperwork,
the whole thing would have been exposed very quickly.
Account statements,
trade confirmations,
reports for clients when they wanted a report…
The only way that could be done is through the use of the computer.
And you can't go out and buy software for fictitious trades.
You need to create your own software to make that happen.
So, computer programmers George Perez and Jerry O'Hara were critical
in helping Madoff continue the fraud for so long.
Jerry and George didn't lead the same lifestyles
as the 17th floor staff.
Frank had a two-million-dollar boat.
Jodi had this house on the Jersey Shore.
They didn't have that. They kind of lived pretty modestly.
But they knew what they were doing was wrong.
They know that they're falsifying reports,
and over time, they become uncomfortable with that.
George and Jerry were getting a little nervous that they were gonna be discovered
because they're at risk here.
They start to confront Frank DiPascali,
and it turns into almost a comical blackmail,
because they start saying they need more pay to do this.
And they don't want it to look like there's a sudden bump in pay,
so they ask to be paid in diamonds.
Of which Frank is thinking, "That's fucking nuts."
And they actually put together a note saying,
"We're very concerned with reports we're running,
and we don't know if our lives may be in jeopardy,"
and they want to get this on the record.
It says, "I've expressed to my boss, Frank DiPascali,
my unwillingness to work on projects which I am uncomfortable with."
"I don't know how far up the ladder my unwillingness has been communicated,
but it is a matter of short time before it hits the top."
"I fear for my job, my family, my future."
And it's signed George Perez.
Then they confronted Bernie about it.
And Bernie, he didn't, like, bend over backwards and say,
"Oh yeah, you know, okay, yeah, you got me, guys."
"Take whatever you want." He was gonna play hardball with them.
They go into Madoff's office with Frank,
and they basically say they're not comfortable.
"And furthermore, we think you should shut down
the investment advisory business."
Which, of course, drives Bernie into pure bully mode.
He browbeat them.
It's a precarious situation for both sides because
these boys don't deal with Bernie directly day-to-day.
And furthermore, they've just threatened this guy
who is the man that runs the firm and is a legend on Wall Street.
Get the fuck out of my office. Now!
And eventually Madoff negotiated this through Frank,
and, you know, Frank got them some more money.
They ended up with an additional $60,000,
which, in the scope of this whole case, really isn't a lot.
They actually could have extorted Bernie for any amount of money,
most likely, and kept their jobs.
The boys settle for this rather average increase,
and Bernie sort of has yet another narrow escape.
For the time being.