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035: Bernie Madoff, Ponzi Scheme - Keith Kelly — Transcript

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0:00welcome to episode 35 of FBI retired
0:05case file review with Jerry Williams
0:08I'm a retired agent writing crime
0:10fiction inspired by actual FBI cases in
0:13this episode we get to speak to retired
0:16agent Keith Kelly who served with the
0:18FBI for 27 years Keith a certified
0:22public accountant CPA worked a variety
0:25of assignments during his career
0:27including being a member of the New York
0:29division SWAT team extensive experience
0:32as an undercover agent using his
0:35accounting skills to follow the money
0:38trail of international drug cases and
0:40other criminal enterprises involved in
0:42distribution and racketeering and of
0:45course with his CPA skills specializing
0:48in complex financial and money
0:50laundering investigation keeps most
0:53high-profile assignment however was as
0:56the case agent of the Bernie Madoff
0:57Ponzi scheme a 21 person interagency
1:01investigation into the largest security
1:04fraud case in history Keith's work
1:07resulted in the identification seizure
1:10and forfeiture of more than eight
1:12billion yes eight billion dollars in
1:16assets along with the conviction are
1:18Bernie Madoff who received a one hundred
1:22and fifty year jail sentence now if I'm
1:26allowed to have a favorite podcast
1:28episode this will be one of my favorite
1:32ones
1:33I am absolutely fascinated by greed
1:35fraud and corruption that's what I work
1:38most of my bureau career economic crime
1:40I have always been curious about what
1:44someone has to say to themselves what
1:45they could possibly say to themselves to
1:48make it okay to steal another person's
1:50life savings Bernie Madoff was
1:53unbelievable he took money from everyone
1:56he knew Keith Kelly provides an amazing
1:59look behind the scenes of the
2:01investigation of the world's biggest
2:03ripoff artist but before we get to that
2:06interview I want to give a shout-out to
2:08my listeners in Malaysia I would call
2:11you out by name
2:13but I can't find the email that you sent
2:15me but you know who you are and the fact
2:18that you're listening in Malaysia is
2:20just too cool thank you for listening
2:23the other thing I want to tell you is to
2:26remind you about the documentary series
2:28that's coming on this Sunday it's about
2:31the Jon Benet Ramsey case it's on CBS
2:34it's gonna be on right after 60 minutes
2:36this Sunday that's gonna be on again
2:39Monday September 19th and again the
2:42following Sunday September 25th retired
2:45agent Jim Fitzgerald who was on the
2:48podcast episode three and retired agent
2:51Jim Clemente who will be on the podcast
2:54in the near future are featured on the
2:57show basically what the team did was to
3:00rebuild the Ramsey house in order to
3:04recreate the crime scene and they go
3:06through every aspect of the original
3:09investigation what was right what was
3:12wrong what was missed what was
3:13overlooked it should be a pretty
3:15fascinating show and the last thing I
3:18want to talk to you about is and you
3:20know what it is it's my novel
3:21pay-to-play it will be released this
3:24Tuesday September 20th but you can go to
3:26amazon.com right now and pre-order
3:30either the Kindle edition or the trade
3:32paperback I'm not embarrassed to let you
3:35know that I want to earn the title of
3:38best-selling author with this launch
3:41so I'm asking for your support like I
3:44said last week it won't be a pity
3:45purchase pay-to-play is represented by
3:48Curtis Brown one of the oldest and most
3:51established literary agencies in the
3:54country more than a hundred years old so
3:57the book is good so if you want to say
4:00thank you for the great podcast episodes
4:03I've brought to you
4:0435 episodes and Counting then please
4:07consider buying my novel pay-to-play
4:11about corruption in the Philadelphia
4:13strip club industry my novel will be my
4:16crime fiction recommendation this week
4:19so I'll tell you more about the book
4:21after the interview oh I almost forgot
4:23if you're listening to this episode
4:25before Fridays
4:27Timber 23rd I want to invite you to my
4:30book launch party so if you live
4:32anywhere near Philadelphia or will be
4:35visiting the area the book launch party
4:38will be held at sugarhouse casinos brand
4:41new event center on Friday the 23rd from
4:455:00 to 7:00 what better place to have a
4:48book launch party about a book about
4:50greed and money than at a casino more
4:54information about the book launch party
4:57is on my Facebook page Jerry Williams
5:00author and also on my website under the
5:04my novel tab I'd love to meet you in
5:07person now here's the show hi everyone I
5:11want to welcome my guest keep telling hi
5:14T hi Jerry
5:16most of my career I worked economic
5:18crime Ponzi schemes advance be skiing
5:21business-to-business telemarketing fraud
5:24and so to have the opportunity to speak
5:28with the case agent of the biggest
5:30economic fraud case in the bureau's
5:33history Bernie Madoff is just absolutely
5:37exciting for me so thank you oh my
5:40pleasure but before we get into that I
5:42want to learn a little bit more about
5:44you I want the listeners to know a
5:46little bit of more about you so could
5:48you tell me when you join the FBI and
5:52some of the offices and some of the
5:53assignments that you had in addition to
5:55working the Madoff case
5:56yeah I joined in 1983 there was a agent
6:01who came to my university to speak to
6:03the accounting Honor Society and said
6:06they were looking for accountants and I
6:08thought that sounded a lot more exciting
6:11than going into public accounting so I
6:12joined in 1983 my first office was Omaha
6:17where I spent a couple of years
6:18virtually all types of cases as a new
6:21agent and then I was transferred to New
6:24York in 1986 and did drug work did some
6:28public corruption did some national
6:30security work then took my ope over to
6:32Phoenix in 2001 and and worked gang
6:36cases biggest case there was the Mexican
6:38Mafia case
6:40and then I went undercover full-time for
6:43about three years and transferred back
6:45to New York which took me to the Madoff
6:47case in 2008 where I ended up retiring
6:50you just went through a number of
6:53violations and it sounds like the
6:55majority of them had nothing to do with
6:57accounting so definitely when you join
7:00your accounting helps you I'm sure in
7:03many in many areas but it also took you
7:06places that I guess anybody else who
7:08would have been in your college
7:09accounting class and just never even
7:12touched on oh yeah absolutely and and
7:16and it was good I mean back then I think
7:18there were only about 125 CPAs in the
7:21bureau when I joined and now you know
7:23it's probably close to a thousand so so
7:26the Bureau has changed but certainly the
7:29the accounting skills and stuff really
7:32helped me when I was doing drug cases to
7:34follow the money trail doing some
7:37structuring cases again following the
7:39money in the assets and forfeiture so
7:42even though I wasn't working typical
7:46accountant cases most of my career I
7:48still use the skill set my entire 27
7:52years well I hope we have some time at
7:55the end to talk a little bit more about
7:57some of those you know those drug cases
7:59that you worked and use those accounting
8:01skills but let's get into the Madoff
8:03case right away because I know this is
8:05going to be you know a long interview
8:07and I have so many questions for you so
8:10the first question is when did you first
8:13learn about the scheme when will you
8:15first brought into this case you know we
8:18got a text message from our supervisor
8:20saying there's a 64 billion dollar fraud
8:24I think you might have said Ponzi scheme
8:27and that we're all on standby for and at
8:30first like I thought it was a tight ball
8:32I thought he meant 64 million what
8:35happened was Madoff two sons and had
8:37gone to the Southern District of New
8:40York and basically told them what their
8:43father had told them that his whole
8:45scheme was a Ponzi scheme none of it was
8:48real and that he was essentially
8:50bankrupt and he
8:51looking at huge redemptions in the next
8:54few days that you wouldn't be able to
8:56meet so a couple agents from my squad
8:59ended up arresting Madoff he essentially
9:03confessed on the spot and then that's
9:05kind of when we started the case all
9:08right well it sounds very noble of him
9:09to confess on the spot but it sounds
9:13like he would have been caught anyway at
9:15that point because he wasn't able to you
9:19know meet the financial demand yeah
9:22absolutely I mean it and and you know
9:26there there's you know one school of
9:28thought which says you know he told the
9:30sons to go in and turn a man as a way
9:34for them to save face and look like they
9:37were cooperating there's another school
9:41of thought which said that they they
9:43knew to one degree or another that the
9:49setup was fraudulent nature may be not
9:52necessarily a Ponzi scheme but most
9:55importantly whether he came in or not it
9:58it was about to be found out because he
10:02had about two hundred fifty million
10:04dollars in the bank and he was looking
10:07at a billion point five in redemptions
10:11due the following week and that number
10:14was just going to increase because no
10:16money was coming in it was all outbound
10:19so it was doomed at that point before we
10:23get into your investigation can you just
10:25give us an overview of what you knew
10:29about Madoff and his financial
10:32businesses when you first initiated this
10:35case very little
10:37quite honestly once you made the arrest
10:39we saw the news reports we heard that he
10:43was the non-executive chairman of Nasdaq
10:44for instance and started learning more
10:47about in that he was very instrumental
10:49in the market making business basically
10:53buying facilitating the buy and sell of
10:56shares on the market basically acting as
10:59the middleman between buyer and seller
11:01and you would take the spread that that
11:03would be his profit so
11:05he ran that business and then he also
11:08had the side business this investment
11:10advisory business as he called it and
11:12that's where the Ponzi scheme was run
11:16out but the two businesses actually were
11:19interdependent upon each other the the
11:22market making signs of business the
11:25so-called legitimate side of the
11:27business was being funded by the Ponzi
11:30scheme but the Ponzi scheme was also
11:33given an air of legitimacy because he
11:35was so supposedly wanting this
11:36legitimate Wall Street firm which was
11:39losing money left and right for years so
11:42when you say that the initial part was
11:44somewhat legitimate do do you qualify it
11:47because it was what we call you know
11:49from the fruit of the poison tree you
11:52know the money going into that was was
11:54illegal money somewhat when he started
11:56the firm in the early 60s that part of
12:00it was legitimate but at the same time
12:04he also started taking investors money
12:07and supposedly investing it and from
12:10almost beginning that was never
12:12legitimate so he did build out this
12:15business I don't know at what point it
12:19became unsustainable or unprofitable
12:22where the money from the Ponzi scheme
12:26was supporting it but it was also
12:30supporting their lifestyle both Bernie's
12:33his brothers the two sons they were
12:36being paid very large salaries out of
12:39the legitimate business or so-called
12:41legitimate business so I don't know when
12:45it turned unsustainable for instance and
12:48his proffer made his initial proffer to
12:52us Madoff said the business was worth a
12:55billion dollars
12:56well the receiver brings in some Lazar
13:00to Lazar trees to evaluate the worth of
13:03the business and they come in and
13:05they're very excited and initial reviews
13:08are yeah maybe it's worth a billion
13:09dollars well within a couple of days
13:12that number gets knocked down to four
13:14hundred million 200 million
13:17and in a matter of time and didn't take
13:19them very long they said this thing's
13:21worthless when they ended up selling it
13:24for like maybe a million dollars and the
13:29people that assumed it I think they
13:32lasted six nine months and they were out
13:33of business they just couldn't make it
13:35work alright so you get this text
13:38message from your boss about this scheme
13:41take us from the very beginning as you
13:43try to figure out what's going on
13:46well after he's in custody and makes a
13:50proffer there's so many people in this
13:53room I've never been our properly so the
13:55kid from SEC from cific US Attorney's
13:58Office IRS it was quite the show not
14:02halfway through I realized this guy's
14:05just lying
14:06he's totally self-serving and we're
14:09getting very little from him and at that
14:11time we hadn't even really secured his
14:13office so I told my boss look you guys
14:17can finish up here I'm going up to his
14:19office and seeing what we have the
14:21receiver at that time had secured the
14:23office and what Fundy was blocking it
14:26off our pumping like that yeah
14:27restricting access and and disabling fax
14:31machines and shredders and things like
14:33that before I went up there I asked
14:35Madoff how many boxes are we talking
14:38about and he said oh probably 50 it was
14:42like well okay that's pretty manageable
14:43and I told my boss hey we're going to
14:45have to do a consent consensual search
14:48and he's talking about 50 boxes I said I
14:50think that's a little low by the time we
14:53get up there we're talking to 3,000
14:56boxes spread out and hundreds of
14:59computers and computer storage medium
15:02and I told my boss after a while I said
15:05you know what this is ridiculous we
15:07should just establish this as the crime
15:10scene and work out of it from here it's
15:13it's just too voluminous and wasn't even
15:15counting a warehouse in Queens that had
15:18over 10,000 boxes and of documents and
15:23most computer medium so that was really
15:27the best decision I ever made my life
15:29quite honestly
15:30is very self-serving that it would be a
15:32lot easier to work out of there
15:35and kind of maintain the evidence in its
15:38original locations and so we could
15:43reconstruct it and that's what we
15:44ultimately did we used the office space
15:48as our off-site and you know just went
15:52through document by document trying to
15:54see what was there so you're saying we
15:57how many people are on this team from
16:00the FBI and additionally there were two
16:03of us wasn't that that expanded before
16:06until I went and complained to month to
16:09the ADAC at the time was a friend of
16:11mine I said we need help and he was good
16:14enough to get us bodies there almost
16:16immediately so we were probably up to
16:18like 12 was 15 at one point when we take
16:23a little break and also talked about
16:24what other agencies are involved in the
16:28criminal case and if you could explain
16:30about the civil matter that's also being
16:33investigated at the same time sure you
16:36know on top of this you have civic which
16:39is the securities and investors
16:41protection Corp I think is its name
16:44they're heavily vested in this because
16:46they they've got to make good on all
16:48these losses on a lot of these losses
16:50you have a bankruptcy receiver who's
16:53been a plaintiff who's in charge of
16:55recovering as many funds as you can you
16:59have the SEC who has jurisdiction on the
17:02civil side who is investigating and then
17:08there is the IRS there is Labor
17:11Department because pension funds were
17:13involved so everybody wanted their hand
17:16in this so you had to coordinate that
17:21and that that becomes difficult because
17:23you're dealing with a federal grand jury
17:26material yes you see is not entitled to
17:29see that so you have to wall that
17:31information off from them so you can't
17:34commingle that and then when you have
17:36the IRS you have the sensitivity of tax
17:40information so you've got to get
17:43approval to look at that so there are a
17:46lot of moving parts here and then at the
17:48same time you had a lot of the former
17:51employees some of whom were ultimately
17:54charged some of whom were not culpable
17:58at all they're being retained by the
18:01receiver to us assist them in
18:03reconstructing records and trying to
18:07determine who's or what where did the
18:10money go things like that well that's
18:12pretty fascinating because those are
18:14potentially subjects that I got out of
18:18two-year prime Seng yeah a lot of them
18:20were and what we did was they didn't
18:24have unfettered access at all they were
18:27basically kept in a in a conference room
18:30almost like a jury this is just sitting
18:32there reading the newspapers oh and they
18:34would be asked to come out and speak to
18:36us and ask for questions and everything
18:38and some of those people were ultimately
18:40charged and convicted very interesting
18:43so who's in charge of this something is
18:45there a lead agency I mean who's making
18:48decisions about mm-hmm yeah we were the
18:51lead agency and early the clarity was a
18:54receivable was very good about deferring
18:57to us and giving priority to us whenever
19:01we would need it so he was very helpful
19:02with that helpful with resources and
19:05things like that I had a good
19:07relationship with them and the forensic
19:10accounting team from fgi who they hired
19:12cuz I've never seen so many talents in
19:15my life I mean they've brought them in
19:16from everywhere they're 50 60
19:18accountants just going through
19:21reconstructing records and you know we
19:24didn't have that type of capability in
19:25the bureau and honestly we didn't even
19:29know what we had because here unlike
19:32other frauds with generally you'll have
19:35low-level people coming in and talking
19:37and giving up the scheme here you have
19:40the top guy who is in custody but isn't
19:44in saying you acted alone which we know
19:46isn't true and you've just got thousands
19:49of records going back to the 70s and
19:51you're trying to a locate all the assets
19:55and
19:56and the money flows the the actual
20:00nature of the fraud and how was
20:02conducted and then who was involved in
20:05in helping sustain the fraud when did
20:08this start when does he actively begin
20:11operating a Ponzi scheme in the 60s
20:15we're able to prove back to the 70s
20:18through documents and testimony for
20:22certain proves mid 70s that's as far
20:27back as the documents would go but we
20:30pretty much think it was in the 60s at
20:33some point so you're here you're talking
20:35of at least a 30 possibly a 40 year
20:39fraud and how does one get away with
20:43running a Ponzi scheme for 30 years in
20:46my understanding I had a Ponzi scheme as
20:48350 million dollar Ponzi scheme that I
20:50worked in Philly and you know it's all
20:54apart within three or four years because
20:57he just could not get enough people to
20:59invest in in order to pay the people
21:02going out how was may not be able to do
21:04that yeah it really is fascinating
21:07because your workers mathematically
21:11speaking a Ponzi scheme eventually has
21:14to collapse upon itself and you had a
21:16couple of near-death experiences one was
21:19in 1992 where this one farm Avellino
21:23Indianness was a major feeder fund to
21:27Bernie well they get shut down by the
21:29SEC and this really scares Madoff
21:33because he's afraid that the FCC is once
21:36it's done of looking at Aveline on
21:38Vienna's you're going to come and look
21:40at his records so Madoff tells a very
21:42smart thing and he pays off all the
21:46Avellino and Bienes
21:47investors and that almost bankrupt him
21:51but it gets the SEC off his back and in
21:54fact makes Madoff the savior because
21:57it's like oh look no one lost money
21:59Bernie came to the rescue
22:01this is great no harm no foul and it
22:06really exhausted his capital of that
22:07plane
22:08but what he ended up doing after that
22:10was taking in all the Avellino and
22:13Bienes
22:14investors himself rather than indirectly
22:18through them and then he was paying off
22:21aveline on Deanna's on the side and that
22:24god has capital back up so all these
22:26people basically occuring gave them
22:28their money and they put it right back
22:30with madoff Wow so that was the first
22:34near-death experience another night
22:37because they trusted him not a really
22:40trusted him you know yeah and and and
22:42they were with him to the bitter end and
22:45they had special locations like you
22:48could always tell a an A&B client
22:51because their account numbers would
22:54start with a Z B and you knew or Z a
22:58they that they were Avellino and Bienes
23:00investors so they would learn from the
23:0380s either direct indirectly or
23:05ultimately directly and those investors
23:08they had a special sound for them that's
23:12where the so-called split strike
23:14strategy was set up and that's what
23:17frank dipascali oversaw were these it
23:21was the strip split stripe strategy the
23:25other investors the big individual
23:28investors were overseen by a net bond
23:31joint and basically a net would just go
23:34and backdate stuff and give a certain
23:37date a certain return and those
23:39investors were Norman levy call Shapiro
23:43Stanley chase and Jeffry Picower and
23:46that those were huge investors who was
23:49Madoff for many many years and these
23:52guys would get really large returns but
23:55they were also a big source of capital
23:57to sustain Bernie not the investor they
24:01take it had no idea
24:02no these investors they do just take our
24:06well he dies before we can prosecute him
24:10but he ends up his estate ends up
24:13writing a check to us for seven point
24:18two seven point three billion dollars
24:20which
24:21he's a huge forfeiture man mm1 what is
24:26that based on
24:27well basically from his we were able to
24:30take records back to the late 70s and
24:33showing his ill-gotten gains since the
24:37late 70s were over 7 billion dollars and
24:41and it really was just overwhelming that
24:45he was getting 45% returns in a matter
24:48of three months based on the back dating
24:51of trades and you know whose estate
24:55ended up settling for like I said 7
24:57billion dollars which is just that's
25:00almost almost half of the loss suffered
25:04by the entire investor claps all right
25:07so this is this is more than just
25:09clawback could you explain to the
25:11listeners what clawback is and the
25:13difference between you know asking you
25:16know early investors to return money as
25:18opposed to what happened but with this
25:20investor and the region and the
25:23ridiculous or outrageous return on his
25:26investment that he received right so I'm
25:29not an attorney but where I understand
25:32is Klaw happy is more a civil remedy and
25:36that is what the receiver is in charge
25:40of is basically going back to see and
25:43and I believe it's governed by state law
25:47and in this case it would be New York
25:50state law which allows you to go back
25:54and claw back six years worth of profits
25:57from anybody who made money in the
26:01scheme and the idea is if someone made
26:05money in a Ponzi scheme you take that
26:08money back you put it in a pool and you
26:11distribute it pro rata among the people
26:14that lost so essentially the winners
26:18become virtual and then whatever money
26:22is left over you give to the losers to
26:25the extent of their losses now being a
26:28criminal agency we didn't have to worry
26:31about clawback we were seeking
26:33forfeiture
26:34so we all all we had to do was prove
26:37that the money was illicitly obtained
26:41and we could seek forfeiture on it so
26:44that two different remedies even though
26:47the money has eventually turned over to
26:50the victims it's just a different
26:52process legally interesting all right so
26:55you mentioned early earlier that Madoff
26:59was arrested but we've all seen those
27:01photos of him walking down the street
27:04with all of the media following him so
27:06what happened with that well when I said
27:09we were we were shocked that judge
27:12shouldn't allowed him out on bail he
27:14because he certainly had the means to
27:18flee and certainly the motivation to
27:21flee because ultimately he was sentenced
27:24to life in prison and grousing why he
27:26didn't flee and just because he had six
27:30hundred million dollars cash in the bank
27:32cash back he could have just stroked to
27:36check move the money overseas and
27:39disappeared but he didn't I think
27:43ultimately just become too much form and
27:46he was burned out and just ready to you
27:50know you know he told he told us oh I'm
27:53glad I was caught moment ever glad
27:56they're caught but I do think he was
27:58just exhausted mentally and physically
28:00and he just didn't clean so he went out
28:04on parole and quite honestly the
28:07government was very upset about that we
28:09saw the circus that ensued from that and
28:12we read petitioned the court and judge
28:16chin did revoke his bail so he was sent
28:19to MCC prior to him pleading guilty now
28:25the people that work for him you
28:28mentioned this woman I think he said
28:29attorney with Annette Annette Bongiorno
28:32yeah and what was the other guys who
28:34Frank uses Callie okay so the reckoning
28:37that how much did they know how much did
28:39they gain from this they they knew it
28:42all and they gained a lot annette was
28:46hired I think in 60
28:47seven sometime around there and it
28:50should eventually be cured like I said
28:52she eventually came to run that side of
28:56the Ponzi scheme and she was just a
28:59backdating fool and for a net
29:02fortunately for us she kept everything
29:05and she had a very distinct way of
29:08writing and keeping notes so you knew if
29:12this was on a legal pad and pencil it
29:15was a net and she kept and she would
29:18have to do it because she would make so
29:20many mistake
29:23you're recreating records from the 1990s
29:26for a trade in 2006 you've got to keep
29:30all these records to say okay what did I
29:32do
29:33she can't go to Bloomberg because that's
29:35not what you did you made up the trade
29:38so she's got the role oh now what she
29:42got out of it was a lot she had her own
29:45investment account at Madoff and she
29:50rode the saw her own investment account
29:52was she the backdate trades and whatnot
29:55and given an idea what she got out of it
30:00is she put in less than a million
30:03dollars into this account over the years
30:06pull about 16 million dollars in cash
30:10from the account and still had a balance
30:12of 54 million dollars when the fraud was
30:16discovered well that's a good investing
30:18at well I could be a great investment if
30:22I could go back in time and you know
30:24make up my own trades which is what I
30:26did and and Frank ironically Annette
30:30used to babysit Frankie to scaleo both
30:33from Howard Beach in Queens and she gets
30:36Frank a job and starts out very well
30:39leveled
30:40he rises to become Bernie's right-hand
30:42man he manages the other side of the
30:44business and he is more intimately
30:47involved with Bernie and really running
30:50the scheme Annette would do these bogus
30:53backdating trades Frank really ran the
30:58office and
31:00Frank likewise yet a yet a big house in
31:03New Jersey that he built he had a large
31:06boat down in in Florida and he lived
31:10very well and he barely graduated high
31:12school same with a net but wasn't
31:15malicious in it and it sells them a
31:18warrant other employees wondering how
31:22these two could be so successful and how
31:24these high-powered driving positions for
31:27another employees were taken care of
31:29very well to Jodi croupy who became
31:33Frances right-hand person and was
31:36groomed and to take over uh she was paid
31:40very very well other people payroll
31:45clerk Eric Lipkin he was paying hundreds
31:47of thousands of dollars to do the
31:49payroll his father was one of the first
31:52employees and both of them ended up
31:54pleading guilty so everybody was
31:58involved just not everybody a lot of
32:01them were involved to some extent or
32:04another and one of the frustrating part
32:08of the investigation is well as they
32:12would tell us oh I don't know that a
32:15Ponzi scheme is I didn't know it was a
32:16Ponzi scheme and then you'd follow up
32:19and say yeah but you knew all these
32:22trades were were fictitious and they'd
32:24say oh yeah we know we knew the trades
32:26weren't real but we didn't know there's
32:28a Ponzi scheme
32:29well the securities fraud law doesn't
32:32let me mention pajersky
32:34it just mentions securities fraud and if
32:37a pic trade is fictitious
32:38what's violation and and they in their
32:43mind they thought the fact that they
32:44didn't know was a Ponzi scheme
32:46let them off the hook it was it was good
32:51our more investigation alright so we
32:53talked about all of these people that
32:56were involved and what they knew let's
32:59talk a little bit about the sons because
33:01that's what's really fascinating of
33:02course I watched the mini series and the
33:04mini series makes it sound like the this
33:07his sons we're trying to get involved
33:10wanted to be involved because they
33:11wanted to be a part of the successful
33:13part of the system
33:14but they knew nothing about it and all
33:17that so that's the official take on that
33:19yeah no that's that's really not that
33:22wasn't really acted that was kind of
33:24where I differ from the miniseries it
33:27was overall pretty good at that part you
33:31know the sons were they were heavily
33:34involved in market making business the
33:36the so-called legitimate side but they
33:39also were instrumental in setting up the
33:44what's called the hot site the disaster
33:47recovery site in case something happened
33:49in New York there is they were
33:50instrumental in setting up the London
33:53office and if you're setting up those
33:57businesses okay if you're involved in
34:00the London office you can see that
34:03London is a sham that that London really
34:07has no reason to exist it there's no way
34:09it can sustain the the staff it had it
34:12did not do that type of volume of
34:14business and if you're setting up the
34:17hot site okay then you set up a mirror
34:19server okay computer server in Queens in
34:24case of a disaster
34:26well you see that that machine isn't
34:29connected today anything so the so
34:32called and the sons were involved in
34:35setting that up so the the computer both
34:39in New York and Queens that's supposedly
34:41executing all these trades it's not
34:44connected to anything this is it's like
34:47agriculture to be connected to like the
34:50internet introduced it's because it's
34:53not connected to the Internet I said no
34:55like some type of trading in today like
34:57NASA or something it's not even hand on
34:59the Internet yeah it should I have a VPN
35:02over the Nasdaq or the Internet is the
35:04savannahs execute check the only thing
35:06was connected to was a printer so
35:08basically there's a big print server
35:10it's like having a telephone that's
35:12that's not called visible wall and and
35:15you know this this animate office I was
35:18instrumental in setting up that that hop
35:21site and also they had they had fake
35:25investment statements from
35:28from the for their own personal accounts
35:30so they would have one statement saying
35:32July of 99 that showed one position and
35:35then add another fake statement in July
35:38at 99 for the same account showing a
35:41totally different position so because
35:45that suited their needs at the time
35:46they're applying for loans and whatnot
35:48and those were their own personal
35:50offices so to say they didn't know
35:53something was amiss
35:55is problematic at best for them
35:59additionally because they we had
36:02extensive testimony that mark Andrew and
36:06Bernie's brother Peter Peter were always
36:10on the trading floor upstairs on the
36:12market taking business and they knew
36:15exactly what was going on in that
36:17business and if you know that and and we
36:21know that they they gave out bonuses of
36:24triple to the traders at the end of the
36:26year and that bonus
36:28I was based on basically the volume of
36:32business there is no way that that
36:36business was sustainable because Peter
36:39Andrew Lamarck in the last year or two
36:41they're making thirty three million
36:43dollars just themselves in salary and
36:48bonus and and that that was that was
36:52almost are you saying eleven million
36:55each are thirty three million each
36:58necessary three million total right
37:00between us variable but they're their
37:03revenue from trading was only like 50
37:06million so how do you justify paying all
37:09these other traders rent and all this
37:12other stuff and they would say well my
37:16father never told us what you know what
37:19the income side was well you didn't have
37:21to know you could back into that number
37:24very easily I mean quite honestly within
37:27a week I had figured out that
37:28mathematically this didn't make sense
37:30and I'm not saying that because I'm a
37:32genius it just it could get up now so
37:35even if they can say they didn't know
37:38there is no question
37:41and anybody's mind that they should have
37:44known they should have asked because
37:45things didn't look good didn't smell
37:48right and you know was just a question
37:52of they didn't want to know they didn't
37:53want to ask exactly call which one
37:56conscious avoidance willful blindness
38:00they definitely should have known
38:02because what what was making all the
38:05difference to find it was money coming
38:08in from cash coming in from the
38:10investment advisory of business the
38:13primary business and there were huge
38:16cash influxes to make it work so but
38:21they were never charged no they don't
38:24die because before they could be charged
38:26one one killed himself and the other guy
38:28mark mark Madoff killed himself on the
38:31two-year anniversary of his father's
38:32arrest he could never get over it
38:35and Andy Madoff died of cancer I think
38:39leukemia a couple years ago were any
38:42family members was was with Peter
38:45charged - I don't I Peter that's what
38:48happened to all the other people how
38:50many people and all in addition to
38:52Bernie Madoff were charged and what kind
38:55of time to dig in peter madoff pled
38:59guilty and he was sentenced to 10 years
39:01frank dipascali ended up cooperating and
39:05was a fantastic cooperator he was
39:09looking at a lot of time but he energy
39:12died of cancer recently so he was never
39:15sentenced then Granoff say I lost can I
39:19think about eight others pled guilty
39:22either nine others pled guilty five went
39:25to trial all were convicted an F on
39:29journal Dan bond venturi who was the CFO
39:32Geordie croupy who I mentioned was
39:35Pascale's
39:36right-hand person and then two computer
39:39programmers Perez and I can't take a
39:43good how were convicted and they got
39:49very light sentences on venture we got
39:51ten years
39:53and then bon giorno got six and the
39:57computer programmers computer program
40:00has got very light sentences and croup
40:02you got six or five years and those are
40:05very disappointing those sentences well
40:08and why would why were they
40:10disappointing to you what did they do
40:11that you felt deserved more time well
40:17bah-bah-ba-wa no I mean profited for
40:21years for decades literally from running
40:24the scam
40:26knowing she was back dating all this
40:29stuff and I'm not talking like that
40:30dating a day or two I'm talking back
40:33saving a trade for Bob Dambach century
40:36who was also convicted the trade in 2006
40:41maybe 2003 I forget but saying that the
40:45trade happened in 1990 so if it's all in
40:4816 years that dating a trade and that
40:52wasn't unusual I mean that that was
40:54probably long as back dating you saw but
40:56so we're not talking like a day or can
40:58we are talking about a year's worth of
41:01trades that you would do in one month
41:03and then in October and go back to
41:06January and redo them or go back a prior
41:09month and talking billions and billions
41:13of dollars of false trades that that she
41:17did over the years that not only
41:20benefited certain investors but
41:23benefited herself for instance when the
41:26market crashed in a way which really is
41:28what led to the downfall a month a month
41:32after the crash she goes back and shorts
41:35the S&P 500 well wow you just made
41:39yourself a whole lot of money but now
41:42that for some some reason the judge was
41:46not compelled by that and it was it was
41:49very very disappointing now one of the
41:52things that you told you've already told
41:55us that was different with this case was
41:56that you used the actual site as you're
42:01almost office space as the crime scene
42:04and you worked out of that that was
42:06something that that no
42:07normally isn't done right yo and we took
42:10it as so far as we ended up getting FBI
42:14computers installed so we should access
42:18FBI net so we wouldn't have to go waste
42:21time going down time downtown to type
42:25302s and upload them into the files and
42:28we could research the files and that was
42:30pretty groundbreaking and they had to
42:32come up and do a security evaluation we
42:35have to pull the hard drives out every
42:37night and put them in a safe for almost
42:40we almost had like your own mini
42:43resident agency that demos is exactly
42:46what we gave we created an RA up there
42:48and why stroke a lot the entire team um
42:53everybody lived in the city so it was
42:57very efficient for us to work there get
43:01a lot of stuff done we weren't wasting
43:03time going back and forth between the
43:06office now we'd have to go downtown to
43:08the Southern District and do poppers and
43:10interviews and draft complaints and
43:14things like that but it really well is
43:17she's not always the case except the
43:19most efficient way of doing it now how
43:23many times did you actually get to sit
43:25down and talk with Bernie and what did
43:29you think of him as a person ah just at
43:33one time we transported them down
43:35through to the plaza
43:37um you didn't know you just think he was
43:40a nice elderly Jewish grandfather type
43:43um but he's a pathological liar and my
43:49opinion he was a sociopath and typically
43:53we we associate that with serial
43:55murderers and rapists this guy was a
43:57financial sociopath and he truly
44:00believed he believed his own press
44:03clippings and and he just fought he kind
44:05of made a wrong turn and the market went
44:08south on and then he kind of had bad
44:10luck but sometimes he was whispered he
44:13was cheating people for years scheming
44:16scamming cheating robbing them for years
44:18but he really
44:20in his mine it was just a financial you
44:23know downfall caused by your market
44:28run-in anyways you talk about how
44:30ungrateful people were because you made
44:32them a lot of money well yet you made a
44:34lot of money because you stole away I
44:37think the perfect example of you know
44:45how fictitious it was was when I'd be
44:48debriefing frank dipascali you know he
44:51would tell me where we would execute
44:52this trade and it would show a profit of
44:55a thousand dollars let's say and for
44:58evidentiary purposes I would say in
45:00Frank that trade was fictitious and he
45:04would say yes and I always have to ask
45:07him that question just to make sure that
45:09so finally Frank had fired in the asking
45:12this question he says look T if a trade
45:17was ever real I'll let you know
45:19no I tell you I'm gonna trade it was for
45:23Fisher's just assume assume allistic
45:26Tisha's yeah there's a journal I'll let
45:29you go but that's not going to happen
45:30well when you were saying that that you
45:34know Bernie Madoff had this you know
45:35anger to these people who had made all
45:38this money for it let's just take a
45:40little bit of time to talk about the
45:42victims did you have a chance to talk to
45:44some of the major victims and tell me
45:47what you thought about them and just you
45:50know the emotional toll that they went
45:52through and that you went through is
45:54with them listening to their stories
45:55well you know kind of kind of ran the
45:58gamut right honestly you know I remember
46:01I actually didn't visit we didn't
46:05interview too many victims quite
46:07honestly because we didn't need to we
46:09only have to find one victim for each
46:11count and and there's a whole victims
46:13assistance unit now but you know there
46:17was one family that that you know I felt
46:19really bad for she her husband if they
46:22put their life savings in there but it
46:26also helped Peter grandkids colleges and
46:30things like that and now they were
46:31destitute and living
46:33there's their family and and they're
46:36there one grandkid said to said to the
46:38grandmother don't worry grandma you know
46:41you took care of us all these years I'm
46:43out of college I'm going to take care of
46:45you now that was very country and then
46:48when I ran the other gamut of calling up
46:51some woman in Palm Beach and asking for
46:56her and the housekeeper said well the
46:59lady of the house is up and in her New
47:01York apartment and I called her and
47:05asked her if she could help and the only
47:09thing she wanted to know was when she
47:10was getting her money back and she
47:12refused to cooperate so quite honestly I
47:15didn't have too much sympathy for her
47:17especially since yellow Park Avenue
47:19apartment and played on Palm Beach and
47:22as an aside though ultimately most
47:26victims will be compensated at least 80
47:32percent of what they lost possibly close
47:35to 100% by the client it's all said and
47:38done and and talk about how rare that is
47:40because that is unbelievable to me
47:44actually it is unbelievable because at
47:47the time we were talking about to three
47:49cents on the dollar and these people may
47:51get at worst 80% of restitution which
47:57you could get is that's a 20% loss in
48:00the stock market that's just a market
48:02correction for a bear market we never
48:05thought we'd get there and like I said
48:09between the dick hour and then another
48:10investor call Shapiro he ended up
48:13writing a check for you know a
48:15forfeiture check from 625 million so
48:18right there you have almost eight
48:20billion dollars between two investors
48:22we recovered another 225 million from
48:27Norman leaving and quite honestly moved
48:29from his estate because he was dead and
48:32quite honestly had he waited on that we
48:35were to recover a lot more but the
48:38receiver was I think looking for a quick
48:41win and thus it then the estate was
48:43willing to settle for that amount
48:45um but we could have gotten a lot more
48:49as out of state so let's be clear you're
48:52talking about restitution of their
48:54initial investment so if somebody had
48:57invested with Bernie and they thought
48:58they had made ten million dollars they
49:01invested 1 million it had made 10
49:03million they got back to 1 million not
49:05to 10 million yeah yeah they're only
49:08entitled so the overhead total loss to
49:11investors not technicians losses is
49:15between 17 and 18 billion I think
49:16seventeen and a half billion now a lot
49:20of investors aren't happy with that they
49:21think they're entitled to their inflated
49:25profits or some variation of that that
49:29their initial investment plus a return
49:32based on Treasury bills and that's not
49:35how the law works like you said all
49:37you're entitled to is your initial
49:42investment less any money you took out
49:46of it so if you put in a million and you
49:48took out two hundred thousand you're
49:51entitled to eight hundred thousand
49:52dollars you're not entitled to the
49:55fictitious gains on that account a lot
49:58of people don't see it that way now when
50:02I was a working economic crime I think
50:05another thing that people had a hard
50:07time understanding is when the FBI was
50:09working on a criminal matter meaning if
50:12there was forfeiture of course we wanted
50:14to pursue that but returning somebody's
50:17money getting their money back is not
50:19part of the criminal investigation and
50:22so they would they'd want to cooperate
50:24and talk and assist us because they
50:28think they're getting your money back
50:29and we had to be very clear at the very
50:31beginning I don't want you to cooperate
50:34with the thought that you're getting
50:35your money back because that is not you
50:38know the purpose of this investigation
50:41it's to find justice and put somebody in
50:44jail for you know doing something
50:47illegal violating the law yeah that's
50:51that's perfect form could that lady
50:52there should what am I getting my money
50:54is good man that's that's not what I'm
50:57here for
50:58okay
50:58I said we have a victim assistance unit
51:01and things like that but that's not our
51:05job and you know ultimately the whole
51:08life by cooperating with a criminal
51:10investigation you're helping possibly
51:14trace funds or things like that and get
51:17convictions which make it easier to
51:19obtain forfeiture which will result
51:23hopefully in restitution to the victims
51:25and and you know with that the Southern
51:28District can work out an agreement with
51:31the receiver so that basically money
51:34forfeited to the government would be
51:37coordinated and that got a little
51:39complicated but would be coordinated
51:41with the receiver as a way to get money
51:44back to the victims so a lot of victims
51:46have already been compensated to some
51:49extent the receivers about several
51:52billion dollars of the addictive
51:55forfeited over 400 or be recovered over
52:00ten billion dollars to date maybe more
52:03and there are still there are so many
52:05lawsuits out there this this case is the
52:08full word or employment act for lawyers
52:12in New York City virtually every every
52:14walk where the New York no ending was
52:17your something you know one of the
52:19things that you know as you know I'm now
52:22becoming a novelist I'm writing crime
52:25fiction and in the second book that I'm
52:26writing right now is titled the working
52:29title is greedy givers and I think a lot
52:32of people would be surprised that in
52:35many cases and I got to say this
52:37delicately but sometimes the victim is
52:41guilty of greed as much as the subject
52:46actual and that's that's a very pointed
52:48and you sound a little insensitive what
52:50do you do it but these people they
52:55didn't know is a Ponzi scheme that the
52:57the the the regular investors but at the
53:00same time they had to know something
53:03wasn't right there was never a down
53:06quarter there are only a few down months
53:09you could barely read your state
53:11to figure out what your positions were
53:14there was no website you couldn't walk
53:17on to see your account everything was
53:19done by now on an old dot-matrix printer
53:22so basically they didn't want to know
53:24how dirty did it they just wanted their
53:28twelve seventeen percent return they
53:30used to call it thirty bonds because the
53:32rate of return was so predictable what
53:35was what what were what would they have
53:39gotten if they had invested with a
53:41legitimate financial firm what was the
53:44difference between the return on
53:47investment they were getting from
53:48burning and what they would have gotten
53:50from you know somebody else there's a
53:53smaller investors you know you're
53:56probably talking you know on average
53:58long-term spread it out over years
54:01probably ten percent difference I would
54:03say maybe Wow ten difference I would you
54:06don't sound like a lot but you know the
54:09rule of compounding you're talking a
54:12seven-year difference in doubling your
54:14money hmm you know the bigger investors
54:16they they got forty five percent thirty
54:19percent set up that was just off the
54:20chart
54:21yeah that that was definitely a you know
54:25don't ask any questions just pocket the
54:27money deal yeah a lot of people saw that
54:33way Bernie was making his money was he
54:37was front running stocks so basically
54:39from the market making business so
54:41someone would come in and say I want to
54:43sell Intel the twenty five you know you
54:47come in and and and you make that trade
54:50before the rest of the market does and
54:52you sell Intel at 25 and mate I'm dating
54:56myself twenty five and five cents or
54:58something and now you make a little
54:59money on that front running which is
55:02illegal but it's not that bad okay
55:05everybody kind of does it on Wall Street
55:07you know as a theory and they thought
55:10yeah that's how he was doing it but it
55:12was much worse than that obviously Wow
55:14all right so we talked about something
55:17that was different was you working out
55:19of the you know the crime scene were
55:23there any other things that you did
55:25differently with this particular case
55:27this economic you know crime case that
55:31was unique and that you know what was
55:35different than what normally would be
55:36done no I mean that was pretty big
55:39difference right there and actually
55:41caused some resentment downtown when
55:43people people thought we were goofing
55:45off up there and I mean we work very
55:47hard we got it rich we had a good time
55:50implication yeah a lot of laughs
55:52actually sounds kind of cold-hearted but
55:55we've been working 12 14 hour days you
55:57have to get a couple of laughs and but
55:59you know when you when you told me that
56:01most of the people lived you know in New
56:04York and the city I knew that you had to
56:06be working 12 to 14 hours because a lot
56:08of times when you're close by you spend
56:12more time at the office because you're
56:14not concerned about when you're going to
56:16get home yeah I'm not worried about
56:17getting through the tunnel and being
56:19tunnel traffic and everything and and
56:21you know we were we were enjoying I mean
56:23it was hard work but it was you know so
56:25interesting and you know and when we
56:28first started KY it was kind of a
56:31blessing that I didn't have any help in
56:32the beginning because it forced me to go
56:34through virtually every box in the
56:36office and I would see things and nine
56:41out of ten times I wouldn't even know
56:42what they meant but I also see things
56:45and say you know I don't know what this
56:47is but as a few like it's important and
56:49I would either put it aside or I'd make
56:52a mental note saying I got to come back
56:54to this and time after time you go back
56:57date that's what that was or I know
57:00where that document is and I remember
57:03one of my last days there before I
57:05retired I was looking at a set of
57:08documents which I had put aside and I
57:10had looked at in almost two years and I
57:12looked at I said oh my god that's that's
57:15that trade that this is what they were
57:17talking about now I can hear I can hear
57:21the excitement in your voice and for me
57:23it was the same thing I love you know
57:26some sometimes going through boxes of
57:28documents was absolutely boring but
57:31sometimes you know it was worth it
57:34because of the time when you found that
57:37document that you need it it's almost
57:38like
57:39for gold okay so Minato i should panning
57:41for gold and then finally you find that
57:43nugget and it's magical yeah we had this
57:47one box we call this a happy box good
57:51you just go through it and it didn't
57:54mean anything
57:55and then I went through it one week and
57:58and I found this huge backdated trade
58:01that we're talking about well then a
58:04couple of weeks later I go through the
58:05box again and I realizes another
58:07backdated and we keep trying and it's
58:10just not clicking and we just kept
58:13calling it the happy box because it kept
58:15turning out all this great evidence and
58:17it was it was written in the in the in
58:20the defendants own handwriting basically
58:23what laying out the crime and and then
58:27documented date stamps from from limbo
58:30so it was open and shut evidence again
58:34but it is amazing why I'd been through
58:36that box a dozen times and then it's
58:39just a gift to kept on giving ah there
58:42you go there you go all right so it
58:45sounds like you retired before the case
58:47was finalized are finally resolved oh
58:51yeah it kept going on two years after I
58:55left so why did you retire at that time
58:58I had been in 27 years the Stewart wine
59:03that's all I mean I I loved being an FBI
59:06agent I wouldn't trade it for anything
59:10in the world
59:1127 years is a long time now I would love
59:15to talk to you you know in a few months
59:19about some of your other cases because I
59:21actually was told by another retired
59:25agent to interview you but not about the
59:28Madoff case I didn't find out that you
59:30were the case agent for the Madoff case
59:31after we begin talking what was that
59:34other case that that I actually was told
59:37to interview you about that was the drug
59:40use either well adobe of the mexican
59:43mafia cage that a roller derby roller
59:45derby
59:46now given that one or two sentences
59:48about roller derby and i promised
59:50everyone
59:51we'll be excited about this case that
59:53maybe in a few months I'll you know get
59:56back in touch with you and we'll talk
59:57about that but tell us give us a little
59:59tease about roller derby yeah where the
1:00:02Derby was an Asian heroin case where
1:00:05they ended up seizing about 440 pounds
1:00:07of heroin that was being shipped very
1:00:12cleverly via Korea booze originating in
1:00:17the Golden Triangle and being
1:00:19coordinated out of Thailand and the
1:00:22reason they were shipping it through
1:00:23Korea is Korea is not a known drug
1:00:27trafficking country so customs is not
1:00:31attuned to shipments coming in from
1:00:34Korea to look for drugs
1:00:37there was a great way and even though we
1:00:40seized over 400 pounds of heroin prior
1:00:45to that hundreds and thousands of pounds
1:00:48of heroin had come in that way into the
1:00:51United States so it was a good case
1:00:55fascinating point can we get together in
1:00:58a few months and talk you know where I
1:01:01am no all right well tell everybody what
1:01:04you're doing now oh yeah I have been
1:01:08teaching us and criminal justice down at
1:01:10ASU Arizona State University right now I
1:01:14am head of internal audit and director
1:01:18security for a group of companies which
1:01:21included pxg golf clubs and some other
1:01:25related entities all right so do you
1:01:29have any closing words that you'd like
1:01:32to say about your career just right said
1:01:36earlier being being an FBI agent is a
1:01:38privilege and a great job you could ever
1:01:41had I wouldn't create my 27 years for
1:01:44anything I tell people instead of being
1:01:47a full ball player and that's the end of
1:01:50the interview as always back at Jerry
1:01:53Williams dot-com you'll find photos of
1:01:55key and links to several articles and
1:01:58videos about the Bernie Madoff case if
1:02:02you enjoyed the episode I hope you share
1:02:04it with your
1:02:05friends and family and make it easy for
1:02:08you at the bottom of the episode show
1:02:10notes I have all the social media share
1:02:12buttons I am proud to say that my crime
1:02:16recommendation for this week is pay to
1:02:19play my novel about a female FBI agent
1:02:23investigating corruption in the
1:02:25Philadelphia strip club industry now why
1:02:28did I choose this concept well strip
1:02:31clubs can be magnets for criminal
1:02:33behavior
1:02:34complex investigations linking organized
1:02:37crime public corruption tax fraud and
1:02:40overbilling schemes to adult
1:02:42entertainment venues have been initiated
1:02:44by the FBI and cities throughout the
1:02:47United States including Philadelphia and
1:02:49on my website you can get access to a
1:02:51list that shows you a full variety of
1:02:54the type of cases that the FBI has
1:02:57investigated involving strip clubs so
1:03:00once I realize this and started
1:03:02researching several of these cases I
1:03:05thought to myself this is a concept that
1:03:08I could develop a story about corruption
1:03:11temptation and redemption pay-to-play is
1:03:15a character-driven procedural thriller
1:03:17and it's told from the point of view of
1:03:19the female FBI agent Carrie wheeler
1:03:22Carrie's male partner and the corrupt
1:03:25licensing and inspection official
1:03:27they're investigating now best-selling
1:03:30author Joseph Wambaugh known as the
1:03:33father of police procedurals
1:03:35once said the best crime novels are not
1:03:38about how cops work on cases but how
1:03:40cases work on cops and pay to play
1:03:43follows wamba's guidance I really want
1:03:46to be a full time author that's what I'm
1:03:50devoting my third career to and what I
1:03:54want to do is to give a different look
1:03:57into the FBI there are a lot of people
1:04:00writing books about the FBI but the
1:04:02majority of them feature serial killers
1:04:05and terrorism well I love greed
1:04:08corruption and fraud and so that's what
1:04:11I want to do look at actual cases and
1:04:13write compelling entertaining and
1:04:17authentic novels for
1:04:19during the FBI so I hope you go out and
1:04:22purchase pay-to-play
1:04:23I think you'll enjoy it this episode was
1:04:27sponsored by FBI retired comm the only
1:04:30online directory made available to the
1:04:32general public
1:04:33featuring retired FBI agents and
1:04:36analysts interested in showcasing their
1:04:38skills to secure business opportunities
1:04:40I want to thank you for listening and I
1:04:43hope you come back again next week for
1:04:45another episode of FBI retired case file
1:04:48review with Jerry Williams thank you

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