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The Madoff Affair (full documentary) | FRONTLINE — Transcript

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0:00[Music]
0:07it was
0:08too good to be true would you believe it
0:11how the money rolled in
0:12but nobody wanted to ask questions you
0:15see a
0:16willful ignorance nobody wants to get in
0:18the way of all this money
0:21from small-time investors to
0:23sophisticated hedge fund managers
0:25all these guys did was just dump money
0:27in do no due diligence and count their
0:30money
0:31amazing did madoff say to you don't put
0:34me in your
0:35prospectus yes he did do you think
0:38that's right
0:39and where were the regulators why didn't
0:42you find him is the question i
0:44blame the government i really truly do
0:47tonight on frontline correspondent
0:50martin smith
0:51unravels the madoff affair
1:03[Music]
1:11the news broke on december 11 2008
1:14and within seconds phones were ringing
1:16around the world
1:21michael bienis was in london when he got
1:23a phone call from his business partner
1:25frank avelino
1:27and i said frank what's wrong because i
1:30could hear it in his voice
1:32michael bernie made off i said he died
1:38and then nano said he died
1:41was arrested i said oh no and then
1:45another nanosecond
1:46sex crime or some you know
1:51for stock floored
1:56phones were ringing in palm beach too i
1:58received a call from an investor
2:00in aspen who said he had heard that
2:03bernie was arrested
2:04and i called bernie's office and called
2:07his secretary and i said gee we just got
2:09this really
2:09strange call and she said
2:13no no everything's fine
2:17emails were flying i
2:20read it and then i read it again
2:23it was like in shock like non-believing
2:26shock
2:27and i thought he couldn't he couldn't
2:29possibly
2:30have this isn't true it's impossible to
2:33be true
2:34it was the largest stock fraud in
2:36history
2:38oh my you know in an instant as with
2:40everybody else you see everything
2:42just gone
2:48there are lots of
3:02what would you say to all those people
3:03that lost money what would you say to
3:05them
3:06and when did it all begin bernie hey
3:08bernie give me one nice shot buddy
3:10turn around
3:12[Music]
3:14the year was 1960 madoff had just
3:18graduated from hofstra college
3:20and married his high school sweetheart
3:21ruth alpern
3:23he was working out of her father's
3:25accounting firm in midtown manhattan
3:28[Music]
3:30from there he launched a career as a
3:31market maker matching buyers of stocks
3:34with sellers on wall street
3:36he started this little stock trading
3:38firm one of many
3:40in wall street's outer fringes at that
3:43time
3:43and slowly built it up building up
3:46customers
3:47it was kind of like a wholesale firm
3:50he would actually pay clients such as
3:53fidelity
3:54charles schwab he'd pay them a penny a
3:57share to come and trade through him so
3:58he saw lots of trading volume that way
4:00in other words he would pay for what
4:02they call order flow
4:04exactly what wasn't known on wall street
4:07was that madoff had a side business as
4:10an investment
4:10advisor the investment advisory business
4:14operated so far as we can tell
4:17completely
4:18under the radar we know to some extent
4:21that it began small
4:23customers of his who go back the longest
4:26started with very small nest eggs
4:29madoff's first
4:30clients were friends and associates
4:32recruited in places like queens long
4:34island and the catskills
4:36with promised returns of around 18
4:39entire families jumped in
4:42as word spread madoff enlisted two
4:44accountants from his father-in-law's
4:46firm
4:47first it was frank avelino on the left
4:50and then
4:50michael bienis now facing lawsuits
4:53avalina refused to talk
4:56but biennis agreed to tell us how madoff
4:58brought him and frank into the
4:59investment advisory business
5:02tell me how you get going with investing
5:04with bernie how that
5:05well saul his father-in-law had been
5:08doing it
5:09he gave frank a piece and he i got a
5:11piece
5:12when i became a partner it was only
5:14about two and a half million in the
5:15account
5:16that was big money to me we were only
5:19taking a small
5:20clip off the top it's all it was
5:23couldn't take more we thought that was
5:25the rule
5:27and we never were pigs that's one thing
5:29that kept us going
5:30we were never pigs we were never pigs
5:34the arrangement was simple with madoff's
5:37guarantee
5:38of 20 or better avelino and bienis could
5:41pocket a few percentage points
5:42while issuing promissory notes to their
5:44clients
5:45with set rates of return you were
5:48promising people how much
5:50all depends uh big
5:53amounts 18
5:56smaller amounts 17 16 even as low as
6:0015. what made you think that he could
6:02return
6:0320 i don't know how do i know
6:07how do you uh split an atom i know that
6:09you can split them i don't know how you
6:11do it
6:12how does an airplane fly i don't ask
6:15could you ask him
6:16never why would i ask him i wouldn't
6:19understand
6:20it if he explained it something with
6:22arbitrage between bonds and stocks and
6:25blah blah blah blah blah
6:27among the first investors biannus
6:29brought in were arnold and jones sunken
6:32they started with five thousand dollars
6:35michael bienis said to my uncle
6:37i know that you don't have much money
6:39and that
6:40i can really get you an investment
6:43that's going to
6:44do very well for you and before long
6:47there were
6:48probably about 18 to 20 people that were
6:51involved with
6:51the viennas did you know where that
6:55money was going
6:57uh no had you ever heard the name
6:59bernard madoff
7:00not at that time not at that time
7:05madoff liked it that way unbeknownst to
7:08even his oldest associates
7:10he was quietly taking on other so-called
7:12feeders
7:14it didn't matter to avelino and biennis
7:16by the mid 80s their cut was reaching
7:18upwards of 10 million
7:20a year just for passing along their
7:22clients money
7:24so is this easy money would you say that
7:26that you're making with madoff
7:27easy easy peasy
7:30like a money machine i always said i
7:34never lifted any heavy weights
7:36people said to me even recently oh you
7:38must have worked very hard
7:40i said no i didn't oh come on i said no
7:43i didn't
7:44i never worked hard
7:47we were like an airplane an airplane you
7:50know flies itself
7:51but if you make a mistake in your
7:53calculations
7:55oh boy you do a john denver you run out
7:58of fuel
7:59did you ever think to yourself this just
8:01is too easy this is too good
8:05i said i'm a little too lucky why am i
8:08so fortunate
8:09and then i came up with the answer my
8:11wife and i came up with the answer
8:14god wanted us to have this god gave us
8:17this
8:18in 1987 avelino and viennas opened a
8:21second office in fort lauderdale florida
8:24and began looking for a new well of
8:25investors
8:28they start actually doing what they did
8:29in new york they
8:31just pick up investors people they met
8:34an art dealer friends that they
8:38picked up doctors you know they would
8:39they would get them involved in
8:41in the investment scheme
8:45the problem was they were getting too
8:46many clients
8:48by the early nineties they had amassed
8:50over three thousand
8:51far too many clients to be operating as
8:54unregistered investment advisors
8:57avelino and vienna's worried they might
8:58get busted by the sec
9:01we had doubts and we passed them on to
9:04bernie
9:05in meetings and he said listen to me
9:08okay i know the biggest lawyers on wall
9:10street
9:11and i've told them about this and they
9:13say it's okay
9:15you're just uh guys who work for my
9:18father-in-law are you you're
9:19you're a client of my firm that's all
9:21you are so you did have doubts you
9:23wondered if you should be licensed with
9:24the sec
9:25i like to be licensed i was a licensed
9:27cpa so why didn't you just get yourself
9:30licenses
9:30because you just can't do that because
9:32bernie didn't want us to
9:35so bernie is calling the shots here oh
9:37of course he is
9:39always was i was always we were always
9:42captive to him
9:44he owned us
9:47but then in 1992 there was trouble
9:51an investment advisor in seattle had
9:53called avelino and viennas to inquire
9:55about their steady returns
9:58those promissory notes didn't smell
9:59right he was given the brush off
10:02the advisor called the sec and they
10:04launched an investigation
10:07they suspected that avelino and viennas
10:09were running a ponzi scheme
10:11they came over the sec and they talked
10:14and they looked and they looked and they
10:15talked
10:16and we said you know to bernie
10:19we got to do something this is not going
10:21to be good
10:22we just can't sit here he says yeah
10:24you're right
10:25let me recommend an attorney ira salkin
10:28who used to be with the sec
10:31sorkin the lawyer madoff recommended had
10:34experience handling fraud cases
10:36and in the mid 80s he'd even run the
10:38sec's new york office
10:41there was a lot of money at stake in the
10:43case by 1992
10:45avelino and bienis had 441 million
10:48dollars invested with madoff
10:50sorkin tried to figure out a way to keep
10:52avelino and bns in business
10:54but before he could come up with a
10:56solution the sec ran
10:58out of patience all of a sudden in
11:00november the sec
11:02said game over for closing you down
11:05sign the consent decree or we'll run you
11:08into court
11:09did you understand why michael bienis
11:11was shut down
11:14michael bienis said he had too many
11:17uh people that he helped invest and yes
11:20he
11:20said he didn't have a license so he was
11:23just going to stop doing this because it
11:25wasn't good
11:26and we could go with madoff
11:29at first the sec was worried that the
11:31money wouldn't be there
11:33but were relieved that the trail led
11:34back to madoff
11:36by then he had a solid reputation on
11:38wall street
11:39his market-making operation was handling
11:42trades equaling nine percent of all
11:44trading on the new york stock exchange
11:46and he had recently been named chairman
11:48of nasdaq
11:50the sec never paid serious attention to
11:53madoff
11:55they had made off in their sites and the
11:58sec
11:59looked at madoff but it reached no
12:02adverse conclusions estimate off
12:04but they knew that madoff was servicing
12:07as an investment advisor
12:093 200 different clients yes
12:12madoff was not registered as an
12:15investment advisor
12:16that's correct even after avelino and
12:19biennis are
12:20effectively shut down and the money is
12:22returned madoff goes forward
12:24and is not registered why i can't
12:26explain why
12:28on the face of it if
12:31an investment advisor services
12:34more than 15 clients 15 or more clients
12:38it is supposed to register he had 3 200.
12:41um
12:423 200 seems to me more than 15. to be
12:45more than 15.
12:47yes
12:51avelino and biennis had to pay 350 000
12:54in fines and return all their investors
12:57money
12:58and while madoff paid back the lion's
13:00share he didn't pay
13:02all of it he shortchanged them 18
13:04million dollars
13:07avelino and biennis asked for a meeting
13:09with madoff at his new
13:11office in midtown manhattan's lipstick
13:13building
13:15all right i said you son of a
13:19it's over now cost us a lot of money
13:22and a lot of grief and it's all your
13:25fault bernie
13:26damn you it's your fault because we
13:29asked you
13:30should we be registered should we get
13:32registered we were willing to do it
13:34we were willing to pay any lawyer any
13:37fee
13:37and you said no no no no no no and you
13:41assured us
13:42big shot that that we were fine we were
13:45just
13:46investors when you knew damn well we
13:48weren't
13:50after what i got done he says look i'm i
13:53heard enough from
13:54you now i want you to stop you're
13:56starting to get to me
13:58very low very cool so i said bernie
14:02i'm sorry i just a very scared person
14:06and let's forget what i said and go on
14:09with this
14:10i apologize in a 1992 interview with the
14:14wall street journal madoff claimed he
14:16had no idea his two front men were
14:18operating
14:19illegally does the fact that bernie
14:21madoff returned
14:22400 million dollars to those accountants
14:25who then returned it to their clients
14:28mean that it was a legitimate operation
14:30at that time
14:33not necessarily many people point to
14:36that
14:36and say that it must have been
14:38legitimate because he was able to raise
14:40that much money
14:42but we don't know how he raised it we
14:44don't know where he got it
14:45did you ever think it was odd that you
14:47go through all these hearings
14:49and all the paperwork is all about you
14:51and frank but nothing about bernie and
14:53bernie gets off
14:54scot-free continues doing what he's
14:56doing does that seem odd to you
14:58no we just wanted to get
15:01out of it and i wanted to run away
15:04and hide in a cave i didn't worry about
15:08bernie
15:09or ernie or sid the kid i was not
15:13interested i just didn't want my name in
15:16the paper again
15:17one day once and that was enough for me
15:22what did you tell the clients that had
15:23left that had gotten their money back
15:26goodbye here's your here's your
15:29they knew it was in the papers here's
15:31your money
15:33don't bother me but sources tell
15:35frontline that's not what happened
15:37avelino and bienis continued to move
15:39money to madoff through other front men
15:41taking lucrative kickbacks on the
15:43referrals one
15:45case in point in fort lauderdale is uh
15:47michael sullivan
15:48who was a friend of avelinos
15:52and he basically took
15:56these pools of investors that they and
15:58they routed them
15:59right into uh into sullivan
16:03and he's moving it to madoff
16:08avelino knew sullivan through bible
16:10group at this fort lauderdale church
16:12after 1992 sullivan took on around 30 of
16:16avelino and biennis's accounts
16:20avelino and biennis kept their hands
16:23in the jar the sec action
16:26was simply a bump in the road it was it
16:29barely slowed them down
16:31bienis denies rooting clients through
16:33sullivan or
16:34anyone else if they called me i said
16:37listen the only advice i can give you is
16:39call
16:39bernie if you want to get i don't know
16:41if he'll take you or call michael
16:43sullivan
16:44no absolutely not never
16:47now why does that push a button because
16:50it's not so and that's what really bugs
16:53me but you've got people saying
16:54that they're worried about people saying
16:56they're lying
16:58but documents show that after 1992
17:01former avelino and vienna's clients
17:03began moving their money
17:05into partnerships that were michael
17:07sullivan's conduits
17:08to madoff
17:11avelino and biennis also continued to
17:13invest their own personal money with
17:15madoff and went on to amass fortunes
17:18the avallinos bought this 4.5 million
17:21dollar house in palm beach
17:23and stocked it with paintings by degas
17:25de kooning hopper and bacon
17:27paintings worth tens of millions of
17:29dollars
17:31the biennises became major donors to
17:33charities throughout broward county
17:37in 2002 biennis accepted an award
17:40from a local business college with
17:43wisdom and grace
17:44this modern day renaissance man has left
17:46an indelible mark on our community
17:49michael bienis
18:01in the 90s madoff really didn't need
18:03avelino and viennas anymore
18:05he had moved on to bigger pools of money
18:08there are two pieces to a ponzi scheme
18:10you always have to attract new
18:11investment and you have to make sure
18:14that all you don't have a sudden outflow
18:17the key is
18:18stability by the 90s madoff had already
18:21formed alliances with financiers like
18:23ezra merkin
18:24president of new york's prestigious
18:26fifth avenue synagogue
18:28stanley chase of beverly hills who
18:30worked the hollywood crowd
18:32and bob jaffe of boston and palm beach
18:35people who had access to madoff whether
18:38they were advisors or accountants or
18:40attorneys or
18:41or fund of funds built a sort of a
18:44cottage industry of just feeding money
18:46to bernie
18:47and it's sort of mushroomed madoff was
18:56also being courted by private bankers
18:59mostly from greenwich connecticut the
19:01capital of the hedge fund business
19:04one of the first to knock on his door
19:05was jeffrey tucker a former sec lawyer
19:08with a love for horse racing
19:10he joined private banker walter noel to
19:13found fairfield greenwich group
19:15fairfield greenwich started as a small
19:18scale
19:18investment advisory business led by a
19:20gentleman walter noel who had a pretty
19:22good reputation on wall street
19:24not just in u.s money circles but in
19:27foreign money circles as well he
19:29attracted a partner
19:30who also had a good track record jeffrey
19:34tucker
19:35they form joined forces and got
19:37fairfield greenwich up and going
19:41walter noel's assistant remembers how at
19:44first they struggled
19:45until they found madoff jeffrey just
19:48told walter
19:49i've got this guy who's got really
19:51impressive returns
19:53you know come meet him let's look into
19:55it maybe there's a product we can
19:56develop
19:57once they created fairfield sentry to
20:00invest exclusively with madoff
20:03that's when things really started to
20:04accelerate and what attracted them was
20:07not just made of steady returns
20:09but an unusual fee arrangement madoff
20:12didn't charge them any fees he said i'm
20:15making all my money on
20:16trading through my market making
20:18operation and commissions and so i won't
20:20take any fees
20:21and you can keep it all for a feeder
20:24fund like fairfield sentry
20:26those client fees added up to around a
20:28hundred million dollars a year
20:31the feeder fund's taking you know two
20:32and twenty or one in ten
20:34one percent of the assets and ten
20:35percent of the returns and all these
20:37guys did was just
20:38dump money in do no due diligence and
20:41count their money
20:42amazing and while tucker handled
20:45fairfield century's account with madoff
20:47it was noelle's family that did the
20:49marketing walter knowles bevy of lovely
20:52daughters married
20:53into uh families that were well known
20:56uh in those moneyed circles and the
20:58fairfield greenwich
21:00sales team if you will the walter noel
21:03extended family
21:04began to market its services far and
21:07wide
21:08noelle's eldest daughter married a
21:09colombian investment banker
21:11andres piedragita other sons-in-law
21:14marketed century in latin america
21:16and the middle east
21:22their annual christmas card chronicles
21:24their rise
21:27the unofficial model was if we act rich
21:30we will become rich this was about being
21:32able to finance a lifestyle that people
21:34only
21:35that some people only dream about they
21:37read about these things in
21:39in wn in in town and country and they
21:41wanted that sort of lifestyle they
21:43wanted to be
21:44in society walter noel
21:47was making an extraordinary amount of
21:49money and all he had to do was market
21:51and there were many people that just
21:53looked at what fairfield century was
21:54doing and said hey
21:55this is free money fund managers
21:59everywhere wanted in on it
22:01latin america asia and europe and they
22:04went to major banks looking for clients
22:08nowhere more than in the world's capital
22:10of discretion and secrecy
22:12geneva these guys were going around to
22:15all banks
22:16really doing growth shows and saying
22:18here it is we have a two percent
22:20management fee on this fund
22:22but we give you back one percent of it
22:25if you buy the fund
22:27so you bring the uh clients to us and
22:30we'll give you a kickback
22:32exactly it's it's a worry to attract to
22:35catch
22:35to be very aggressive in catching new
22:37clients yeah by 2008
22:41one-third of all geneva fund managers
22:43had invested with madoff
22:45to the tune of 14 billion dollars it's
22:48extraordinary how the hedge fund
22:50industry
22:51in some way works like hollywood you
22:53know you have stars
22:54you don't understand but you have big
22:56stars and you need to invest
22:58in big fun with big names famous people
23:01you need to invest in that thing because
23:03it's a big name
23:06one of the biggest names in europe was
23:08french aristocrat
23:09thierry de la ville an avid sailor well
23:12connected with european royalty
23:15he approached the world's biggest
23:16private wealth manager ubs
23:18to help him gather clients for his
23:20madoff fund at his company
23:22access international
23:26on his marketing team were prince
23:27michael of yugoslavia
23:29and philippe juneau once married to
23:31princess caroline of monaco
23:35at lavish parties they marketed to
23:37people like l'oreal's lilian bettencourt
23:40the world's wealthiest woman thierry de
23:43la villege would say to them look
23:45come to dinner we'll have your friends a
23:47good time good wine
23:49and then here comes the hard sell i've
23:52got this great money manager in new york
23:54he makes money whatever the weather i
23:56can introduce you
23:57put money into my fund i'll i'll hand it
24:00on to bernie madoff
24:01be like dude
24:08his brother bertrand said teary believed
24:10completely in madoff
24:13he'd have intellect
24:26but madoff had one condition he had to
24:28impose on everyone
24:30funds were forbidden from listing him as
24:32an investment advisor in
24:34any marketing materials that's because
24:36madoff was unregistered with the sec
24:39even though he had thousands of clients
24:41and billions under management
24:43i met bernie madoff in the early 90s
24:47sandra manske the founder of hedge fund
24:50giant tremont and later maxim capital
24:52has publicly advocated for more
24:54transparency in the hedge fund industry
24:57in an exclusive interview with frontline
24:59she said she was unaware
25:01of how big madoff had become did i know
25:04about all the feeder funds in europe
25:06absolutely not access access i did not
25:09know of access
25:11i didn't had a big phone didn't know
25:13that
25:14you know optimal didn't know that
25:18mansky says everyone operated by
25:20madoff's secrecy rules
25:22did madoff say to you don't put me in
25:24your prospectus
25:26yes he did do you think that's right
25:30do you think that's appropriate um i
25:33don't know
25:34um every one of my clients knew
25:38that this was a madoff feeder fund so
25:41why not and the prospectus then
25:44um that was one of always bernie's
25:47conditions of getting an account
25:50but you've publicly called for
25:51transparency that's transparency
25:54yes but many funds and investors
25:59were very secretive they didn't mention
26:01that they had money with madoff
26:03um it was something you didn't talk
26:06about
26:08and that's exactly how bernie madoff
26:10wanted it
26:16[Music]
26:22the question of when it became a fraud
26:26is fundamental to the bernie madoff
26:29mystery
26:30this went on for an astonishingly long
26:33time
26:34for a ponzi scheme madoff was driven
26:38he has the kind of personality that is
26:40extremely proud
26:43of the incredibly intricate and complex
26:47web that he's woven madoff's firm used
26:50to advertise its high ethical
26:52standards
26:57good afternoon elizabeth speaking
26:59investors who asked were shown the
27:01operation on the 19th floor of the
27:02lipstick
27:05is good at building and pending erickson
27:0826 and five teenies
27:10very impressive you know scores of
27:13people
27:13basically younger people sitting at
27:15these computers
27:17clicking away or watching the screen or
27:19whatever
27:20and you know and one thing's lord here
27:22are all these people
27:24in their 20s and 30s who are each making
27:26a million dollars a year
27:28[Laughter]
27:29they probably were but this was madoff's
27:33market-making operation
27:34run by his two sons mark and andrew and
27:37his brother peter
27:38his wife ruth came in once a month on
27:41the street it had a good reputation
27:44it was a great company to work for a lot
27:46of people didn't leave that place
27:48usually with madoff you you stayed there
27:52it was almost like you you would work
27:53there and
27:55you know the only way that you would get
27:56fired unless you did something
27:58um incredibly wrong
28:04as is now well known the heart of the
28:06fraud was two floors down on 17.
28:11here a dozen employees worked under the
28:13direction of a 33-year veteran of the
28:16firm
28:17frank de pascali nobody really knew
28:20his role you know i knew he was
28:23important
28:23because he would speak with bernie often
28:27and essentially like whatever frank
28:29wanted he would
28:30for the most part get but few staffers
28:34even caputo and ibrahim and the rest of
28:36the it team that had access to the floor
28:38understood what he did we were spitting
28:41out statements
28:42constantly the fact that all of these
28:45statements
28:46were just sort of made out of thin air
28:48is is pretty shocking
28:51well did people ever suspect that it
28:53wasn't legitimate
28:54it was very rare that since i was there
28:57that anybody would ask questions about
28:58something in the uh in the firm you just
29:01didn't do that
29:02you just didn't do it after the
29:05statements were printed they were mailed
29:06to clients
29:07providing them a paper record of trades
29:10and stocks treasuries and
29:11s p 100 index options
29:14most customers were focused on the
29:16bottom line
29:17but for anyone who looked hard enough
29:19there were a few clues
29:21some statements showed investments in
29:23fidelity spartan a fund whose name had
29:25changed
29:26and was not open to new investors and
29:29frontline's own investigation of a small
29:31sampling of statements found unusual
29:33accounting of cash balances
29:36also the fact that madoff sent trading
29:38confirmations in the mail
29:40two to five days after a trade was
29:42reportedly made
29:43allowed him the benefit of hindsight
29:46like betting on a horse race
29:47after it had begun did it ever raise red
29:51flags that all his
29:52confirmation tickets were sent to you in
29:56the mail whereas
29:57all other broker-dealers were providing
30:00electronic
30:01confirmations they were sent to us in
30:04the mail
30:05and we never thought anything of it but
30:07i get my confirmations
30:09when i trade tickets in the mail but you
30:11can also opt to get one electronically
30:14which is something bernie madoff didn't
30:15offer
30:16well bernie also again it was part of
30:19his
30:21not having the world know when he went
30:23into the market but it never seemed odd
30:25that he didn't issue an electronic
30:27confirmation
30:28no but if an investor complained about
30:32how madoff did business
30:34dipascali would threaten them i remember
30:37one phone call i made
30:38he said if you don't like what i do
30:40we'll send you money back
30:42it was very intimidating because first
30:45of all i didn't want the money back and
30:46i didn't know what was so terrible about
30:48the question i was asking
30:50so he didn't really want to hear any
30:51questions no absolutely not
30:53and we got intimidated by it
30:57there were many on the outside who
30:59suspected something was wrong
31:02a persistent rumor dog made off that he
31:04was involved in an illegal form of
31:06insider trading called
31:08front running the idea behind that was
31:11because he had this market making
31:12business
31:14and market making means you see the
31:15trades coming from big institutions
31:18and the big concern with market makers
31:19is you can step in in front of
31:21say merrill lynch buying a million
31:23shares of ibm and buy your own
31:25so that when merrill buys the million
31:27shares the stock goes up a little bit
31:28and you make some money
31:30people couldn't figure out any other way
31:31for him to make money
31:33except if he was front running people
31:35ran those
31:36sort of models and couldn't make money
31:37doing it they couldn't make anywhere
31:39near the kind of returns that he did
31:40especially
31:41in when markets were falling but he
31:44consistently made money
31:45every year almost every month
31:49in boston a team of risk analysts was
31:52puzzled
31:52wondering what madoff was up to there's
31:55always that potential that one little
31:57potential that you've got a rocket
31:59scientist an einstein here
32:01and he's found some piece of information
32:04that's flowing to him proprietarily
32:06because of the nature of his business of
32:08executing big trades
32:11in the late 90s casey was working with
32:13harry marco polis
32:14the now famous whistleblower casey and
32:17marco polos first heard about madoff's
32:19returns
32:20from the french aristocrat terry du la
32:22villuche
32:24back in those days i understand that mr
32:26madoff didn't like
32:27his investors mentioning his name let
32:30alone what he was doing
32:32but terrain knowing that i was an
32:33options fellow i guess and the fact that
32:35he was a sailor and i was a sailor
32:38established some common ground and trust
32:40i guess and
32:41he mentioned that it was this fellow by
32:43the name of bernie madoff
32:45i said well what's he doing and he said
32:47split strike conversion work
32:49i didn't say much about that but i
32:50thought that well wait a minute
32:52it is predominantly a bull market
32:54strategy and
32:57how can you make money in bear markets
32:58or down markets so something's amiss
33:01casey asked marco polos who understood
33:03esoteric tactics like split strike
33:05conversion
33:06to do some reverse engineering i brought
33:09the return
33:10stream the track record back to harry
33:12and i said harry
33:13if you can do this for me we can make a
33:16lot of money
33:18harry started engineering and looking at
33:20it and dissecting the returns and he's
33:22after four hours of work or so came
33:25up he said frank this is a ponzi scheme
33:29i said harry that's a strong word and
33:32harry says look at this the market goes
33:33down
33:34he's not hurt at all he produces one
33:36percent market goes up he produces one
33:38percent
33:39to be fair he did report a few bad
33:41months here and there
33:43sure um harry looked at that later on
33:45over the years and told me that
33:47basically a
33:48baseball player they have to be hitting
33:499 25
33:51straight for 10 years in a row
33:54would you want to bet on a player like
33:55that that he wasn't doing something
33:57illegal
33:59in may 2000 harry marco polis contacted
34:02the sec
34:03for the first time submitting an
34:05eight-page memo
34:08frank casey meanwhile flew to meet with
34:10dyla villashay
34:11at his new york office i said what
34:14happens
34:15if you've got all your eggs with bernie
34:17and he is a fraud
34:19and torrey says it can't be
34:23i've got all my money with them i've got
34:25most of my family's money with them
34:27i've got almost every
34:30royal family that i know he's got the
34:33money with him
34:34so he says we really have done our work
34:36frank you just don't have all the facts
34:41casey decided to hand the story to an
34:43investigative reporter who covered hedge
34:45funds
34:45michael okrant when he said bernie
34:48madoff
34:48my ears immediately picked up and i said
34:50what are you talking about bernie's a
34:52market maker
34:53casey told okrant that madoff had
34:55billions under management
34:58i immediately knew it was a great story
34:59no matter what because
35:01just the fact that bernie madoff was
35:03managing this much money
35:05was a story in itself that came as a
35:07surprise to you that was a shock i mean
35:10nobody knew that in his reporting ocrant
35:13questioned madoff's consistent returns
35:15and why other money managers were unable
35:17to duplicate them
35:19he then arranged for an interview with
35:21madoff
35:22this guy was just his columns cucumber
35:25i didn't see any sign and usually i mean
35:28that should have been sort of a sign
35:30to me in retrospect too you know any ceo
35:32that can spend two hours with you
35:34they just don't do that literally at one
35:37point just kind of chuckled and said
35:38give me some respect for you know being
35:40in business for 40 years having this
35:42great
35:42infrastructure we've built up having
35:44this this
35:46access to market information that we
35:48have as a result of being market makers
35:50he said to you give me some respect yeah
35:53oh yeah
35:55six days after ocran's article barron's
35:57a prominent wall street weekly picked up
35:59the thread
36:00the baron's article raised similar
36:02questions
36:03this article comes out and causes a stir
36:05in the office yeah a lot of people knew
36:06about the barons article
36:08and people were were you know having
36:10side conversations about it but
36:12at the time you know he was a supposedly
36:15very respected person on wall street
36:19casey and marco polos hoped the articles
36:21would prompt the sec to act
36:24it had been more than a year since marco
36:26polos had submitted his memo
36:28the sec is going to swoop in we're all
36:30sitting around calling each other up and
36:31emailing each other it's going to happen
36:33soon boy the sec is on it
36:35nothing happens but over at fairfield
36:38greenwich now headquartered in new york
36:41the articles did get some attention
36:43jeffrey tucker the senior partner who'd
36:45first begun their business with bernie
36:47madoff
36:48went over to the lipstick building
36:52he wanted to verify fairfield's holdings
36:54at that point
36:55worth around three billion dollars he
36:58met with bernie and frank di pascali
37:01according to investigators madoff showed
37:03him records of trades
37:04and named a third party who had cleared
37:06them
37:08tucker never asked for any verification
37:10and he never went down to the 17th floor
37:13to see where fairfield's accounts were
37:15allegedly being traded
37:18they told their investors they were
37:19conducting extraordinary levels of due
37:21diligence
37:22into their investment managers stuart
37:25singer has filed suit against fairfield
37:27greenwich on behalf of investors who say
37:29that the company failed to conduct due
37:31diligence
37:32fairfield's focus was on marketing and
37:35selling the product which was made off
37:37rather than on kicking the tires and
37:40checking to see that made off was real
37:42if they had spent as much time on due
37:45diligence as they did on marketing
37:47we wouldn't be here today
37:51even though fairfield greenwich was in
37:53new york
37:54their risk management operation headed
37:56by ahmed vijay virgaya
37:58was located a stone's throw away from
38:00this beach
38:01in bermuda why would you have a due
38:04diligence officer in bermuda
38:08that's a good question considering that
38:10fairfield
38:12has offices in new york and madoff is in
38:15new york madoff is not in bermuda
38:18fairfield's partners refused to speak to
38:20frontline but their attorneys insist
38:22that their due diligence surpassed
38:24industry standards
38:26sherry cohen remembers differently i
38:28know that there was absolutely no
38:30due diligence done when i worked for
38:33them
38:35certainly no deep questions i mean they
38:37didn't need to know the details it's
38:39like
38:39too much information don't bore me with
38:42the details and they wouldn't have
38:43gotten it anyway
38:46and as for due diligence no one seemed
38:48to question the fact that madoff's
38:50accountant was a one-man operation in
38:52this strip mall
38:53an hour's drive north of new york
38:56did you ask him why he had such a small
38:58accounting firm yeah
39:00i mean that was it was this family you
39:02know
39:04business that it was an accounting firm
39:07that his
39:09father-in-law had used for years and he
39:12continued to use it and it didn't bother
39:14you that it was the small of course it
39:16bothered you i mean everybody you know
39:17those are kind of things that
39:19it would bother you but that was one of
39:21the conditions of doing business that
39:23you accepted that
39:24and part of that was his
39:28you know proprietary trading model the
39:31black box that he used
39:33that he wasn't going to disclose what
39:35was in it
39:39i talked to one big hedge fund manager
39:41who told me that madoff says that he
39:43didn't want to expose
39:44his proprietary trading techniques to
39:47competitors and so therefore he went to
39:49a
39:50relatively obscure little accounting
39:53firm
39:53to keep to keep his operation a little
39:55bit off the radar well that's hogwash
39:57and anyone with any sophistication
40:00should know that
40:02no one could have credibly believed that
40:04bernard madoff had to use
40:05a couple people in a little accounting
40:07firm because he was concerned that his
40:09secret
40:10sauce his secret investment philosophy
40:12was going to get out
40:15by 2005 marco polos determined to get
40:18through to the sec
40:20submitted a 21-page memo detailing more
40:23than two dozen
40:24red flags when he wrote that letter and
40:27i read it i said oh my god they're going
40:28to be on this this is
40:29you're giving it to them you're giving
40:31them everything
40:34marco polos wasn't the only person
40:36complaining to the sec
40:38there were other letters that have
40:39surfaced that were
40:41sent to the sec in october 2005
40:44someone writes i'm deeply concerned that
40:46madoff is running a very sophisticated
40:48fraudulent pyramid scheme
40:50there was another no down months and low
40:53volatility
40:54all the time just doesn't add up so
40:57there was a steady
40:58flow of letters it wasn't just marco
41:01polos
41:02yes i think i think um it is
41:06clear that there were letters
41:09and it is also clear that the sec did
41:12look at him what is not clear is why the
41:16sec
41:18was unable to conclude that
41:22he was conducting the ponzi scheme we
41:24now
41:25know he was conducting
41:29in late 2005 madoff learned that sec
41:32investigators were about
41:34to interview fairfield's due diligence
41:36officer in that office in bermuda
41:40madoff got on the phone he began by
41:42saying this conversation
41:44never took place in this 65-page
41:47transcript of a single conversation
41:50madoff coached him on how to handle sec
41:53investigators
41:54you don't want them to think you're
41:56concerned about anything he said
41:58you should be casual madoff then
42:00instructed
42:01your position is to say listen madoff
42:04has been in business for 45 years
42:06he executes a huge percentage of the
42:08industry's orders
42:10he's a well-known broker you know we
42:12make the assumption
42:13that he's doing everything properly
42:19finally in january 2006 prompted by
42:21marco polos the sec
42:23launched an official investigation
42:26frontline has been told by insiders that
42:28when sec lawyers visited the offices
42:31made off personally answered questions
42:33and was visibly nervous
42:35and irritable
42:38it took two years before the sec issued
42:41a verdict
42:44madoff was cleared
42:48i gave them a road map and a flashlight
42:50to find the fraud
42:52and they didn't go where i told them to
42:54go in early 2009
42:56harry marcopolis finally got to tell his
42:58story my questions are
43:00you have supposedly sophisticated
43:03investment fund managers
43:04who are investing into this
43:08what happened with them why didn't they
43:11see this
43:12they were paid so much to look the other
43:14way those feeder funds
43:16were incentivized not to ask the
43:19questions
43:20to be willfully blind if you will and
43:22not get too intrusive
43:23into the madoff scheme later that day
43:26the sec was called to account
43:29what the heck went on
43:32with all of your investigators and all
43:34of your agency and everything that that
43:36you all described
43:38one guy with a few friends
43:41discovered this thing nearly a decade
43:44ago
43:45led you to this pile of dung that is
43:47that is burning made off and stuck your
43:48nose in it
43:49and you couldn't figure it out we have a
43:52pending action
43:53pending in the southern district of new
43:54york you took action after the guy
43:56confessed he turned himself in don't
43:57give yourself any pat on the back for
43:59that
43:59and congressman every time why didn't
44:02you find him is the question
44:04i understand your question and
44:08we cannot answer as to the specifics sec
44:12officials refused to answer questions
44:14because they said they didn't want to
44:15compromise an ongoing investigation
44:18but privately officials told frontline
44:20the agency had
44:22for years been severely understaffed and
44:25overwhelmed
44:26i can talk generally you know if anybody
44:28made the case
44:29better than mr marco polos and i didn't
44:31think anybody could
44:33about you people being completely inept
44:35you've made the case better than him
44:38linda thompson the sec's chief of
44:40enforcement and one other on this panel
44:42were forced out
44:48when the housing bubble burst in the
44:49spring of 07 and markets collapsed
44:52hedge funds were hurting our economy and
44:55our markets will not recover
44:57until the bulk of this housing
44:58correction is behind us as the markets
45:00continued to tank
45:02down 40 percent by november hundreds of
45:04hedge funds stopped allowing clients to
45:06withdraw money or simply shut down
45:10in october it's the worst market we've
45:12seen in you know maybe
45:1370 years but bernie's still making money
45:17and
45:18why would you invest in the equities
45:20markets when you could put
45:21a substantial portion of your monies
45:23into this fund that's generating very
45:25consistent returns even in this down
45:26market
45:27so it was very appealing to the
45:28investors if anything people wanted to
45:30get money out of the equities markets
45:32and move it more into bernie
45:34because he's the only one making money
45:35consistent money in this marketplace
45:38he stopped buying aig and he stopped
45:40buying citibank
45:42it wasn't in his basket they were always
45:44in his basket
45:46and you know i called him and he said i
45:48said you know
45:49it was really terrific that you avoided
45:52all these financials
45:53what did he say he said that he thought
45:56that
45:57the investment bankers and the major
46:00banks were destroying
46:01the united states
46:06manske and dula villashay placed even
46:08more money
46:09including their personal accounts with
46:11madoff
46:12the problem was that by december even
46:14madoff started getting more requests for
46:16withdrawals
46:17than deposits people are losing money
46:20everyone's got margin calls
46:21there are everyone had there's a lot of
46:23movement of money so i think a lot of
46:24the large institutions needed money even
46:26if it was parked in bernie's
46:28funds to help pay back other investors
46:30or
46:31to run their own businesses whatever it
46:33was so i think anytime there's a down
46:35market
46:35that's when a lot of these ponzi schemes
46:37blow up because there's often lots of
46:39redemptions even if the investment's
46:40doing well
46:42the fact is he he easily could have gone
46:45through his life
46:47without this being found out the only
46:50reason
46:51that this ended was because at one given
46:54point in time
46:56the economy did so badly that people
47:00wanted needed to get money out of madops
47:02investments
47:05in the final days madoff called his
47:07biggest feeder
47:08fairfield sentry and demanded they stem
47:10the bleeding
47:12eager to help noel bedreita and tucker
47:15began a massive fundraising campaign
47:17launching a new madoff fund called
47:19fairfield emerald
47:21it didn't attract enough new capital and
47:23withdrawals from century continued
47:26a desperate tucker then wrote madoff
47:30dear bernie we apologize these
47:33redemptions are panic driven
47:35our firm is very dependent on its
47:36relationship with your firm
47:38our mission is to remain in business
47:40with you
47:45but it was too late the scheme was up
47:49on december 11th the morning after
47:51madoff had allegedly confessed to his
47:53sons
47:54the fbi knocked on his door and asked if
47:56there was an
47:57innocent explanation madoff said no
48:00it was quote one big lie
48:04he confessed with pride like look what i
48:06did
48:07i mean you're not gonna believe what i
48:10did
48:10when you get to the bottom of this
48:13here's a guy who thinks he got over on
48:14the world for the last 30 years
48:16and uh doesn't have a bitter remorse
48:20and too bad i have no interest in
48:23psychoanalyzing a made-up the man
48:25the man is a monster he's evil i cannot
48:29fathom
48:30uh hurting every single person i met
48:33every dear friend it just doesn't get
48:35worse than that
48:37there's nothing that i would like to say
48:39to bernie madoff that i can say on
48:40television
48:42but this may be the only huge fraud in
48:45history
48:46where the government has extreme
48:49complicity
48:51so that's what i would have to say i
48:54blame the government i really truly do
48:58that red flags went up over the years
49:02and nothing was done about it it's just
49:05it's mind-boggling what can i tell you
49:08how do you do something like that and
49:10how do you do that to your employees to
49:13your family
49:15sandra mansky is facing a lawsuit from a
49:17pension fund and other investors who
49:19allege
49:20she failed in her obligation to do due
49:22diligence
49:23she in turn has sued her accountants
49:27other madoff feeders are being sued ezra
49:29merken for concealing where his client's
49:31money was placed
49:33and frank avelino for misleading
49:35investors
49:36stanley chase made so much money from
49:38the scheme a court-appointed trustee
49:41claims
49:41he must have known of the fraud michael
49:45bienis and his wife diane
49:46are selling their 16 000 square foot
49:49home and have moved into a small
49:51apartment
49:51did you have any warning that anything
49:53was amiss
49:55as god is my only judge on my mother's
49:58grave
49:59not an inkling may he strike me dead
50:05viennas has hired a lawyer though no
50:07lawsuits have been filed
50:10what is his old attorney
50:13ira sorkin is now representing madoff
50:18fairfield greenwich has seen multiple
50:20lawsuits filed
50:22they range from gross negligence to
50:24fraud
50:25in late december planned year-end
50:28multi-million dollar bonuses for jeffrey
50:30tucker
50:30walter noel and andres pedro ita were
50:38cancelled
50:46one more post script a few blocks from
50:50where madoff began his investment
50:51advisory business nearly fifty years ago
50:55thierry deliver luche took his own life
50:59taray was a sailor and he was a hunter
51:04he could have taken himself out any way
51:06he wanted to if he wanted to just
51:08remove himself from the pressure
51:11the man chose the method he did
51:15in my mind only as an act of atonement
51:21slitting his wrists watching himself
51:23bleed to death
51:25slowly
51:26[Music]
51:48me
52:01meanwhile investigators are talking to
52:03madoff lieutenant frank de pascali and
52:05others
52:06still trying to figure out what happened
52:08on the 17th floor mr rayne if you have
52:10anything to say
52:14bernard l madoff will be sentenced next
52:17month
52:20[Music]
52:31in june 2009 bernard madoff was
52:34sentenced to 150 years in prison
52:38both of his sons have since died mark
52:40from suicide on the second anniversary
52:43of madoff's arrest
52:44and andrew from cancer in september
52:462014.
52:48the trustee recovering assets for madoff
52:51victims
52:51has collected over 10 billion dollars
52:54and has distributed
52:55close to 6 billion
53:09[Music]
53:12so
53:18[Music]
53:26for more on this and other frontline
53:28programs visit our website
53:30at pbs.org
53:42front lines the madoff affair is
53:44available on dvd
53:45to order visit shoppbs.org or call
53:491 800 play pbs frontline is also
53:53available for download on itunes
54:07[Music]
54:18you

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