Madoff: The Monster of Wall Street (2023–…): Season 1, Episode 1 - A Liar, Not a Failure - full transcript
Starting his career in penny stock trades, Bernie Madoff builds a lucrative side business as an adviser, attracting clients with impressive returns.
Sometime around 2005,
my mother and I
were at Palm Beach Country Club.
It was a beautiful day. We played golf.
And we went upstairs
to the balcony to eat lunch.
We were seated,
and there was only one other couple there,
and it was Bernie Madoff
and his wife, Ruth.
And my mother immediately noticed.
"Oh, it's Bernie."
She went up and started talking,
"Hi," and introduced me.
"This is Jeff, my son.
He has an account with you."
And I shook Mr. Madoff's hand.
And I was, like, in awe.
He was the god of Palm Beach.
He was the god of finance.
We went back to the table,
and my mother, in her fashion, said,
"Oh, what a wonderful man."
But then she said,
"There's just one thing about him though."
"He never looks you in the eye."
My mother got it before anybody.
She just didn't put it together.
Because this god was a demon, a devil.
Bernie Madoff has been arrested.
He's the founder of
Bernie Madoff Investment Securities.
He's 70 years old.
He is a fixture on Wall Street.
Bernie Madoff, 70 years old,
arrested by the FBI.
This former iconic figure on Wall Street
has allegedly, but by his own admission,
destroyed many lives, charities,
and reputations on Wall Street
and around the world.
A walk of shame, and shoving.
Don't push me.
People think they know this story.
They think it's a story about one man,
but when you pull back the curtain,
it's actually about so much more.
Bernie Madoff
ran the biggest criminal enterprise
in the history of Wall Street.
He was a financial sociopath,
a serial financial killer.
He was kind of like an uncle figure to me.
He was someone
who I really liked and I trusted,
and then there's this monster
that's living this lie.
Trust. Betrayal. Pure evil.
A hundred years from now,
people will remember this story.
We're talking about $64 billion.
When you see that many zeros,
it's mind-boggling.
You had to step
through the looking glass
into this alternate reality
where literally nothing was real.
It was all fake.
The money went poof.
Gone.
It's one thing to lose your life savings.
But when you lose
our house too, it's terrible.
How could he fool
so many people for so long?
What happened was so avoidable,
and so many people
enabled it to happen because of greed.
It's about the big banks.
It's about the regulatory agencies.
It's about this whole ecosystem
that completely and utterly failed.
You're going to put billions
into something, you check everything.
Even if God sends you a résumé...
check the references.
Mr. Madoff,
by your own admission,
you lied for a living.
- Isn't that true? You lied for a living.
- Yeah. Yeah.
Nobody can figure out,
"Why did Bernie Madoff do this?"
He had a very successful business
that was the envy
of everybody on Wall Street.
Everybody says, "Why would Bernie Madoff
commit the largest fraud in history?"
Nothing in this industry
is what it looks like.
That's why the industry runs,
because...
You also have to understand one thing.
The one thing every one of them was,
which is everybody in the industry,
is they're greedy.
We begin our coverage tonight
of what's been called
the worst financial crisis
in modern times.
Certainly, the largest financial disaster
in decades in this country.
In 2008, the economy was being decimated.
This was Armageddon.
Wall Street in crisis mode this morning.
Reeling because
of these bad real estate loans.
Mortgage brokers
had been selling mortgages
to people that couldn't afford them.
Wall Street knew a lot of them were shit,
packaged them
and sold them to their clients,
whereupon they blew up.
Foreclosures across
the country are up a staggering 87%.
Property values nationwide this year
could drop more than
half a trillion dollars.
It's mind-boggling.
Everybody's losing their homes.
The stock market is just cratering.
Every day is worse than the day before.
The Dow down nearly 450 points.
We just hit 730 or something.
That's... We've never seen that.
Traders in Tokyo
worried about a spreading US recession.
Every bank was falling to pieces.
Lehman Brothers says
it will file for Chapter 11 bankruptcy.
The financial crisis
continues to cause panic.
We are faced with the prospect
of a global meltdown.
This was this
once-in-a-century, cataclysmic event
that was causing carnage
throughout the system,
and then there was Bernie.
Now to what turns out to be
the biggest Ponzi scheme
in the history of Wall Street.
Fallout from allegations
against Bernie Madoff
in the realization that as much as
$50 billion investors thought they had,
is simply gone.
How do you feel?
Bernie Madoff was arrested
on Thursday, December 11, 2008.
Friday morning,
FBI agents show up to Madoff's offices
in the very upscale Lipstick Building
on the east side of New York.
We walked
into the lobby of the Lipstick Building,
and it resembled the scene
from the movie Frankenstein,
where you have the angry villagers
with their pitchforks and the torches
wanting to get upstairs
to kill the monster.
So FBI agents come up
with their raid jackets on,
and I'm the first agent through the door.
All the employees
had been corralled on the 19th floor.
It's just total chaos.
There's employees crying,
trying to figure out what's going on.
The FBI was the lead
criminal investigation agency,
but we also had IRS,
Department of Labor, accountants,
the agency that oversees
the brokerage industry, SIPC.
They start disconnecting people's access.
I was a little surprised because
it looked like a legitimate business.
Computers everywhere,
clocks showing different time zones...
It looked like a legit trading business.
As we're conducting the search,
I walk into Bernie's office
and start getting a sense of the man,
who he is and what he's about.
To the left are these Lichtenstein prints
all with a bull motif.
To me,
the bull didn't stand for bull market.
It actually meant bullshit.
And right behind his desk,
there is a very modern piece of art,
and it's a giant screw.
I think the screw was basically
a big... "screw you" to the world.
The office has been secured,
we have Bernie Madoff in custody,
and we just know
a lot of money is missing.
Our biggest problem was,
we don't know how it happened.
You have a bunch of employees
and you don't know
who's guilty, who's innocent.
We want to know
how many people were victimized.
How much money was stolen.
What was the scale of this.
And we want to know
who else was doing this with him.
Who are the players?
What is everybody's role?
Where's the money?
Who benefited from this crime?
Because there is no way
you can run a $50 billion Ponzi scheme
and not have anybody else know about it.
With Bernie Madoff,
it's very hard to figure out
where the truth ended and the lies began.
Look,
I'm not proud that I did what I did.
I spent a lot of hours
trying to analyze why I did what I did.
One of my problems was
I always wanted to please everybody.
When I started doing business,
people showed a lot of faith in me.
Now, I made them a lot of money,
and everybody in the industry thought
I was like, this terrific success story,
which I was.
Mr. Madoff, do you agree
to the first sentence on page seven?
That that is an accurate reflection
of your business?
"When Madoff began
a retail business in 1960..."
- Yes.
- "...he had about a dozen clients,
all of whom are family and friends"? Yes.
Well, let's go back to the beginning.
Bernie Madoff
is the son of Jewish immigrants.
His grandparents came over
from Russia and Poland.
He grows up in Laurelton, Queens,
just outside of New York City.
It's important to put
Madoff's early years
in the right historical context.
The United States, and most of the world,
had struggled through the most
horrendous Depression in the '30s.
And then the war in the '40s.
A decade and a half
of turbulence, of trauma.
So, by the '50s,
there was a hunger for quiet,
for peace, for normality.
And that hunger
became this conformist culture
of the American suburbs.
Most Americans are moving
into a new-moneyed middle-class.
They're promised an almost
unlimited capacity to consume.
And that was where Bernie's father
was able to move the family
to solidly middle-class Queens.
Bernie's parents
were named Ralph and Sylvia.
His mother was a homemaker.
His father worked various odd jobs.
Bernie is an average kid
who goes to public school.
He was kind of an awkward guy.
I heard one story in particular.
He couldn't get this girl
to come out and play with him, right?
He finally offered her 25 cents,
and she came out and played with him.
Bernie learned at a very young age
how to motivate people with money.
In high school, he was a lifeguard.
He sees himself
as not only a doer of good,
but a protector.
"I'm the go-to guy."
And he sold
lawn sprinkler equipment on the side.
He wanted to make money.
He was determined to be successful.
Bernie met his future wife, Ruth Alpern,
at a party in a friend's basement.
This was a time
of bobby socks and poodle skirts.
It was a high-school sweetheart romance.
Ruth was very smart.
When she graduated from high school,
she went to college,
which was unusual for women at that time.
She was beautiful and elegant.
She was obviously from more money.
Her father, Saul Alpern, ran a successful
accounting business in New York City,
so she was like a catch for him.
Ruth's father didn't think
that Bernie was good enough for her,
that she could have done better,
that this kid was just
never going to make much of himself.
Bernie's own dad
wanted him to be a lawyer,
and Bernie did well enough in school
to get into law school.
He spent one year there and then
just couldn't stick it any further.
Bernie Madoff
lived in the shadow of failure.
Bernie's family was engulfed in failure.
Over time,
his father had several businesses.
They all seemed to fail
for one reason or the other.
At one point,
a tax lien was put on the family home.
At another point, his mother had
to go to work at a local blood bank
to help the family get through.
This was not how the successful
suburban family was supposed to operate,
and it instilled in Madoff
an absolutely non-negotiable
requirement to succeed,
to not be a failure like his dad.
All of us have the possibility
of living better than we do right now.
What he wanted was the fast,
flamboyant success of Wall Street.
Wall Street,
the financial heart of the nation.
Nerve center
of American business and industry.
This was an era on Wall Street when "fast"
and "flamboyant" were the operative words.
This was the '60s, the go-go years.
High risk, high returns.
Young traders, young money managers
flooding into a post-war market.
Through the investment banking industry,
we can invest our savings,
vitalize our industrial plants,
and continue to give ourselves
the steadily rising level
of goods and services we all want.
We have the privilege
of underwriting America's future.
A few weeks
after Bernie and Ruth married,
he decided to plant his flag
in a tiny little desk
in Ruth's father's accounting firm.
He started off with $5,000,
and he registered Bernard L. Madoff
Investment Securities, BLMIS, in 1960.
And Ruth was involved in the business.
She helped with administrative work
and often dealt with the checkbook.
Bernie, from the beginning,
saw himself as a good guy
that was going to go on
and tackle the system
and beat them at their own game.
Bernie began trading
in over-the-counter stocks.
At that time, the stock market,
to most affluent Americans,
meant the New York Stock Exchange.
But there was a huge market,
unseen by most investors,
that didn't have a building,
called the over-the-counter market.
It was comprised of a bunch of dealers
and traders with a telephone,
that was it.
That market was made up
of this garbage bin, if you will,
of companies that
were not reputable enough,
or were too small,
or were frankly disreputable,
traded in what's called the pink sheets,
over the counter,
outside of the New York Stock Exchange.
And Bernie stood ready to buy or sell
in an increasingly large roster
of over-the-counter stocks.
And no one knew exactly what prices
were being charged for those stocks.
Back then,
there were no computers.
The Internet didn't exist.
There was no app for this.
This was literally, you pick up the phone,
you call Bobby in Boston,
you say, "I've got 100 shares."
He says he's gonna buy 100 shares.
You agree on the price over the phone,
and then you literally
mail them the certificates.
This was the Wild West of Wall Street.
The risks were huge.
The potential profits were huge.
You had to have nerves of steel,
ice water in your veins
to be able to navigate this market
day in and day out.
Bernie had those.
It was a very successful
business, and it grew quickly.
But on the side,
he began running this very small
investment advisory business.
Bernie thinks, "In addition
to the over-the-counter business,
I can manage some money for people
acting as a pure investment advisor."
And this is where
you manage people's money.
You make the investments for them
and try to earn them returns,
but you earn fees rather than commissions.
It's much more profitable
than doing commission-based business.
It turns out that
his father-in-law, Saul Alpern,
has a lot of clients that
he'd done accounting business for,
that he started to refer
to his son-in-law.
So, Bernie ended up
with this group of 20 to 24 people
wanting to do investments with him.
The form that Madoff's
early investment advisory business took
was a little unusual, and I might argue,
a little bit outside the lines.
Saul Alpern,
instead of just having Bernie set up
individual accounts for these clients,
he decided to make it easy
on his son-in-law.
He would pool all of their money
and then give that money
to Bernie to invest.
And then when Bernie
reported back the profits,
Saul would allocate the profits
among the investors in the pool.
A careful lawyer would have told
Saul Alpern, "You can't do this."
It was essentially
an unregulated mutual fund.
Beyond around 20 accounts,
you are required to register
with the government, with the SEC.
But Bernie Madoff doesn't register
as an investment advisor.
So, from the very beginning,
you can see the cellular division
that shaped the rest of Bernie's career.
He had a legitimate trading business
in the over-the-counter market.
And on the side, he had
a private investment advisory business
that not many people knew about,
that he wasn't really running according
to all the rules in the rule book.
He's completely driven
to make it on Wall Street
from nowhere, from nothing,
and to avoid the failure that he watched
befall his parents, and rise to the top.
In his unofficial
investment advisory business,
Bernie invested his clients' savings
in wildly speculative stocks.
He was making money, he was taking risks,
he was taking very big risks.
And then came May 1962.
Headline news is made
in a mighty avalanche of selling,
which sees stock prices dive
and more than $20 billion
in paper values lost.
The biggest drop since 1929.
Suddenly,
the market just dropped like a stone,
and the first securities to go up in smoke
are the speculative stocks that Bernie
has bought for these private clients.
They're wiped out almost immediately.
The customers,
theoretically, lost their money.
The total investment
that they had made was $30,000.
I felt guilty because of the fact
that they bought the stock
because I told them to buy the stock.
But, rather than admit
that he had taken ridiculous risks
with their money and lost it all,
he decides to cover them up.
He had to go
to his father-in-law, Saul Alpern,
and borrow $30,000,
and he paid them all back.
He uses the $30,000
to make them whole in their accounts,
and then he lies to them
about what he's done.
The outcome of his lies
was that he looked like a genius.
He looked like an incredible success,
a brilliant strategist that navigated
the worst week in the stock market
since 1929, without losing a nickel.
At that intersection,
he had to accept being a liar
or a failure.
And the choice he made was,
he could live with himself as a liar
much more easily than he could
live with himself as a failure.
The whole world is watching!
And then the 1970s came along.
The attacks slashed
at North Vietnam with renewed fury.
People have got to know whether or not
their president's a crook.
The recession is indeed upon us.
Gas lines of 10
and 12 blocks were everywhere.
The current slide in the economy
could get worse.
You had unemployment rising,
gas prices going up, skyrocketing.
You had inflation
really start to gain steam,
which, all of a sudden,
led to a recession.
Wall Street underwent some of
the most dramatic changes in its history.
It was like
a slow-motion stock market crash.
As Bernie moved into the 1970s,
he decided it was time to move
to an office building at 110 Wall Street,
and his legitimate trading business
became more and more conservative.
Bernie Madoff became
what's called a market maker.
When you buy a stock,
buying 100 shares
from somebody else over there
who's selling 100 shares,
that's not really what's happening.
What's really happening is,
there's a middleman who's actually
already bought those 100 shares.
What you're actually doing
is buying from the middleman,
and that's who Bernie Madoff was,
he was a wholesaler.
He would effectively warehouse stock,
and he would turn around and sell them
when somebody else wanted to buy them,
and he would make a commission,
a couple of cents for every sale.
That's what a market maker is.
Their obligation is to buy and sell shares
in good times or bad.
Bernie's business on
the market-making side grows so quickly
that he hires his brother Peter.
They were really visionaries,
pioneering computerized trading.
When the computer arrived,
it just radically changed
the way Wall Street worked.
It's the beginning of a new age,
launched by the tremendous force
of a revolution.
Computers are so profoundly important
that it altered the path of civilization.
The biggest players
moving into Wall Street,
they didn't want to trade 200 shares.
They wanted to trade 20,000 shares
on a moderate day.
In the '70s, buying and selling stocks
actually took a really long time.
It took, usually, a few weeks.
Wall Street needs people
who can do these trades fast.
That requires computerization,
and Bernie rides that wave.
Using computerized trading,
he could process a trade in three days.
It was just unheard of.
By being able
to speed up his process,
he was able to compete
for big institutional business
in his legitimate operation,
and it gave him a huge edge.
Bernie's brilliance
was that he consolidated
all the off-the-exchange markets,
the pink sheets, sort of small firms,
not reputable type firms,
into what you might call
one computer screen,
in what became the NASDAQ and the NASD.
He legitimized that business.
Today, Apple, Google, Microsoft,
are all NASDAQ companies.
His legitimate brokerage firm
was doing gangbusters,
which made it all the more bizarre
that he was running this very shadowy
investment advisory business
that no one knew about,
which was also growing.
People were hearing about Bernie
and how great he was.
He was going to the Catskills
in the summer,
raising money from friends
and other family members.
They thought he was going to be a star.
He was still getting referrals
from his wife's father, Saul Alpern,
and over the years,
Saul had hired two accountants,
Frank Avellino and Michael Bienes.
When Saul Alpern retires in the 1970s,
they rename the firm Avellino & Bienes,
or A and B.
Michael Bienes
and Frank Avellino
are a match made
somewhere outside of heaven.
Avellino and Bienes certainly knew
that Bernie Madoff was managing money
for Saul's family and friends.
But it was really when Saul retired
that Avellino and Bienes see dollar signs.
They're like kids in a candy store.
They began to construct
one of Bernie's first feeder funds,
collecting money
from all sorts of investors,
corporations, family offices,
and trust departments, individuals,
pooling their money into a fund
and then send the money to Bernie's
unofficial investment advisory business.
They push it to their clients,
to friends of their clients,
to relatives of their clients.
In exchange
for raising that money, they take a fee,
and they start bringing in
a river of money
to Bernie Madoff to manage.
Avellino and Bienes,
they weren't a hedge fund
or a Wall Street fund.
They weren't money managers at all.
They were accountants.
And they don't register
the investment business, which is illegal.
They took money from their clients,
and they put it with a secret manager
whose name couldn't be revealed,
without even telling the clients
what was happening with their money,
and that manager was Bernie Madoff.
By the end of the '70s,
Bernie began to experience
the American success dream.
Bernie and Ruth have two sons,
Andrew and Mark.
He was a family man,
he truly loved his family,
and he was able to move his family
into a very lovely suburb,
Roslyn, Long Island,
one of the wealthier communities
along the coast.
He even splurged as much
as to commute into Manhattan
by seaplane instead of the train
or the Long Island traffic
like everybody else.
We've moved from malaise
to hope, confidence, and opportunity.
Government that has high taxes,
excessive spending, and over-regulation
had thrown a wrench in the works
of our free markets.
Our economic program
for the next four years,
we're going to turn the bull loose.
As the '80s unfolded,
the bull market that began in America
very rapidly became a global phenomenon.
It was the dawn of globalization.
Everyone wanted to be in the stock market,
and Bernie's legitimate trading business
started making major money.
Wall Street in the '80s was crazy.
There was a lot of excitement,
and people were making money.
I heard there was a lot of cocaine,
a lot of drinking,
and a lot of wining and dining.
Every firm was hiring.
I started working for Bernie Madoff
in July of '85.
Bernie had an incredible
mystique about him.
He was revered on Wall Street,
he was on
the Board of Governors of NASDAQ.
He was always jetting off to London
and having meetings.
Bernie would walk into the trading room
and he would buy things,
and the market would go up.
He'd sell things,
and the market would go down,
and he developed a reputation
as being almost all-knowing.
Bernie's legitimate firm
was doing a spectacular business.
He and Ruth move into
a lovely penthouse apartment in Manhattan.
He bought a summer place in Montauk.
He joined a country club.
He bought a boat.
Now Bernie could certainly
look his father-in-law in the eye
and say,
"See, I told you I'd be a success."
You know, I started
my business with literally $500.
I had gone from nothing.
I was this little kid from Queens.
Didn't go to Harvard and so on.
All of a sudden, you know,
by '87, I was very successful.
I was a rich guy.
We were making a lot of money.
We were growing,
we were hiring more traders.
Bernie wanted a more prestigious building,
so we move sometime in the summer of 1987
to 885 3rd Avenue,
to the Lipstick Building.
It's a very unusual building.
It kind of looked like
a lipstick container.
Bernie's move uptown
to this iconic skyscraper
would impress investors.
It would impress employees.
It would even impress regulators.
So this was part of the classy new image
that Bernie was building for himself.
The offices were absolutely
stunning when we first moved in.
Sophisticated, high-tech looking.
It was all windows.
It was all bright lights.
When I started working
for Bernie Madoff in 1987,
it absolutely was a family atmosphere,
because they were
very family-oriented people.
It was a nice atmosphere,
it was very comfortable.
It was very safe.
Almost everybody that worked there
were relatives,
they were friends of relatives.
Bernie's kids, Mark and Andy,
were working there.
Mark and Andy were all-American.
Anybody would have been proud
to have them as children.
I liked his brother, Peter,
he was the compliance officer.
Ruth had an office at the firm.
She was a warm person.
She was a really great mother.
I could see Bernie and Ruth
loved their children very much.
She adored Bernie, and I think
that she was the person he confided in.
Bernie had said once to me,
"Ruth is a great partner."
And Bernie was very generous.
He gave a lot of money to charity.
He paid for the airfare for the honeymoons
for all of their employees
when they got married.
He was on the board of Yeshiva.
He worked with the Special Olympics.
There was a time
he paid for a woman's heart surgery.
The Madoffs took everyone
to Montauk for a weekend in the summer
with all their family
and put them up in hotels.
We'd play volleyball on the beach.
We'd have a real party, a lot of drinking.
We'd dance, and it was fun.
But there was another side of Bernie.
He was meticulous about his appearance,
about his surrounding.
Everything had to be pristine.
If he looked down the trading desk
and he saw a computer monitor
that was a little askew,
he'd have to go and fix it
and make it in line.
Even if you're sitting at the desk,
using it,
he would fix it while he walked by.
You couldn't have silver picture frames
or anything that wasn't black and gray.
You couldn't have plants on your desk.
Everything had to be the same.
As time went on,
he became more intense.
There were definitely days
where you could feel the tension,
and you would just want
to stay away from him.
You never knew whether
he was going to bite your head off.
Son of a bitch.
Will you shut up?!
I remember one time Bernie was
just screaming at his brother, Peter.
Get the fuck out of my office!
I got such a stomachache.
I-I just got up and said, "Please stop."
And Peter would back off,
because Bernie was a bully.
That was another side of him.
I think Peter was probably
a little bit afraid of Bernie,
the way everybody was
a little afraid of Bernie.
He wanted to control you,
and it's because he disapproved of you
that he could control you.
Bernie could flip the switch in a second.
I saw times when he could be
so kind and so caring,
and times where he could be so brutal.
- What the hell do you think you're doing?
- Stop you dead in your tracks.
What the hell
do you think you're doing?!
I think there were
a lot of people in Bernie.
He was a lot of things.
I figured he was under a lot of pressure.
This morning,
the stock market has been in a free fall.
Close this deal, choose...!
In trading rooms
on Wall Street, there was panic.
Sell orders flooded in
from big institutional investors,
from private investors, from mutual funds,
worried about inflation,
rising interest rates,
a declining dollar,
and huge budget and trade deficits.
Monday, October 19, 1987,
was one of the scariest days
I've ever experienced in my life.
The moment I got to work,
and the market opened at 9:30,
until the moment it closed, was bedlam.
Within two hours
of the opening bell,
the Dow Jones Industrial Average
plunged 200 points.
The activity is incredible.
It's a frenzy, and I would say
some fear and panic going on.
During the crash, every firm
on Wall Street was trying to dump stock.
We had so many phones ringing,
we were inundated with orders.
People are screaming,
we're writing tickets.
It just felt like a war zone.
I remember my uncle called me,
and I picked up the phone, and he says,
"Three guys walk into a bar..."
I'm like, "Sam, I can't talk to you now,
goodbye," and I hung up.
We had to maintain an orderly market.
A market maker is someone
who was willing to be the buyer
and the seller of last resort.
So we were the only ones buying.
A lot of firms were not
picking up their phones,
and I remember
very distinctly Bernie yelling,
"Pick up the phone. We're not gonna be
the firm that doesn't pick up."
So we're picking up the phone
and we're buying a lot of stock.
And all I'm doing is pressing buttons
on the computer, down, down,
taking my market down.
It never seemed like
it was going to bottom.
Bedlam reigned at New York
Stock Exchange as frantic traders dealt
with more than half a billion
sell orders flooding Wall Street.
No one has
one particular reason.
There's a kind of dark,
gloomy psychology at work here.
Definitely panic selling.
Panic, complete panic.
Everyone's going crazy.
For brokers and traders,
it was an unmitigated disaster.
Bloodbath.
The sudden collapse
brought back memories
of a fateful October day 58 years ago,
the crash of 1929 that heralded
the beginning of the Great Depression.
It was scary
and it was overwhelming.
It was devastating.
But Bernie never seemed to sweat anything.
He was actually
pretty cool and calm about it.
It was one of those things
that really helped us to revere him,
because this was his money.
His name is the one on the door,
Bernard L. Madoff Investment Securities,
and we were one of the few firms
that honored our commitments.
We stayed open.
Bernie Madoff kept buying,
even as all of the other
market makers on Wall Street,
who had an obligation to buy the stocks,
even when they were falling,
even if they're going to lose money,
that is the obligation of a market maker.
They weren't picking up the phone.
You couldn't get them on the line.
You couldn't make that transaction.
But you could with Bernie Madoff.
The mood on Wall Street
is one of shock and disbelief.
For five years,
the great Bull Market seemed unstoppable.
Confidence had been so high.
Then came the month of October,
and then came Black Monday.
It's not clear
how much money Bernie's
legitimate business lost in the '87 crash,
but the fact that
Bernie was at the cutting edge
of both communications technology
and trading technology allowed him
to keep the Madoff firm open,
functioning, and serving customers.
This won him recognition from the SEC,
from the New York Stock Exchange.
He testified in Congressional hearings,
he helped rewrite the rule book
to keep the market functioning
through a crisis like Black Monday.
People started
talking about Bernie Madoff
as a man of his word,
this trustworthy, loyal guy,
and it crystallized his reputation.
He began serving
on industry boards.
He began being invited
to regulatory roundtables,
and he was elected to three terms
as the chairman of the board of NASDAQ.
And in the early '90s he was a trusted,
respected Wall Street statesman.
Bernie fed on being "the guy."
He liked that pedestal
that people put him on,
and I think as he got more and more of it,
he got more in love with that reverence.
Read my lips,
no new taxes.
Booster, ignition and liftoff.
People are working harder than ever,
spending less time with their children,
working nights and weekends.
A look
at business news this morning.
A rally in technology stocks
helped push the blue chips
deeper into record territory.
I started at Bernie Madoff's firm.
I believe it was 1991.
Bernie Madoff had
a very excellent reputation.
"Bernie's a great guy.
He's very involved in the community."
"He's generous," you know,
"You'd do well working for him."
It was a very bullish time in the market.
This is when
the technology age started exploding.
The Internet came into being.
You had more people
getting involved in the stock market.
Dow Jones has a website.
Real-time numbers,
just as traders see them on Wall Street.
So we got more business,
we had more customer flow.
It was a great time to be in stocks
because they became
a lot more efficient through technology,
and profits started soaring.
Madoff was doing somewhere
between 5 and 7% of the total volume
in the New York Stock Exchange,
which is huge
for a relatively small company.
I don't envision it changing anytime soon
unless the market really cools down.
Bernie's growing
a legitimate market-making business,
and at the same time,
he's also very quietly
been growing his secret
investment advisory business,
which he keeps under the table,
which he keeps separate
from the market-making business.
Initially, returns for investors were 11%,
but he was actually giving
as high as 15 to 19%.
He is always consistently profitable.
What had begun in the mid-'60s
as this little, kind of,
bridge club investment advisory business
has grown and grown and grown.
And Avellino and Bienes continued
funneling a boatload of money
into Bernie Madoff's hands.
Avellino and Bienes
operate their feeder fund
very under the radar, very quiet,
never putting anything in writing,
until one of their subcontractors,
who was setting up pooled investments
and attracting friends and family to it,
breaks the first commandment
of Avellino and Bienes
and puts something in writing.
In 1992,
a brochure was brought to the attention
of the Securities and Exchange Commission.
The SEC is a regulatory agency whose
main mission is to protect investors.
And basically on the brochure it said,
"We offer 100% safe investments."
"We haven't had a losing transaction
in over 20 years,
and they're basically riskless trading."
The SEC looks at the brochure
and immediately realizes
there are significant red flags.
You cannot have
100% safe trading investment.
No such thing as riskless trading.
And their investigation
led to these two guys,
Frank Avellino and Michael Bienes.
So Avellino and Bienes came voluntarily
to the SEC with their lawyer.
They wanted
to take the testimony
of Avellino and Bienes together.
And I'm sitting in the middle,
and I think Bienes was to my left,
Avellino was to my right.
And they get to the point
where they say to them,
"How much money
did you raise for investment?"
I think the SEC was expecting something
like five or 10 million or something,
and they look at each other,
and one of them says, "I think it's about
$444 million."
And I thought the SEC staff
were going to fall out of their chairs.
$444 million from small investors,
that's a lot of money.
This is the early '90s.
That's a lot of money.
They stopped the testimony.
They ran up front to talk
to the head of the office of the SEC,
New York office, and...
"My God! What's going on here?"
They were apoplectic.
The head of the office
I thought was going to have a coronary.
The SEC did suspect
that there was fraud being perpetrated,
but they suspected Avellino and Bienes
were the ones perpetrating the scheme.
And so then Frank Avellino
and Michael Bienes explained that
all the trading decisions had been done
essentially by Bernie Madoff.
They were basically saying,
"Don't look at us, look at Bernie Madoff."
So the SEC seeks documents
from Bernie Madoff.
The SEC
comes sniffing around,
and Madoff gets scared because
it was all a fraud.
Madoff never did any investing
for his investment advisory business.
It involved simply taking people's money
and telling them he was going
to invest it, and he never did.
They were fictitious trades.
It was a Ponzi.
Here, in 1919,
is Charles Ponzi.
Ponzi's proved his boasts he can make
50% profit on investments in 90 days,
and wise men follow him.
When government proves Ponzi a swindler...
A classic definition of a Ponzi
is taking money from Peter
and giving it to Paul.
It's telling Peter,
"I'm gonna take your money,
I'm gonna do something, invest it,
and I'm going to give you a return,"
but I take your money
and I just give it to Paul.
And this process
just goes on and on and on,
because I continually need
new investors to pay back old investors,
and there's no investing,
no business whatsoever going on.
So when the SEC came in, in 1992,
to investigate Avellino and Bienes,
Madoff has to prove to them
that the trades were real.
So, he turns to Frank Dipascali
to create fake trading documents
using historical information
to give to the SEC.
Frank Dipascali was
Madoff's right-hand man.
He'd been with him for many years.
He handled the feeder funds,
and handled a lot of money.
Frank was a real guy's guy,
and he was incredibly bright.
You could cast Frank Dipascali
in a mob movie quite easily.
He was a working-class guy,
and he was incredibly loyal.
Dipascali rises to the occasion
in spectacular fashion.
He starts creating the fake paper trail.
This has to be legitimate-looking
account records, trade logs,
account statements,
and this can't just be paper
that'll fool Aunt Myrtle,
this has to be paper
that will fool the SEC.
When the SEC came calling,
Bernie Madoff showed them
the fake documents.
They believed that they were real.
I don't know how carefully
they scrutinized those documents.
I think a lot of it goes into the mindset.
I mean, what are the chances
that Bernie Madoff,
or any of these guys, to such a degree,
is just faking the whole thing?
And in 1992, the SEC closed the case
without any action whatsoever,
or any real investigation
of Bernie Madoff.
But what they did was, instead,
they forced Avellino and Bienes
to give up their business,
because they were running, essentially,
an unregistered investment firm.
The SEC made the decision that,
"This is structured illegally."
"You must take all the money
out of Bernie's shop
and return it
to all of those individuals."
That's $440 million,
and Bernie doesn't have it
because it's all a fraud.
So he turns, at that point,
to three of his biggest,
longest-standing investors.
Jeffry Picower,
Carl Shapiro, and Norman Levy
were foundational individual investors
in Bernie's investment advisory business.
Over the years, he made them
very, very happy with his results.
So now Bernie persuades them
to help him out.
Whether they knew what he was doing,
or whether they were
truly innocent of his intentions,
they came up with the money,
and so Bernie was able to write checks
for all of Avellino and Bienes' customers.
And guess what happened?
None of his customers
wanted their money back.
They loved what Bernie was doing.
When the SEC closed down
Avellino and Bienes,
many of their clients went
directly to Madoff for investment.
All of a sudden,
Bernie said to me,
"We're gonna be very busy."
He said, "Something happened,
we'll be getting in a lot of calls,
and people are gonna be investing."
A lot of the people were senior citizens,
a lot of them from Florida.
These widows, they'd be like,
"I was told to call."
"I was told to call, and I have
$15,000 that I want to invest."
This went on for days and days and days.
When we closed
the Avellino and Bienes accounts,
I started getting, you know,
a lot of pressure from these people
who were relying upon
that money to live on.
The SEC had told me at the time,
"Look, you want to still do business
with these people, that's fine."
"There's nothing wrong with you
doing business with these people."
Bernie Madoff still
did not register as an investment advisor.
The SEC missed it, and,
unfortunately, they missed
one of the biggest frauds in history.
I had worked very hard
running a natural foods business.
After 20 years,
I decided to sell it and retire.
And I sold it for a million dollars.
So I ended up investing maybe $100,000
with Avellino and Bienes,
and when the SEC busted them,
that's when I first learned that
Avellino and Bienes invested in Madoff.
And when the SEC looked into Madoff,
they found no evidence of fraud,
so I thought there's an opportunity
to invest directly in Madoff.
He promised steady returns,
averaging 9% a year.
It was so attractive.
It wasn't promising the moon,
it was just steady.
I did due diligence.
I would follow stories saying he was
leading the pack in electronic trading.
He was someone who
was a mover and shaker.
The fact that the SEC found
no evidence of wrongdoing was, to me,
putting a stamp of approval on Madoff,
so I sent a wire for $900,000 to Madoff.
All of a sudden,
it's no longer Avellino and Bienes
pooling the money
and handing it to Bernie.
It's thousands of people handing money
to Bernie's unregistered
investment advisory business.
His name got around
largely by word of mouth.
You get an introduction
at the country club,
you get an introduction
on this philanthropy board.
He's becoming better known
in the world of elite money managers.
And they're all saying
the same thing.
"You gotta put your money with Bernie."
"We don't know how he's doing it,
but it's magic."
Madoff's
unregistered investment business
attracts endowments from
very well-known Jewish universities,
and philanthropists like Elie Wiesel,
a Holocaust survivor,
and of course, some very wealthy families,
among them the Katz family
and the Wilpon family,
who are the owners of the New York Mets.
And this is
when the fundamental nature
of the Ponzi scheme has to change.
It's a whole different ballgame.
He was able to fool the SEC.
He had just survived an investigation
without a scratch,
and so he was emboldened
and felt he was untouchable.
The sky was the limit.
The legitimate
trading business gives Madoff
the credibility of being successful,
and he's now got about 5,000 clients
in the investment advisory business.
So he needs to scale up the Ponzi scheme.
He needs a lot more space
to keep the Ponzi separate from
the legitimate side of the business.
So he subleases some space
on the 17th floor
of the Lipstick Building.
A little warren of offices
where Frank Dipascali is king.
Messy, cluttered, nothing like
the elegant, stately offices upstairs.
This is where the Ponzi scheme will grow
exponentially in the years ahead
into a fraud on steroids.
my mother and I
were at Palm Beach Country Club.
It was a beautiful day. We played golf.
And we went upstairs
to the balcony to eat lunch.
We were seated,
and there was only one other couple there,
and it was Bernie Madoff
and his wife, Ruth.
And my mother immediately noticed.
"Oh, it's Bernie."
She went up and started talking,
"Hi," and introduced me.
"This is Jeff, my son.
He has an account with you."
And I shook Mr. Madoff's hand.
And I was, like, in awe.
He was the god of Palm Beach.
He was the god of finance.
We went back to the table,
and my mother, in her fashion, said,
"Oh, what a wonderful man."
But then she said,
"There's just one thing about him though."
"He never looks you in the eye."
My mother got it before anybody.
She just didn't put it together.
Because this god was a demon, a devil.
Bernie Madoff has been arrested.
He's the founder of
Bernie Madoff Investment Securities.
He's 70 years old.
He is a fixture on Wall Street.
Bernie Madoff, 70 years old,
arrested by the FBI.
This former iconic figure on Wall Street
has allegedly, but by his own admission,
destroyed many lives, charities,
and reputations on Wall Street
and around the world.
A walk of shame, and shoving.
Don't push me.
People think they know this story.
They think it's a story about one man,
but when you pull back the curtain,
it's actually about so much more.
Bernie Madoff
ran the biggest criminal enterprise
in the history of Wall Street.
He was a financial sociopath,
a serial financial killer.
He was kind of like an uncle figure to me.
He was someone
who I really liked and I trusted,
and then there's this monster
that's living this lie.
Trust. Betrayal. Pure evil.
A hundred years from now,
people will remember this story.
We're talking about $64 billion.
When you see that many zeros,
it's mind-boggling.
You had to step
through the looking glass
into this alternate reality
where literally nothing was real.
It was all fake.
The money went poof.
Gone.
It's one thing to lose your life savings.
But when you lose
our house too, it's terrible.
How could he fool
so many people for so long?
What happened was so avoidable,
and so many people
enabled it to happen because of greed.
It's about the big banks.
It's about the regulatory agencies.
It's about this whole ecosystem
that completely and utterly failed.
You're going to put billions
into something, you check everything.
Even if God sends you a résumé...
check the references.
Mr. Madoff,
by your own admission,
you lied for a living.
- Isn't that true? You lied for a living.
- Yeah. Yeah.
Nobody can figure out,
"Why did Bernie Madoff do this?"
He had a very successful business
that was the envy
of everybody on Wall Street.
Everybody says, "Why would Bernie Madoff
commit the largest fraud in history?"
Nothing in this industry
is what it looks like.
That's why the industry runs,
because...
You also have to understand one thing.
The one thing every one of them was,
which is everybody in the industry,
is they're greedy.
We begin our coverage tonight
of what's been called
the worst financial crisis
in modern times.
Certainly, the largest financial disaster
in decades in this country.
In 2008, the economy was being decimated.
This was Armageddon.
Wall Street in crisis mode this morning.
Reeling because
of these bad real estate loans.
Mortgage brokers
had been selling mortgages
to people that couldn't afford them.
Wall Street knew a lot of them were shit,
packaged them
and sold them to their clients,
whereupon they blew up.
Foreclosures across
the country are up a staggering 87%.
Property values nationwide this year
could drop more than
half a trillion dollars.
It's mind-boggling.
Everybody's losing their homes.
The stock market is just cratering.
Every day is worse than the day before.
The Dow down nearly 450 points.
We just hit 730 or something.
That's... We've never seen that.
Traders in Tokyo
worried about a spreading US recession.
Every bank was falling to pieces.
Lehman Brothers says
it will file for Chapter 11 bankruptcy.
The financial crisis
continues to cause panic.
We are faced with the prospect
of a global meltdown.
This was this
once-in-a-century, cataclysmic event
that was causing carnage
throughout the system,
and then there was Bernie.
Now to what turns out to be
the biggest Ponzi scheme
in the history of Wall Street.
Fallout from allegations
against Bernie Madoff
in the realization that as much as
$50 billion investors thought they had,
is simply gone.
How do you feel?
Bernie Madoff was arrested
on Thursday, December 11, 2008.
Friday morning,
FBI agents show up to Madoff's offices
in the very upscale Lipstick Building
on the east side of New York.
We walked
into the lobby of the Lipstick Building,
and it resembled the scene
from the movie Frankenstein,
where you have the angry villagers
with their pitchforks and the torches
wanting to get upstairs
to kill the monster.
So FBI agents come up
with their raid jackets on,
and I'm the first agent through the door.
All the employees
had been corralled on the 19th floor.
It's just total chaos.
There's employees crying,
trying to figure out what's going on.
The FBI was the lead
criminal investigation agency,
but we also had IRS,
Department of Labor, accountants,
the agency that oversees
the brokerage industry, SIPC.
They start disconnecting people's access.
I was a little surprised because
it looked like a legitimate business.
Computers everywhere,
clocks showing different time zones...
It looked like a legit trading business.
As we're conducting the search,
I walk into Bernie's office
and start getting a sense of the man,
who he is and what he's about.
To the left are these Lichtenstein prints
all with a bull motif.
To me,
the bull didn't stand for bull market.
It actually meant bullshit.
And right behind his desk,
there is a very modern piece of art,
and it's a giant screw.
I think the screw was basically
a big... "screw you" to the world.
The office has been secured,
we have Bernie Madoff in custody,
and we just know
a lot of money is missing.
Our biggest problem was,
we don't know how it happened.
You have a bunch of employees
and you don't know
who's guilty, who's innocent.
We want to know
how many people were victimized.
How much money was stolen.
What was the scale of this.
And we want to know
who else was doing this with him.
Who are the players?
What is everybody's role?
Where's the money?
Who benefited from this crime?
Because there is no way
you can run a $50 billion Ponzi scheme
and not have anybody else know about it.
With Bernie Madoff,
it's very hard to figure out
where the truth ended and the lies began.
Look,
I'm not proud that I did what I did.
I spent a lot of hours
trying to analyze why I did what I did.
One of my problems was
I always wanted to please everybody.
When I started doing business,
people showed a lot of faith in me.
Now, I made them a lot of money,
and everybody in the industry thought
I was like, this terrific success story,
which I was.
Mr. Madoff, do you agree
to the first sentence on page seven?
That that is an accurate reflection
of your business?
"When Madoff began
a retail business in 1960..."
- Yes.
- "...he had about a dozen clients,
all of whom are family and friends"? Yes.
Well, let's go back to the beginning.
Bernie Madoff
is the son of Jewish immigrants.
His grandparents came over
from Russia and Poland.
He grows up in Laurelton, Queens,
just outside of New York City.
It's important to put
Madoff's early years
in the right historical context.
The United States, and most of the world,
had struggled through the most
horrendous Depression in the '30s.
And then the war in the '40s.
A decade and a half
of turbulence, of trauma.
So, by the '50s,
there was a hunger for quiet,
for peace, for normality.
And that hunger
became this conformist culture
of the American suburbs.
Most Americans are moving
into a new-moneyed middle-class.
They're promised an almost
unlimited capacity to consume.
And that was where Bernie's father
was able to move the family
to solidly middle-class Queens.
Bernie's parents
were named Ralph and Sylvia.
His mother was a homemaker.
His father worked various odd jobs.
Bernie is an average kid
who goes to public school.
He was kind of an awkward guy.
I heard one story in particular.
He couldn't get this girl
to come out and play with him, right?
He finally offered her 25 cents,
and she came out and played with him.
Bernie learned at a very young age
how to motivate people with money.
In high school, he was a lifeguard.
He sees himself
as not only a doer of good,
but a protector.
"I'm the go-to guy."
And he sold
lawn sprinkler equipment on the side.
He wanted to make money.
He was determined to be successful.
Bernie met his future wife, Ruth Alpern,
at a party in a friend's basement.
This was a time
of bobby socks and poodle skirts.
It was a high-school sweetheart romance.
Ruth was very smart.
When she graduated from high school,
she went to college,
which was unusual for women at that time.
She was beautiful and elegant.
She was obviously from more money.
Her father, Saul Alpern, ran a successful
accounting business in New York City,
so she was like a catch for him.
Ruth's father didn't think
that Bernie was good enough for her,
that she could have done better,
that this kid was just
never going to make much of himself.
Bernie's own dad
wanted him to be a lawyer,
and Bernie did well enough in school
to get into law school.
He spent one year there and then
just couldn't stick it any further.
Bernie Madoff
lived in the shadow of failure.
Bernie's family was engulfed in failure.
Over time,
his father had several businesses.
They all seemed to fail
for one reason or the other.
At one point,
a tax lien was put on the family home.
At another point, his mother had
to go to work at a local blood bank
to help the family get through.
This was not how the successful
suburban family was supposed to operate,
and it instilled in Madoff
an absolutely non-negotiable
requirement to succeed,
to not be a failure like his dad.
All of us have the possibility
of living better than we do right now.
What he wanted was the fast,
flamboyant success of Wall Street.
Wall Street,
the financial heart of the nation.
Nerve center
of American business and industry.
This was an era on Wall Street when "fast"
and "flamboyant" were the operative words.
This was the '60s, the go-go years.
High risk, high returns.
Young traders, young money managers
flooding into a post-war market.
Through the investment banking industry,
we can invest our savings,
vitalize our industrial plants,
and continue to give ourselves
the steadily rising level
of goods and services we all want.
We have the privilege
of underwriting America's future.
A few weeks
after Bernie and Ruth married,
he decided to plant his flag
in a tiny little desk
in Ruth's father's accounting firm.
He started off with $5,000,
and he registered Bernard L. Madoff
Investment Securities, BLMIS, in 1960.
And Ruth was involved in the business.
She helped with administrative work
and often dealt with the checkbook.
Bernie, from the beginning,
saw himself as a good guy
that was going to go on
and tackle the system
and beat them at their own game.
Bernie began trading
in over-the-counter stocks.
At that time, the stock market,
to most affluent Americans,
meant the New York Stock Exchange.
But there was a huge market,
unseen by most investors,
that didn't have a building,
called the over-the-counter market.
It was comprised of a bunch of dealers
and traders with a telephone,
that was it.
That market was made up
of this garbage bin, if you will,
of companies that
were not reputable enough,
or were too small,
or were frankly disreputable,
traded in what's called the pink sheets,
over the counter,
outside of the New York Stock Exchange.
And Bernie stood ready to buy or sell
in an increasingly large roster
of over-the-counter stocks.
And no one knew exactly what prices
were being charged for those stocks.
Back then,
there were no computers.
The Internet didn't exist.
There was no app for this.
This was literally, you pick up the phone,
you call Bobby in Boston,
you say, "I've got 100 shares."
He says he's gonna buy 100 shares.
You agree on the price over the phone,
and then you literally
mail them the certificates.
This was the Wild West of Wall Street.
The risks were huge.
The potential profits were huge.
You had to have nerves of steel,
ice water in your veins
to be able to navigate this market
day in and day out.
Bernie had those.
It was a very successful
business, and it grew quickly.
But on the side,
he began running this very small
investment advisory business.
Bernie thinks, "In addition
to the over-the-counter business,
I can manage some money for people
acting as a pure investment advisor."
And this is where
you manage people's money.
You make the investments for them
and try to earn them returns,
but you earn fees rather than commissions.
It's much more profitable
than doing commission-based business.
It turns out that
his father-in-law, Saul Alpern,
has a lot of clients that
he'd done accounting business for,
that he started to refer
to his son-in-law.
So, Bernie ended up
with this group of 20 to 24 people
wanting to do investments with him.
The form that Madoff's
early investment advisory business took
was a little unusual, and I might argue,
a little bit outside the lines.
Saul Alpern,
instead of just having Bernie set up
individual accounts for these clients,
he decided to make it easy
on his son-in-law.
He would pool all of their money
and then give that money
to Bernie to invest.
And then when Bernie
reported back the profits,
Saul would allocate the profits
among the investors in the pool.
A careful lawyer would have told
Saul Alpern, "You can't do this."
It was essentially
an unregulated mutual fund.
Beyond around 20 accounts,
you are required to register
with the government, with the SEC.
But Bernie Madoff doesn't register
as an investment advisor.
So, from the very beginning,
you can see the cellular division
that shaped the rest of Bernie's career.
He had a legitimate trading business
in the over-the-counter market.
And on the side, he had
a private investment advisory business
that not many people knew about,
that he wasn't really running according
to all the rules in the rule book.
He's completely driven
to make it on Wall Street
from nowhere, from nothing,
and to avoid the failure that he watched
befall his parents, and rise to the top.
In his unofficial
investment advisory business,
Bernie invested his clients' savings
in wildly speculative stocks.
He was making money, he was taking risks,
he was taking very big risks.
And then came May 1962.
Headline news is made
in a mighty avalanche of selling,
which sees stock prices dive
and more than $20 billion
in paper values lost.
The biggest drop since 1929.
Suddenly,
the market just dropped like a stone,
and the first securities to go up in smoke
are the speculative stocks that Bernie
has bought for these private clients.
They're wiped out almost immediately.
The customers,
theoretically, lost their money.
The total investment
that they had made was $30,000.
I felt guilty because of the fact
that they bought the stock
because I told them to buy the stock.
But, rather than admit
that he had taken ridiculous risks
with their money and lost it all,
he decides to cover them up.
He had to go
to his father-in-law, Saul Alpern,
and borrow $30,000,
and he paid them all back.
He uses the $30,000
to make them whole in their accounts,
and then he lies to them
about what he's done.
The outcome of his lies
was that he looked like a genius.
He looked like an incredible success,
a brilliant strategist that navigated
the worst week in the stock market
since 1929, without losing a nickel.
At that intersection,
he had to accept being a liar
or a failure.
And the choice he made was,
he could live with himself as a liar
much more easily than he could
live with himself as a failure.
The whole world is watching!
And then the 1970s came along.
The attacks slashed
at North Vietnam with renewed fury.
People have got to know whether or not
their president's a crook.
The recession is indeed upon us.
Gas lines of 10
and 12 blocks were everywhere.
The current slide in the economy
could get worse.
You had unemployment rising,
gas prices going up, skyrocketing.
You had inflation
really start to gain steam,
which, all of a sudden,
led to a recession.
Wall Street underwent some of
the most dramatic changes in its history.
It was like
a slow-motion stock market crash.
As Bernie moved into the 1970s,
he decided it was time to move
to an office building at 110 Wall Street,
and his legitimate trading business
became more and more conservative.
Bernie Madoff became
what's called a market maker.
When you buy a stock,
buying 100 shares
from somebody else over there
who's selling 100 shares,
that's not really what's happening.
What's really happening is,
there's a middleman who's actually
already bought those 100 shares.
What you're actually doing
is buying from the middleman,
and that's who Bernie Madoff was,
he was a wholesaler.
He would effectively warehouse stock,
and he would turn around and sell them
when somebody else wanted to buy them,
and he would make a commission,
a couple of cents for every sale.
That's what a market maker is.
Their obligation is to buy and sell shares
in good times or bad.
Bernie's business on
the market-making side grows so quickly
that he hires his brother Peter.
They were really visionaries,
pioneering computerized trading.
When the computer arrived,
it just radically changed
the way Wall Street worked.
It's the beginning of a new age,
launched by the tremendous force
of a revolution.
Computers are so profoundly important
that it altered the path of civilization.
The biggest players
moving into Wall Street,
they didn't want to trade 200 shares.
They wanted to trade 20,000 shares
on a moderate day.
In the '70s, buying and selling stocks
actually took a really long time.
It took, usually, a few weeks.
Wall Street needs people
who can do these trades fast.
That requires computerization,
and Bernie rides that wave.
Using computerized trading,
he could process a trade in three days.
It was just unheard of.
By being able
to speed up his process,
he was able to compete
for big institutional business
in his legitimate operation,
and it gave him a huge edge.
Bernie's brilliance
was that he consolidated
all the off-the-exchange markets,
the pink sheets, sort of small firms,
not reputable type firms,
into what you might call
one computer screen,
in what became the NASDAQ and the NASD.
He legitimized that business.
Today, Apple, Google, Microsoft,
are all NASDAQ companies.
His legitimate brokerage firm
was doing gangbusters,
which made it all the more bizarre
that he was running this very shadowy
investment advisory business
that no one knew about,
which was also growing.
People were hearing about Bernie
and how great he was.
He was going to the Catskills
in the summer,
raising money from friends
and other family members.
They thought he was going to be a star.
He was still getting referrals
from his wife's father, Saul Alpern,
and over the years,
Saul had hired two accountants,
Frank Avellino and Michael Bienes.
When Saul Alpern retires in the 1970s,
they rename the firm Avellino & Bienes,
or A and B.
Michael Bienes
and Frank Avellino
are a match made
somewhere outside of heaven.
Avellino and Bienes certainly knew
that Bernie Madoff was managing money
for Saul's family and friends.
But it was really when Saul retired
that Avellino and Bienes see dollar signs.
They're like kids in a candy store.
They began to construct
one of Bernie's first feeder funds,
collecting money
from all sorts of investors,
corporations, family offices,
and trust departments, individuals,
pooling their money into a fund
and then send the money to Bernie's
unofficial investment advisory business.
They push it to their clients,
to friends of their clients,
to relatives of their clients.
In exchange
for raising that money, they take a fee,
and they start bringing in
a river of money
to Bernie Madoff to manage.
Avellino and Bienes,
they weren't a hedge fund
or a Wall Street fund.
They weren't money managers at all.
They were accountants.
And they don't register
the investment business, which is illegal.
They took money from their clients,
and they put it with a secret manager
whose name couldn't be revealed,
without even telling the clients
what was happening with their money,
and that manager was Bernie Madoff.
By the end of the '70s,
Bernie began to experience
the American success dream.
Bernie and Ruth have two sons,
Andrew and Mark.
He was a family man,
he truly loved his family,
and he was able to move his family
into a very lovely suburb,
Roslyn, Long Island,
one of the wealthier communities
along the coast.
He even splurged as much
as to commute into Manhattan
by seaplane instead of the train
or the Long Island traffic
like everybody else.
We've moved from malaise
to hope, confidence, and opportunity.
Government that has high taxes,
excessive spending, and over-regulation
had thrown a wrench in the works
of our free markets.
Our economic program
for the next four years,
we're going to turn the bull loose.
As the '80s unfolded,
the bull market that began in America
very rapidly became a global phenomenon.
It was the dawn of globalization.
Everyone wanted to be in the stock market,
and Bernie's legitimate trading business
started making major money.
Wall Street in the '80s was crazy.
There was a lot of excitement,
and people were making money.
I heard there was a lot of cocaine,
a lot of drinking,
and a lot of wining and dining.
Every firm was hiring.
I started working for Bernie Madoff
in July of '85.
Bernie had an incredible
mystique about him.
He was revered on Wall Street,
he was on
the Board of Governors of NASDAQ.
He was always jetting off to London
and having meetings.
Bernie would walk into the trading room
and he would buy things,
and the market would go up.
He'd sell things,
and the market would go down,
and he developed a reputation
as being almost all-knowing.
Bernie's legitimate firm
was doing a spectacular business.
He and Ruth move into
a lovely penthouse apartment in Manhattan.
He bought a summer place in Montauk.
He joined a country club.
He bought a boat.
Now Bernie could certainly
look his father-in-law in the eye
and say,
"See, I told you I'd be a success."
You know, I started
my business with literally $500.
I had gone from nothing.
I was this little kid from Queens.
Didn't go to Harvard and so on.
All of a sudden, you know,
by '87, I was very successful.
I was a rich guy.
We were making a lot of money.
We were growing,
we were hiring more traders.
Bernie wanted a more prestigious building,
so we move sometime in the summer of 1987
to 885 3rd Avenue,
to the Lipstick Building.
It's a very unusual building.
It kind of looked like
a lipstick container.
Bernie's move uptown
to this iconic skyscraper
would impress investors.
It would impress employees.
It would even impress regulators.
So this was part of the classy new image
that Bernie was building for himself.
The offices were absolutely
stunning when we first moved in.
Sophisticated, high-tech looking.
It was all windows.
It was all bright lights.
When I started working
for Bernie Madoff in 1987,
it absolutely was a family atmosphere,
because they were
very family-oriented people.
It was a nice atmosphere,
it was very comfortable.
It was very safe.
Almost everybody that worked there
were relatives,
they were friends of relatives.
Bernie's kids, Mark and Andy,
were working there.
Mark and Andy were all-American.
Anybody would have been proud
to have them as children.
I liked his brother, Peter,
he was the compliance officer.
Ruth had an office at the firm.
She was a warm person.
She was a really great mother.
I could see Bernie and Ruth
loved their children very much.
She adored Bernie, and I think
that she was the person he confided in.
Bernie had said once to me,
"Ruth is a great partner."
And Bernie was very generous.
He gave a lot of money to charity.
He paid for the airfare for the honeymoons
for all of their employees
when they got married.
He was on the board of Yeshiva.
He worked with the Special Olympics.
There was a time
he paid for a woman's heart surgery.
The Madoffs took everyone
to Montauk for a weekend in the summer
with all their family
and put them up in hotels.
We'd play volleyball on the beach.
We'd have a real party, a lot of drinking.
We'd dance, and it was fun.
But there was another side of Bernie.
He was meticulous about his appearance,
about his surrounding.
Everything had to be pristine.
If he looked down the trading desk
and he saw a computer monitor
that was a little askew,
he'd have to go and fix it
and make it in line.
Even if you're sitting at the desk,
using it,
he would fix it while he walked by.
You couldn't have silver picture frames
or anything that wasn't black and gray.
You couldn't have plants on your desk.
Everything had to be the same.
As time went on,
he became more intense.
There were definitely days
where you could feel the tension,
and you would just want
to stay away from him.
You never knew whether
he was going to bite your head off.
Son of a bitch.
Will you shut up?!
I remember one time Bernie was
just screaming at his brother, Peter.
Get the fuck out of my office!
I got such a stomachache.
I-I just got up and said, "Please stop."
And Peter would back off,
because Bernie was a bully.
That was another side of him.
I think Peter was probably
a little bit afraid of Bernie,
the way everybody was
a little afraid of Bernie.
He wanted to control you,
and it's because he disapproved of you
that he could control you.
Bernie could flip the switch in a second.
I saw times when he could be
so kind and so caring,
and times where he could be so brutal.
- What the hell do you think you're doing?
- Stop you dead in your tracks.
What the hell
do you think you're doing?!
I think there were
a lot of people in Bernie.
He was a lot of things.
I figured he was under a lot of pressure.
This morning,
the stock market has been in a free fall.
Close this deal, choose...!
In trading rooms
on Wall Street, there was panic.
Sell orders flooded in
from big institutional investors,
from private investors, from mutual funds,
worried about inflation,
rising interest rates,
a declining dollar,
and huge budget and trade deficits.
Monday, October 19, 1987,
was one of the scariest days
I've ever experienced in my life.
The moment I got to work,
and the market opened at 9:30,
until the moment it closed, was bedlam.
Within two hours
of the opening bell,
the Dow Jones Industrial Average
plunged 200 points.
The activity is incredible.
It's a frenzy, and I would say
some fear and panic going on.
During the crash, every firm
on Wall Street was trying to dump stock.
We had so many phones ringing,
we were inundated with orders.
People are screaming,
we're writing tickets.
It just felt like a war zone.
I remember my uncle called me,
and I picked up the phone, and he says,
"Three guys walk into a bar..."
I'm like, "Sam, I can't talk to you now,
goodbye," and I hung up.
We had to maintain an orderly market.
A market maker is someone
who was willing to be the buyer
and the seller of last resort.
So we were the only ones buying.
A lot of firms were not
picking up their phones,
and I remember
very distinctly Bernie yelling,
"Pick up the phone. We're not gonna be
the firm that doesn't pick up."
So we're picking up the phone
and we're buying a lot of stock.
And all I'm doing is pressing buttons
on the computer, down, down,
taking my market down.
It never seemed like
it was going to bottom.
Bedlam reigned at New York
Stock Exchange as frantic traders dealt
with more than half a billion
sell orders flooding Wall Street.
No one has
one particular reason.
There's a kind of dark,
gloomy psychology at work here.
Definitely panic selling.
Panic, complete panic.
Everyone's going crazy.
For brokers and traders,
it was an unmitigated disaster.
Bloodbath.
The sudden collapse
brought back memories
of a fateful October day 58 years ago,
the crash of 1929 that heralded
the beginning of the Great Depression.
It was scary
and it was overwhelming.
It was devastating.
But Bernie never seemed to sweat anything.
He was actually
pretty cool and calm about it.
It was one of those things
that really helped us to revere him,
because this was his money.
His name is the one on the door,
Bernard L. Madoff Investment Securities,
and we were one of the few firms
that honored our commitments.
We stayed open.
Bernie Madoff kept buying,
even as all of the other
market makers on Wall Street,
who had an obligation to buy the stocks,
even when they were falling,
even if they're going to lose money,
that is the obligation of a market maker.
They weren't picking up the phone.
You couldn't get them on the line.
You couldn't make that transaction.
But you could with Bernie Madoff.
The mood on Wall Street
is one of shock and disbelief.
For five years,
the great Bull Market seemed unstoppable.
Confidence had been so high.
Then came the month of October,
and then came Black Monday.
It's not clear
how much money Bernie's
legitimate business lost in the '87 crash,
but the fact that
Bernie was at the cutting edge
of both communications technology
and trading technology allowed him
to keep the Madoff firm open,
functioning, and serving customers.
This won him recognition from the SEC,
from the New York Stock Exchange.
He testified in Congressional hearings,
he helped rewrite the rule book
to keep the market functioning
through a crisis like Black Monday.
People started
talking about Bernie Madoff
as a man of his word,
this trustworthy, loyal guy,
and it crystallized his reputation.
He began serving
on industry boards.
He began being invited
to regulatory roundtables,
and he was elected to three terms
as the chairman of the board of NASDAQ.
And in the early '90s he was a trusted,
respected Wall Street statesman.
Bernie fed on being "the guy."
He liked that pedestal
that people put him on,
and I think as he got more and more of it,
he got more in love with that reverence.
Read my lips,
no new taxes.
Booster, ignition and liftoff.
People are working harder than ever,
spending less time with their children,
working nights and weekends.
A look
at business news this morning.
A rally in technology stocks
helped push the blue chips
deeper into record territory.
I started at Bernie Madoff's firm.
I believe it was 1991.
Bernie Madoff had
a very excellent reputation.
"Bernie's a great guy.
He's very involved in the community."
"He's generous," you know,
"You'd do well working for him."
It was a very bullish time in the market.
This is when
the technology age started exploding.
The Internet came into being.
You had more people
getting involved in the stock market.
Dow Jones has a website.
Real-time numbers,
just as traders see them on Wall Street.
So we got more business,
we had more customer flow.
It was a great time to be in stocks
because they became
a lot more efficient through technology,
and profits started soaring.
Madoff was doing somewhere
between 5 and 7% of the total volume
in the New York Stock Exchange,
which is huge
for a relatively small company.
I don't envision it changing anytime soon
unless the market really cools down.
Bernie's growing
a legitimate market-making business,
and at the same time,
he's also very quietly
been growing his secret
investment advisory business,
which he keeps under the table,
which he keeps separate
from the market-making business.
Initially, returns for investors were 11%,
but he was actually giving
as high as 15 to 19%.
He is always consistently profitable.
What had begun in the mid-'60s
as this little, kind of,
bridge club investment advisory business
has grown and grown and grown.
And Avellino and Bienes continued
funneling a boatload of money
into Bernie Madoff's hands.
Avellino and Bienes
operate their feeder fund
very under the radar, very quiet,
never putting anything in writing,
until one of their subcontractors,
who was setting up pooled investments
and attracting friends and family to it,
breaks the first commandment
of Avellino and Bienes
and puts something in writing.
In 1992,
a brochure was brought to the attention
of the Securities and Exchange Commission.
The SEC is a regulatory agency whose
main mission is to protect investors.
And basically on the brochure it said,
"We offer 100% safe investments."
"We haven't had a losing transaction
in over 20 years,
and they're basically riskless trading."
The SEC looks at the brochure
and immediately realizes
there are significant red flags.
You cannot have
100% safe trading investment.
No such thing as riskless trading.
And their investigation
led to these two guys,
Frank Avellino and Michael Bienes.
So Avellino and Bienes came voluntarily
to the SEC with their lawyer.
They wanted
to take the testimony
of Avellino and Bienes together.
And I'm sitting in the middle,
and I think Bienes was to my left,
Avellino was to my right.
And they get to the point
where they say to them,
"How much money
did you raise for investment?"
I think the SEC was expecting something
like five or 10 million or something,
and they look at each other,
and one of them says, "I think it's about
$444 million."
And I thought the SEC staff
were going to fall out of their chairs.
$444 million from small investors,
that's a lot of money.
This is the early '90s.
That's a lot of money.
They stopped the testimony.
They ran up front to talk
to the head of the office of the SEC,
New York office, and...
"My God! What's going on here?"
They were apoplectic.
The head of the office
I thought was going to have a coronary.
The SEC did suspect
that there was fraud being perpetrated,
but they suspected Avellino and Bienes
were the ones perpetrating the scheme.
And so then Frank Avellino
and Michael Bienes explained that
all the trading decisions had been done
essentially by Bernie Madoff.
They were basically saying,
"Don't look at us, look at Bernie Madoff."
So the SEC seeks documents
from Bernie Madoff.
The SEC
comes sniffing around,
and Madoff gets scared because
it was all a fraud.
Madoff never did any investing
for his investment advisory business.
It involved simply taking people's money
and telling them he was going
to invest it, and he never did.
They were fictitious trades.
It was a Ponzi.
Here, in 1919,
is Charles Ponzi.
Ponzi's proved his boasts he can make
50% profit on investments in 90 days,
and wise men follow him.
When government proves Ponzi a swindler...
A classic definition of a Ponzi
is taking money from Peter
and giving it to Paul.
It's telling Peter,
"I'm gonna take your money,
I'm gonna do something, invest it,
and I'm going to give you a return,"
but I take your money
and I just give it to Paul.
And this process
just goes on and on and on,
because I continually need
new investors to pay back old investors,
and there's no investing,
no business whatsoever going on.
So when the SEC came in, in 1992,
to investigate Avellino and Bienes,
Madoff has to prove to them
that the trades were real.
So, he turns to Frank Dipascali
to create fake trading documents
using historical information
to give to the SEC.
Frank Dipascali was
Madoff's right-hand man.
He'd been with him for many years.
He handled the feeder funds,
and handled a lot of money.
Frank was a real guy's guy,
and he was incredibly bright.
You could cast Frank Dipascali
in a mob movie quite easily.
He was a working-class guy,
and he was incredibly loyal.
Dipascali rises to the occasion
in spectacular fashion.
He starts creating the fake paper trail.
This has to be legitimate-looking
account records, trade logs,
account statements,
and this can't just be paper
that'll fool Aunt Myrtle,
this has to be paper
that will fool the SEC.
When the SEC came calling,
Bernie Madoff showed them
the fake documents.
They believed that they were real.
I don't know how carefully
they scrutinized those documents.
I think a lot of it goes into the mindset.
I mean, what are the chances
that Bernie Madoff,
or any of these guys, to such a degree,
is just faking the whole thing?
And in 1992, the SEC closed the case
without any action whatsoever,
or any real investigation
of Bernie Madoff.
But what they did was, instead,
they forced Avellino and Bienes
to give up their business,
because they were running, essentially,
an unregistered investment firm.
The SEC made the decision that,
"This is structured illegally."
"You must take all the money
out of Bernie's shop
and return it
to all of those individuals."
That's $440 million,
and Bernie doesn't have it
because it's all a fraud.
So he turns, at that point,
to three of his biggest,
longest-standing investors.
Jeffry Picower,
Carl Shapiro, and Norman Levy
were foundational individual investors
in Bernie's investment advisory business.
Over the years, he made them
very, very happy with his results.
So now Bernie persuades them
to help him out.
Whether they knew what he was doing,
or whether they were
truly innocent of his intentions,
they came up with the money,
and so Bernie was able to write checks
for all of Avellino and Bienes' customers.
And guess what happened?
None of his customers
wanted their money back.
They loved what Bernie was doing.
When the SEC closed down
Avellino and Bienes,
many of their clients went
directly to Madoff for investment.
All of a sudden,
Bernie said to me,
"We're gonna be very busy."
He said, "Something happened,
we'll be getting in a lot of calls,
and people are gonna be investing."
A lot of the people were senior citizens,
a lot of them from Florida.
These widows, they'd be like,
"I was told to call."
"I was told to call, and I have
$15,000 that I want to invest."
This went on for days and days and days.
When we closed
the Avellino and Bienes accounts,
I started getting, you know,
a lot of pressure from these people
who were relying upon
that money to live on.
The SEC had told me at the time,
"Look, you want to still do business
with these people, that's fine."
"There's nothing wrong with you
doing business with these people."
Bernie Madoff still
did not register as an investment advisor.
The SEC missed it, and,
unfortunately, they missed
one of the biggest frauds in history.
I had worked very hard
running a natural foods business.
After 20 years,
I decided to sell it and retire.
And I sold it for a million dollars.
So I ended up investing maybe $100,000
with Avellino and Bienes,
and when the SEC busted them,
that's when I first learned that
Avellino and Bienes invested in Madoff.
And when the SEC looked into Madoff,
they found no evidence of fraud,
so I thought there's an opportunity
to invest directly in Madoff.
He promised steady returns,
averaging 9% a year.
It was so attractive.
It wasn't promising the moon,
it was just steady.
I did due diligence.
I would follow stories saying he was
leading the pack in electronic trading.
He was someone who
was a mover and shaker.
The fact that the SEC found
no evidence of wrongdoing was, to me,
putting a stamp of approval on Madoff,
so I sent a wire for $900,000 to Madoff.
All of a sudden,
it's no longer Avellino and Bienes
pooling the money
and handing it to Bernie.
It's thousands of people handing money
to Bernie's unregistered
investment advisory business.
His name got around
largely by word of mouth.
You get an introduction
at the country club,
you get an introduction
on this philanthropy board.
He's becoming better known
in the world of elite money managers.
And they're all saying
the same thing.
"You gotta put your money with Bernie."
"We don't know how he's doing it,
but it's magic."
Madoff's
unregistered investment business
attracts endowments from
very well-known Jewish universities,
and philanthropists like Elie Wiesel,
a Holocaust survivor,
and of course, some very wealthy families,
among them the Katz family
and the Wilpon family,
who are the owners of the New York Mets.
And this is
when the fundamental nature
of the Ponzi scheme has to change.
It's a whole different ballgame.
He was able to fool the SEC.
He had just survived an investigation
without a scratch,
and so he was emboldened
and felt he was untouchable.
The sky was the limit.
The legitimate
trading business gives Madoff
the credibility of being successful,
and he's now got about 5,000 clients
in the investment advisory business.
So he needs to scale up the Ponzi scheme.
He needs a lot more space
to keep the Ponzi separate from
the legitimate side of the business.
So he subleases some space
on the 17th floor
of the Lipstick Building.
A little warren of offices
where Frank Dipascali is king.
Messy, cluttered, nothing like
the elegant, stately offices upstairs.
This is where the Ponzi scheme will grow
exponentially in the years ahead
into a fraud on steroids.