A photo collage shows a black and white photograph of Bernie Madoff looking down. Behind him are headlines about his ponzi scheme.
Credit: Gabriel Hongsdusit/Reveal

This show was originally broadcast Feb. 3, 2018.

It’s been 10 years since former NASDAQ Chairman Bernie Madoff was arrested for committing one of the largest financial crimes in U.S. history. For decades, he ran a Ponzi scheme from a secret office in New York, duping thousands of investors out of billions of dollars. Many of them lost everything when the house of cards fell.

How did Madoff pull it off? And what steps have regulators taken in the past decade to ensure that it doesn’t happen again? For this week’s episode, we teamed up with Steve Fishman, a reporter based in New York who’s followed the story for years. He produced and hosted a seven-part podcast for Audible called “Ponzi Supernova.”

Through interviews with financial experts, federal agents, Madoff’s cellmates and Madoff himself, Fishman explains how the $60 billion con worked and why Madoff was able to elude regulators for decades. Fishman says that while Madoff was the mastermind of the scheme, it was banks and other financial institutions who “weaponized” him, turning him from a “local swindler” into an unstoppable force.

Madoff will spend the rest of his life in prison, but no one from these institutions faced similar consequences. And even though some precautions have been put in place since Madoff’s arrest, financial experts warn that for the most part, investors are still on their own.


Support for Reveal is provided by the Reva and David Logan Foundation, the Ford Foundation, the John D. and Catherine T. MacArthur Foundation, The John S. And James L. Knight Foundation, the Heising-Simons Foundation and the Ethics and Excellence in Journalism Foundation.

Reveal is a co-production of The Center for Investigative Reporting and PRX.


Reveal transcripts are produced by a third-party transcription service and may contain errors. Please be aware that the official record for Reveal’s radio stories is the audio.

 Section 1 of 3          [00:00:00 – 00:18:04]
(NOTE: speaker names may be different in each section)
Al Letson:Hey there, before we get started today, we have a slight favor to ask. Reveal is doing our annual audience survey, and we want to learn a little bit more about you. We want to hear what you love about the show, what you hate about the show, so take a few minutes, visit surveynerds.com/revealpodcast, and take the survey.
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Al Letson:From the Center of Investigative Reporting and PRX, this is Reveal, I’m Al Letson. Today, we take you back to a show we first brought to you in February this year, where we found ourselves on the streets of Brooklyn New York, going into a bar. It is a chilly Friday. It’s gray outside. We are not far from Prospect Park. What’s the name of the bar we’re going to?
Fernanda C.:It’s Erv’s on Beekman.
Al Letson:That’s my producer, Fernanda Camarena. You heard right, we’re going to a bar, not because I need a drink, I mean, I’m not opposed to it, but that’s not why I’m here. I’ve come to meet the owner, a guy named Steve Fishman.
Fernanda C.:Right across the street, here. You want to go in?
Al Letson:Yeah, let’s do it.
Steve Fishman:Al.
Al Letson:Hey man.
Steve Fishman:How are you?
Al Letson:I’m good How are you?
Steve Fishman:figured I’d greet you from behind the bar.
Al Letson:Nice, nice, nice. What do you got lined up here?
Steve Fishman:Well, I got you a shot of bourbon. Obviously, that’s the way you start all your interviews. Cheers, good to meet you.
Al Letson:Steve’s bar is a cozy little hangout, tacked into what used to be an old laundromat in a three story brick apartment building. The blue laundromat sign still hangs in the front. Erv’s specializes in handcrafted cocktails. It has a machine that makes perfectly square ice cubes to drop into drinks. The bar is named after Stevie’s father, Erv, who passed away last year.


Steve Fishman:Two of these and you feel like a billionaire.


Al Letson:What? When Steve’s not pouring drinks, he’s working as a journalist, a magazine writer, and a podcast maker. A journalist owning a bar seems like a scary combination, ’cause any time I’m hanging out with journalists, they’re drinking. I say they, like we’re drinking. How did you end up owning a bar?


Steve Fishman:Well, I spent a long time as a journalist. I actually dropped out of college and became a journalist of a small newspaper in Connecticut. The newspaper bought a bar.


Al Letson:Smart newspaper.


Steve Fishman:We would go right down, ’cause I’d work the three to midnight shift, and then we would go right down to the bar until closing. You know, let’s face it, you sit down with a beer or a shot, and you start talking, and it’s just great to hear the stories.


Al Letson:Steve has chased a lot of stories through the years. But I’m here to talk to him about one that’s captivated him more than any other, the story of Bernie Madoff. Remember him? The New York financier who ran a Ponzi scheme that cost investors tens of billions of dollars.


Speaker 2:Mr. Madoff, what do you say to all those people that lost money, Mr. Madoff, what would you to say to them?


Speaker 3:Bernie, hey Bernie, give me one nice shot, buddy.


Al Letson:Bernie duped people into trusting him with their money, and then put it into fake investments, and doled out fake returns. Their money made Bernie and a handful of others rich, and then the market crashed in 2008, and exposed his scam. It was one the largest financial frauds in U.S. history, with accounts that Bernie claimed were worth more than 60 billions dollars.


It was a lie, and when the bottom dropped out, it raised big questions about the safety of investments. Even though Bernie Madoff is a fading memory for most Americans, Steve says his story has lessons for us today.


Steve Fishman:We are now living in an era that very markedly proclaims itself to be not only pro-business, but anti-regulation. It’s an administration that really lives on and offers us the proposition that business, banks, finance does not need to be regulated, it needs to be unregulated. To my mind, that’s exactly what led to somebody like Madoff.


Al Letson:Steve remembers the market crash, and the day he first heard about Bernie.


Steve Fishman:Bernie gets arrested, it’s headlines. My editor comes over to me and says, “You know, this might be a story for us. Let’s wait and see if it lasts the weekend.” I kind of plunged into it. It was great journalistic sport. Everybody in the world is after Bernie, and I thought, I got to find this guy. He’s the poster boy for the financial crisis. I’m thinking, if I understand Bernie, I’m going to understand the financial crisis.


Al Letson:Unlike pretty much everyone else who covered Bernie, Steve stuck with the story long after it disappeared from headlines. He produced a podcast series for audible on Madoff scam called Ponzi Supernova. Steve wanted to understand, really understand how Bernie got away with his scheme, and what made him tick as a person. He talked to investors, he tracked down regulators and people who knew him.


He was determined to talk to Bernie himself, who’s serving a 150 year sentence, in a federal prison in Butner, North Carolina. After Bernie got locked up, he refused to talk to the media. Steve’s strategy was to get to Bernie by connecting with people who had access to him, his prison mates.


Steve Fishman:Here’s the hilarious thing. So, Bernie is like a superhero to them, I mean, a super villain to us, a superhero to them.


Casey White:A superhero, a super criminal hero, do you know what I mean?


Al Letson:This is Casey White, a bank robber who was the first prison mate of Bernie’s who Steve connected with. He had been in prison with Bernie. He’s got an Afro, a really lovely smile, not a whole lot of teeth in that smile. But a really friendly guy, a great storyteller.


Casey White:‘Cause this is a man that done stole more money than anybody else, we’re talking about anybody else, one old man done took everybody. He done beat the record on everybody. He done went to the top of the list in criminality. Everybody is in there for money. The majority of the cases is about money, do you know what I mean? And here you got a man that done did it, done took it all. He’s more important than Jesse James, you know what I mean? Bonnie and Clyde.


Al Letson:Casey knew inmates who were still behind bars with Bernie. He’d smuggled a list of them out of the prison and gave it to Steve.


Steve Fishman:Now, for me, these were the people who could get me to Bernie. I take that list, and I write to all 150 people on that list. But the real break for me comes because there’s this guy in prison named Robert Rosso. Robert Rosso comes upon one of my letters, and he reaches out to me.


Robert Rosso:It was nice for me that you were a writer, I’m sure it was nice for you that I was a writer.


Steve Fishman:Yeah.


Al Letson:Robert became a writer in prison while serving a life sentence for dealing meth. Steve and Robert bonded, and one day Steve sent Robert a letter, asking him to hand it to Bernie.


Robert Rosso:I did and I said you wanted to talk to him. He said, “I don’t really want to talk to anybody.” He kind of walked off a little bit. He stopped, and he said, “Well,” he goes, “What do you think of him?” I said, “I like him.” That’s what I said, I go, “I like him.” Said, “He seems like a straight shooter.” He goes, “Okay.” He goes, “Okay.” He goes, “Let me go, let me go take a look and read this.”


Al Letson:Then one evening, back in January of 2011 …


Steve Fishman:My home phone rings, it’s an evening, the Jets are in the playoffs, I remember that. I get this recorded voice, “You have a collect call from Bernard Madoff.” I’d been trying to get to this guy for like two years, and there he is on the phone. In the background, my kids are shouting and screaming. My reaction, “Shut up, it’s Bernie Madoff on the phone.”


Here’s the strange thing about the phone call from Bernie, it’s like a guy I could meet at a bar mitzvah. I mean, this guy, we’re both from the New York area. I recognize the accent. I probably have a similar accent.


Al Letson:Calls from this prison are cut off after 15 minutes, and Steve couldn’t move fast enough to record that first one. But then, Bernie calls back.


Speaker 3:You have a [inaudible 00:10:03] Collect Call from …


Bernie Madoff:Bernard Madoff.


Steve Fishman:Bernie?


Bernie Madoff:Yeah, hi Dave.


Steve Fishman:Hi. Well, yeah, I was just saying it was great to talk to you because talking to you in person is so different than reading about you, or the kind of caricature out there, and the whole sense of you as being a just this one dimensional person.


Bernie Madoff:It was nice talking to you too, Steve.


Steve Fishman:I’m immediately comfortable. I think Bernie’s comfortable too. That was Bernie’s gift. He was comfortable with everybody, and instilled confidence in everybody, so maybe this is just Bernie being Bernie. But we have this kind of rapport, and it leads into a very easy conversation. But I have to tell you, the thing that was stunning to me, Bernie wants to talk.


Bernie Madoff:I sound okay on the phone, trust me, I’m not okay. I was under tremendous pressure. It was absolute, it was a nightmare, only to me.


Steve Fishman:Yeah.


Bernie Madoff:It was only a nightmare for me.


Steve Fishman:I guess you kind of knew it would end up here, where you are now, well, sooner or later?


Bernie Madoff:When I say nightmare, that’s a nightmare. Imagine not being able to tell anybody. I destroyed the family. They said, “Why did you need to do this?” said, “I don’t know.”


Steve Fishman:Yeah.


Bernie Madoff:Believe me, that’s what I try and figure out here once a week.


Steve Fishman:Yeah.


Bernie Madoff:The psychologist is amazing. Fortunately, they have a wonderful psychologist here, and they’re very helpful to me.


Steve Fishman:Wow, that’s great, that’s great.


Bernie Madoff:Believe me.


Steve Fishman:That’s great.


Bernie Madoff:I have two full sessions with her every week.


Al Letson:The prison where Bernie is serving his sentence is known for having great medical facilities, and that includes therapy for inmates. It’s listed by Forbes as one of American’s 10 cushiest prisons. Steve became Bernie’s first interview with the media since landing there, but it wasn’t a standard Q and A. Steve almost became like a second therapist for Bernie, who opened up about his life. He talked about his father.


Bernie Madoff:My father built a sporting goods business. He opened something called Dodge’s Sporting Goods, and he had a big successful business. Then during the Korean war, there was a steel shortage, he couldn’t get steel, and his business failed. I lived through that. You watch that happen, and you see your father, who you idolize, build a big business, and then lose everything. You [inaudible 00:12:38] about something like that happening.


Al Letson:He talked about the Ponzi scheme.


Steve Fishman:Bernie said to me, “If you think I woke up one day and decided to steal everybody’s money, you’re wrong. I didn’t need it.”


Bernie Madoff:If you think that I did this, I woke up one morning and said, “Well listen, I need to, I want to be able to buy a boat and a plane, and this is what I’m going to do.” That’s wrong. I had more than enough money to support any of my lifestyle and my family’s lifestyle. I didn’t need to do this for that.


Al Letson:Bernie already had a legitimate stock trading business, and he was a former chair of NASDAQ. He wasn’t hurting for money, but he started the scheme anyway. Once he got started, he couldn’t stop.


Bernie Madoff:‘Cause it feeds your ego. You say to yourself, “All right, all of a sudden, these banks which wouldn’t give you the time of day, some of them all of a sudden, are willing to give you a billion dollars.” I had all these major banks coming down, and entertaining me. It is a head trip.


Al Letson:In some of those conversations, Bernie sounds like a confident master manipulator. At other times, like people are taking advantage of me.


Bernie Madoff:Everybody was greedy, everybody wanted to go on, and I just went along with it.


Al Letson:He talked about the day his scheme came crushing down. December 10, 2008, he had to come clean to his two sons. He says, they didn’t have a clue.


Bernie Madoff:Then my brother came in, [inaudible 00:14:02] said, “Well, you know, you have to tell the boys. They know something’s wrong, they don’t know what it is.” So we got into my car and we drove the few blocks to the apartment. Before even Ruth was home. We had my Christmas party that night. That’s when I broke down and I told them. I started crying and I say to them what the deal was. That I owe all this money out and I’m not going to be able to recover it.


Steve Fishman:And nobody gets angry at that point.


Bernie Madoff:Everybody was stunned. They were shocked. They were scared and they were shocked.


Steve Fishman:Right.


Bernie Madoff:I mean, look, [inaudible 00:14:41]. One day you think your father is running this multi-billion dollar business, and everything is fine, and he’s happy and they’re happy, and then all of a sudden, their world come crashing down. They saw me in tear. The last time I cried like that was with the same boys, when I found out my son had cancer.


The afternoon I told them all, they immediately left. They went to a lawyer. The lawyer said, “You got to turn your father in.” They went did that, and then I never saw them again.


Al Letson:The family would never recover. On the two year anniversary of his father’s arrest, Mark Madoff committed suicide, hanging himself in his Soho loft. Later, Bernie’s youngest son Andrew, died of cancer. Andrew blamed the return of the disease on his father’s crime. Do you think Bernie expected his children to turn him in?


Steve Fishman:You know, I don’t know if he expected it, but he tells it as a moving story. A lot of people who won’t be moved by it. I will say this about Bernie, I kind of believe Bernie got like bone tired. He just couldn’t support the lie anymore, but there was something about him that was relieved to finally see it end.


Al Letson:Steve learned a lot about Bernie during their string of 15 minute phone calls. They spoke around a dozen times, and then prison officials cut them off. But that didn’t stop Steve from piecing together the story of Bernie Madoff’s Ponzi scheme, and how he was able to fool financial regulators and thousands of investors for years. That’s coming up on Reveal from the Center of Investigative Reporting, and PRX.


The best way to get all of our stories without anything in between is just an email in your inbox. Our investigations change laws, minds, and sure, we’d like to say it, the world. Be among the first to read them. To sign up, just text newsletter to 63735. Again, the text the word newsletter to 63735. I’ll see you in your inbox.


Hey, hey, hey, this is Al Letson, and you my friends, are listening to another episode of Podcast that Al thinks you should listen to. And listen, I’m going to be really honest with this next recommendation, I love the show, but I also happen to really love the host, he’s a friend of mine, Sean Rameswaram, and the podcast is called Today Explained, explained, explained. Today Explained is a daily news podcast, but it’s not your old …


 Section 1 of 3          [00:00:00 – 00:18:04]
 Section 2 of 3          [00:18:00 – 00:36:04]
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Al Letson:A daily news podcast but it’s not your old fashion daily news show at all. No, this one gets a little funky and loose. It’s a show that really embraces diversity not just in the voices you hear from, but also the news they explain. Sean has a really good time talking to the reporters at VOX. They’ve got a great staff, so check them out, because it is a really excellent podcast. I usually start off my days by listening to this one. Subscribe Today, Explained on Apple Podcast, Stitcher or wherever you get your podcasts.


From the Center for Investigative Reporting and PRX, this is Reveal. I’m Al Letson.


All right, so what train are we going to take?


Steve Fishman:We’re going to grab the B train.


Al Letson:All right.


Steve Fishman:Right here at … a softball throw from Prospect Park.


Al Letson:Today I’m with reporter and bar owner Steve Fishman. He traced the rise and fall of Bernie Madoff in the Audible podcast series Ponzi Supernova. Bernie scammed investors for tens of billions of dollars, and we want to know exactly how he got away with it. Right now, we’re on our way to the place where it all went down, the Lipstick Building in Midtown Manhattan. Bernie’s offices were in this building, and we want to see if we can get inside.


Steve spent two years talking to investigators, auditors, and experts about how Bernie ran his scam. We leave the subway, climb up onto the sidewalk, and walk through the cold crowded streets.


Steve Fishman:There it is. That’s the Lipstick Building.


Al Letson:Which one?


Steve Fishman:It’s the one that looks like a lipstick building. Do you see it?


Al Letson:That one there?


Steve Fishman:Yeah. The red one.


Al Letson:Oh. I see. I see.


Steve Fishman:You see how it looks like a lipstick case?


Al Letson:Yeah.


The building is made of auburn marble and steel, and the edges around it … Yeah, from the right angle, it does look like a lipstick case with lipstick popping through at the top. We enter the lobby.


Steve Fishman:Wow. It’s so beautiful, and it’s so quiet here.


Al Letson:Bernie’s fraud went undetected for at least two decades. Steve explains that one of Bernie’s tricks for hiding his Ponzi operation was to put it on a separate floor from his legit business.


Steve Fishman:He had a floor for his legitimate business, the market making business, and then a floor that nobody really could get to the 17th floor where the Ponzi scheme was run.


Al Letson:So, Bernie would come in here every day to get to work?


Steve Fishman:Yeah. He’d come in here delivered by his car. He probably lived a mile uptown from here. His driver dropped him off here. He went through this lobby which is kind of … it’s gorgeous. It’s serene. This must be like-


Al Letson:But, it was anything but serene when the scandal first broke back in December 2008. Steve remembers interviewing an FBI agent who was assigned to investigate Bernie.


Steve Fishman:So, he was told to go up to the 17th floor, and he comes through this lobby.


Steve Garfinkel:I walked in, and I was thinking what the hell is going on here.


Al Letson:That’s agent Steve Garfinkel who’s now retired from the FBI.


Steve Garfinkel:There were a lot of people trying to get upstairs to the 17th floor, and they won’t let them in the lobby.


Steve Fishman:And, he tells a story about just a crowd of investors just screaming and shouting, “We want our money. Where’s our money? Where’s our money?”


Steve Garfinkel:Yeah. We want to go up to the offices, and I’m thinking, “Oh, boy. Some people are pissed off here.”


Steve Fishman:So, somehow in this kind of serene almost empty lobby you can imagine it kind of filled with an angry hoard like something out of the 30s, the depression era 30s when banks are failing and people are trying to grab as much money as they can to get it safe.


Al Letson:We head out the door, and as we stand outside the red marble tower, Steve takes a last look.


Steve Fishman:It’s so respectable looking. It’s so serene and calm. You look at it, and you see security guards and guys in suits, and you feel like what could go wrong. There are times when that respectable façade, it just melts away.


Al Letson:I sat down with Steve to find out how Bernie’s Ponzi scheme worked and how he got away with it for so long. One key, the people Bernie hired.


Steve Fishman:You can’t really put an ad on Craigslist saying, “Looking for somebody to help sustain a three decade old Ponzi scheme.” Which meant that, you had to appeal to a select group. The first person that Bernie hired, and this is going back three decades, was Annette Bongiorno. Annette was a high school graduate who was very likable. She was known in the office as the grandmother. She brought food every day to feed her colleagues.


Al Letson:One of those colleagues was a guy named Frank DiPascali. He never finished college, and he didn’t know much about trading, but he knew Annette. She was his childhood neighbor and babysitter. She introduced Frank to Bernie, and he eventually became Bernie’s right-hand man.


Steve Fishman:His lieutenant who really ran the fraud, ran it day to day, knew how it worked, and as soon as all hell broke loose he came running and wanted to play as they say in the field, he wanted to play for Team America.


Al Letson:Playing for Team America meant telling authorities exactly how Bernie’s operation worked. Frank was interrogated by Assistant US Attorney for the Southern District of New York at the time, Matthew Schwartz. Matthew is tall, clean-cut and remembers Bernie’s story with sharp detail. Matthew says for months the FBI would start the day by picking up Frank at his mansion in New Jersey. Even though Frank was still living in a fancy house after the bust, he was broke.


Matthew:Yeah. He always packed his lunch. We would all go out and buy a salad or something, and he couldn’t afford to do that. He would always bring a sandwich, and he always brought a sleeve of Oreos. There were a few times where I brought my kids in on the weekend, but sometimes the Oreos would be left over, and they would have one of what they called bad guy cookies.


Steve Fishman:I think that the really startling thing that Frank DiPascali reveals through these daily interrogations is how rickety this machine was. These guys are stunned that this operation had fooled the world for a couple of decades. It was being run by a handful of people without advance degrees who were using this vintage, antique technology. It’s crazy.


Al Letson:It was crazy and ridiculously simple. Bernie and his cronies had to somehow convince investors that their money was generating big returns, so they’d pick a stock and work backwards.


Matthew:Yeah. Well, that’s how a Ponzi scheme works, right?


Al Letson:That’s Matthew Schwartz again.


Matthew:How do I get $10 to appreciate to $15? Used to keep boxes of old Wall Street Journals, and they would take the stock tables, stock prices that were published every day at the time. They would just lay them out end-to-end on the floor. So, it’d be … I can’t imagine, 10, 20, 30 feet of newspapers side-to-side.


So, you’d sit in the office chair that had wheels, a wheeled chair, and you’d just sort of slide left and right to pick the right day with the right stock with the right price.


Al Letson:Matthew says Annette in particular became a whiz at making numbers work at reverse engineering these trades so it seemed like money was being made.


Matthew:She would test out different permutations. “All right. What if I do it on Tuesday? No. The return isn’t good enough if I do it on Tuesday. What if I say that it was purchased on Monday instead? Oh, okay. That does it.” Sometimes she’ll circle, and she’ll underline it. She was very expressive in her writing.


Al Letson:Once they had the numbers figured out, Matthew says they made up fake statements to send the customers. They showed that stocks had been bought, and sold, and made money, but the trades never happened. The statements were made using software that was written just for Bernie’s operation.


Matthew:It was the machinery through which the entire fraud was perpetrated. It made up all the fake records. Most of it was automated.


Al Letson:Two computer programmers, George Perez and Jerry O’Hara, wrote the software, and at first, they didn’t realize that it was all a scam.


Steve Fishman:It starts to dawn on them maybe slowly, but certainly they come to the realization that they’re involved with this criminal enterprise. They walk into Bernie, and they say, “Hey. We don’t want to do this.”


Matthew:And, Madoff says, “Okay. Fine. Don’t write those programs anymore.” Then, right afterwards, he turns to DiPascali after they’ve gone and said, “Give them whatever they want.”


Al Letson:And according to Frank DiPascali, Bernie’s right-hand man, the programmers think about it then come back and say, “They want more money.” And, they want it in a certain well.


Matthew:Well, can you pay us in diamonds? That way there won’t be a paper trail. Can you pay us in diamonds? DiPascali says at the time, “What are you talking about? Where am I going to get a bag of diamonds? I’m not paying you in diamonds.”


Al Letson:They eventually scrap the idea of diamonds, and settled for a raise, hush money, and kept on making those fake account statements. But, the trades never happened, and Bernie’s crew was paying old investors with new investors’ money. He had clients big and small which he talked about in a deposition he gave in prison a few years ago.


Bernie Madoff:I had four prime big clients, Jeffry Picower, Norman Levy, Carl Shapiro, and Stanley Chais, commonly referred to as the big four.


Steve Fishman:These are four older Jewish men who were really kind of father figures to Bernie. They were great friends in addition to being big investors. I mean there’s the famous story about Levy on his deathbed telling his children, “Trust Bernie. Trust Bernie.” They come to him. He starts investing for them. He claims that at first he was making them legitimate money, but at some point certainly by the early 90s, it’s a full blown Ponzi scheme. They are taking out hundreds of millions of dollars. They’re taking out billions of dollars in some cases, and for Bernie, that was an enormous pressure.


Al Letson:It’s at this point that the Ponzi scheme starts to slip out of Bernie’s control. Steve talked with a lawyer named David Sheehan who spent the past ten years trying to recover money for people who invested with Bernie.


Steve Fishman:Basically, the modus operandi was, “Hey. I know what you’re doing.”


David Sheehan:Yeah. So I’m going to take a lot of money out. That’s what they did.


Steve Fishman:That’s pretty straight forward.


David Sheehan:Yeah.


Steve Fishman:I don’t think people know about that. Do they?


David Sheehan:No. I don’t think that’s widely known. I don’t think people thought of Bernie being a blackmail, because probably everyone thought, or at least they all maintained the posture of I didn’t know anything.


Steve Fishman:Also, I think certainly the public perception, Bernie’s the powerful one. He’s conning people, but you’re saying exactly the opposite.


David Sheehan:Yeah. I think he was to a certain extent a tool of these people. He may have started out as a Ponzi, but I think they helped him perfect it.


Steve Fishman:So, how do you withdraw now? How do you extract yourself without somebody somehow subtly, implicitly saying, “Bernie, the game’s not over until I say it’s over.”


Al Letson:But, framing it that way makes Bernie sound like a victim here which may be in some sense he is, but also he had to come up with this scheme. The top four and the big banks, they didn’t come up with the scheme. Bernie did.


Steve Fishman:Yeah. Bernie is clearly the author of this Ponzi scheme, and there’s no conman more talented than Bernie. Let’s face it. He was favored by circumstance, by luck, but Bernie is an incredibly skillful and talented liar. No other way to put it. At the same time, Bernie could not have done this without the implicit cooperation of a number of institutions and investors.


Al Letson:One of the banks accused was the Spanish bank, Banco Santander which controlled a company called Optimal Investment Services. Now, many of their clients were small time investors who had gone in with their life savings. Banks are supposed to make sure that the funds they sell to their customers are stable and safe. That’s where Rajiv Jaitly comes in.


Rajiv Jaitly:I was in effect the [inaudible 00:31:44] factor.


Al Letson:Rajiv was hired by Optimal to do what’s called due diligence on Bernie’s fund, but immediately there was pushback. Rajiv wanted to take a closer look at Bernie but says his boss didn’t want him making waves.


Rajiv Jaitly:I think he was concerned that I would spoil a very good relationship.


Al Letson:A relationship that was making the bank a commission on every dollar it delivered to Bernie. Rajiv met with Bernie in February of 2006, and one of things he wanted to do was see a trade from beginning to end.


Rajiv Jaitly:And, you can sort of see how it’s entered into the system, how it might have appeared on the statements from the brokers, and so on. And, I was just told that that just simply wasn’t going to happen, and I shouldn’t raise it.


Al Letson:Rajiv left the meeting with Bernie with well no answers. He went back to his office to write his report but didn’t feel he had enough information, so he asked one of his colleagues to verify the trades.


Rajiv Jaitly:When I then rang up to sort of see how it was going, he says, “Oh, no. No. We haven’t done that.” He said, “Look, Rajiv. We all know you’re a difficult guy. We had to calm you down at that particular point, so we agreed to it. There’s really no need to do it. We’re all over this. We understand the investment strategy. It doesn’t need this.”


Al Letson:Rajiv says he typed up a report, but it wasn’t glowing, and it wasn’t what his bosses were looking for. They ordered a junior analyst to draft a new one.


Rajiv Jaitly:The report is very beginning says that their view was that Madoff was a well run and efficient organization. To which my response was, “On what basis? What evidence do we have for it?”


Al Letson:This was Rajiv’s last straw. He quit working for Optimal.


Rajiv Jaitly:The reason I resigned was because I felt that Optimal weren’t serious about risk. I decided it was appropriate for me to leave.


Al Letson:Rajiv’s boss was eventually prosecuted for mismanaging his clients’ money. He was found not guilty.


The other people whose job it was to uncover scams like Bernies were the regulators in New York.


Steve Fishman:Bernie was under examination or investigation for years, but here was the amazing dynamics of that situation. Bernie is considered a lion of Wall Street. They send in, the Securities and Exchange Commission, the SEC, the body that is supposed to regulate and watchdog people like Bernie, they send in investigators, examiners, but they are extremely junior. They’re young. They’re recently out of school. They’ve never investigated a Ponzi scheme before.


Al Letson:After the fraud was exposed, the SEC wanted to know why it’s people never caught on. So, it conducted an internal investigation. It was run by David Kotz.


David Kotz:I was only the second inspector general in the history of the SEC. The previous inspector general had been there for 18 years.


Al Letson:David did more than 100 interviews over the course of seven months. He even talked to Bernie who told him about one encounter with an SEC examiner.


David Kotz:Sort of acting like a tough guy. Yeah, he would lean back with his hands behind his head like Lieutenant Columbo asking these tough questions. He wore an SEC jacket with the word enforcement emblazed across the back. Now, he wasn’t in enforcement. Enforcement is the entity that essential sues people. He was an examiner, and that he sort of acted like a jerk and was acting really tough and like a big shot. Yet, Madoff pointed out that while he sort of acted like a blowhard in Madoff’s words, he never really asked any tough questions. It was all a show. Madoff was able to see through it really quickly.


Al Letson:But, there were a couple times when examiners came close to exposing Bernie’s fraud.


David Kotz:It’s actually not that difficult to uncover a Ponzi scheme if you’re the federal government. There are ways that you can go and see where trades are cleared.


Al Letson:When investments are bought and sold, money goes from the buyer to the seller. Clearing is the process where two accounts are updated to reflect the transaction. The buyer’s account shrinks, and the seller’s goes up. It’s proof that the money is actually changing hands. Sounds pretty basic, right? That’s what the deposit-


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Al Letson:Actually changing hands. Sounds pretty basic, right? That’s what the Depository Trust Company is for.


Steve Fishman:There’s something called the DTC. Basically, it’s where the money sits when the trades get cleared, when the trades get done. So there should be tons of money in Bernie’s account.


David Kotz:If the allegation is the isn’t trading, then you can go to this place, and you can see whether he’s trading.


Bernie Madoff:They asked me, “Where are the securities for the client?” I said, “At Depository Trust.”


Al Letson:That’s Bernie, from a deposition taken from behind prison walls. Some agents wanted to verify that Bernie’s transactions were real, so they asked him.


David Kotz:“Do you have an account at DTC?” He said, “Yes.” They asked him his account number.


Bernie Madoff:646, that’s my account name.


David Kotz:He gave them the account number.


Bernie Madoff:And when I left that meeting, I figured, “That’s it. They got me.”


David Kotz:He thought Monday morning he’d be going to jail.


Bernie Madoff:I lied to them and said they were at the Depository, and I’m thinking for sure they’re going to call the Depository on Monday morning and find out the securities weren’t there.


Steve Fishman:Somebody at the SEC does call the DTC, and asks about Bernie’s account, but all that person asks is, “Does Bernie have an account?” Once he gets the yes, the person moves on. Now, the next question they should ask is, “How much money is in that account?” Well, Bernie should have had billions of dollars in that account, and he had maybe a few million, tens of millions. The Ponzi Scheme would have gone down, it would have been exposed, had they asked that one further question. But these guys are junior, they’re inexperienced, and they’re intimidated. They’re intimidated by Bernie, and they’re intimidated, it seems, by the functioning of the financial system. They just don’t know about the DTC.


Al Letson:The SEC missed their chance, and it wasn’t just the SEC, there were private auditors sniffing around to find out how Bernie was making his money. The returns were impressive, and they wanted to know more.


Steve Fishman:So you have auditors sitting down and wanting to see reports, specific reports. Reports that Bernie doesn’t happen to have because hey, guess what? He’s not really investing the money.


Al Letson:Matthew Schwartz, the former US Assistant Attorney says Bernie’s right hand man, Frank Dipasquale, remembered one close call they had with auditors.


Matthew:Dipasquale testifies that he’s sitting in a conference room with the auditors. They ask for this report called a SIAC report.


Steve Fishman:Well, Bernie doesn’t have it. But, Frank makes a phone call-


Matthew:Hey, can you bring up the SIAC reports, and the guy says basically, “The SIAC report? He told us we didn’t need the SIAC report. Where the hell am I going to get a SIAC report? Great. I’ll see you in 10 minutes.” They were frantically putting together and printing out this report, which is half a foot thick of this big paper, dot matrix paper, and then it’s supposed to be a report that’s been lying around for a month, and instead, it’s hot off the presses. So first, they stick it in a refrigerator that’s down in the investment advisory business to cool it off, and then they literally play football with it. They’re tossing around the room to one another to make it look weathered. And then they run it to Dipasquale.


Al Letson:And unbelievably, it worked. They fooled the auditors.


For decades, Bernie tricked auditors and investigators into believing his lie. In the meantime, his Ponzi scheme grew bigger and bigger, like an enormous balloon. It took The Great Recession and investor panic to eventually pop it. “Bernie should have been caught many times over,” says SEC Inspector General David [Cotts 00:40:21]. But investigators missed every clue along the way.


David Kotz:As we showed them the documents, as we showed them the information, as we showed them how easy it was for them to uncover it, all these defenses sort of melted away, and they were themselves sort of astonished. There were some who were crying during the interview. We had to take a break because they were crying because they were so emotional. As we are going through this, they’re realizing how easy it would have been for them to do, and how many mistakes that were made, and the consequence of all those mistakes.


Al Letson:The consequences? Ruined finances, and upended lives of the people who trusted Bernie [Madoff 00:41:00]. After a short break, we’re going to find out what happened to Madoff’s victims, and try to understand if we’re safe from another Ponzi scheme like this. That’s coming up next on Reveal from The Center For Investigative Reporting and PRX.


From The Center for Investigative Reporting and PRX, this is Reveal. I’m Al Ledson. Today, we’re giving another listen to a show we first brought to you back in February about criminal mastermind, Bernie Madoff. We’ve heard how he pulled off his Ponzi scheme for decades, fooling many of the people who worked for him, regulators, and investors. But it all came crashing down with the financial crises of 2008. People were panicked. They wanted their investments back, but the money was gone.


Speaker 4:It was the worst thing that ever happened to us.


Speaker 5:Everything that we worked for is down the drain.


Speaker 6:This can’t be real.


Al Letson:Bernie had taken almost $18 billion dollars of their money. Now, for some investors, it was their entire life savings and retirement. According to Bernie’s fake investment statements, that money had grown to more than $60 billion, but it was all a lie.


Speaker 7:We have lost everything. I have lost everything, and you have lost everything.


Speaker 8:I manage on food stamps. Sometimes at the end of the month I scavenge in dumpsters.


Al Letson:Years later, Bernie still doesn’t seem to understand how much damage he did to people who trusted him with their money. Here’s what he told Reporter, Steve Fishman, from prison.


Bernie Madoff:Now of course you’re listening to them, they’ve all been living out of dumpsters and they don’t have any money. I’m sure it’s a traumatic experience to some, but I made a lot of money for a lot of people.


Al Letson:He claims they knew what they were signing up for when they invested with him.


Bernie Madoff:On all of their companies, and all their spaces, there things that they signed that basically they knew that this kind of trading is [inaudible 00:43:17]. They’re babies. You don’t think they had doubts? They had doubts.


Al Letson:Even if they had their doubts, the question now is, will they ever see their money again? I talked to Steve about that, and he told me over the past 10 years there have been a couple of efforts to recover and return as much of the money as possible, including something called The Madoff Recovery Initiative. It’s run by a court appointed trustee who works with a team of lawyers. They act like a cleanup crew, searching for those investors who took out more money from Bernie’s fund than they put in. Then, they sue them to get the money back.


Steve Fishman:So, say I invested a million dollars with Bernie Madoff, but I had taken out two million dollars because that’s what my statement said I had. Well, along comes the Madoff trustee and says, “You know what? You put in a million, you took out two million, you owe us the difference.” It was a very complicated and heart wrenching situation for lots and lots of people.


Al Letson:So far, the trustee has gotten back more than 70 percent of the money, about $13 billion dollars. But there are still thousands of people who may never get their money.


Steve Fishman:What happened is that the agencies in charge of trying to recover this ran into a wall, because a lot of the funds were registered overseas. Well, their money could not be claimed by the people trying to recover the money, it was in some kind of safe haven. It was like it was behind a fortress.


Al Letson:So the question I have for you, Steve, is about accountability. You know, obviously, this was Bernie’s idea, and he had people that were running it. A lot them are paying the consequences of it. But there’s another side to it where you have all of these big banks, the big four investors that we talked about earlier, and they haven’t been held accountable for anything.


Steve Fishman:You know, once you get to the institutions that essentially took what was a local swindler, I’m talking about Bernie Madoff, and weaponized him, and brought him around the world and made him the biggest Ponzi scheme in history, I’m talking about the financial institutions, the hedge funds, the banks. None of those people are held accountable. No one from those institutions has put on hand cuffs.


Al Letson:So where does that leave people like you and me, people who want to save for retirement, but are not financial whizzes. Are we safe from the next Bernie Madoff? To answer that question, we decided to call a couple of financial fraud experts who know the Madoff case well.


Steven Richards:Okay. My name is Steven Richards. What can I tell you about Ponzi schemes?


Al Letson:Steven is what’s called a Forensic Consultant. He investigates financial fraud. Years back, he worked at the SEC and later for a private firm that investigated Madoff’s fraud. Steven led a team whose job it was to figure out how much people put into the Ponzi scheme, and much they took out.


Steven Richards:But I think a lot of things have happened since the days of Madoff, at the regulars, in the civil environment that would make the likelihood of a large scale financial fraud like what Bernard Madoff did much harder to do.


Al Letson:Steven says that’s because after Bernie, the SEC made some changes in its Enforcement Division, and revamped the way it handles complaints and tips from whistle blowers. Many of these changes come under the Dodd Frank Act, which was written to protect consumers and reform Wall Street. It was signed into law in 2010, but is it enough?


Jim Mintz:The fact is that we live in a savage world, a place where nothing protects you except yourself, there’s no calvary coming over the hill.


Al Letson:That’s Jim [Mintz 00:47:23], CEO of The Mintz Group. Lawyers hire him to investigate cases they’re working on, and he’s been doing this for 30 years. Jim knows the Madoff case inside and out, and says that even with Dodd Frank in place, investors need to be skeptical of anything that sounds too good to be true.


Jim Mintz:I’m here to tell you that out in Fraud Land, where I do my investigative work, there doesn’t seem to be any protection or new seat belt that the government has given us.


Al Letson:In fact, Jim thinks we’re more at risk today.


Jim Mintz:The opportunities for fraud have grown since 2008 and Bernie Madoff because of the Internet, and because of the flattening out of the world, so that there are opportunities that seem attractive for us to put our money in, that are thousands of miles away.


Al Letson:Jim says all you need to do is look at the headlines about Bitcoin and other cryptocurrency.


Jim Mintz:Everybody is talking about cryptocurrency. If you listen carefully to how regular people talk about it, it’s almost as if they start to speak a little faster, or a little with … Almost like having trouble breathing while they’re talking about it. Those are the signs that you’re entering a danger zone.


Steven Richards:It has all the hall marks of a place where you could have Ponzi-type schemes more easily.


Al Letson:That’s Forensic Consultant, Steven Richards, again.


Steven Richards:So for instance, the environment, Bitcoin going from 10,000 to 19,000, and everybody seeing that wealth generation so quickly, wants to be a part of it. You also have a situation where most people do not understand what a cryptocurrency is, how it was created, how they work.


Al Letson:Cryptocurrency isn’t the first investment that people didn’t understand, but bought into anyway.


Steven Richards:And humans have an inherent bias that want to believe that other people have their best interests in mind, and they don’t. The other thing is the advancement of technology, and a lot of other things, have created this most simple access to people that fraudsters have ever had. If they have access, and they can create trust, they have the opportunity to do a Ponzi.


Al Letson:Bernie’s Ponzi scam might seem like it happened a long time ago, but if you ask Reporter, Steve Fishman, who followed the Bernie Madoff story for years, he said it’s history worth remembering.


Steve Fishman:Madoff was a huge deal. It affected tens of thousands of people. It also served kind of as a cautionary tale for the ages. I mean, we live now in an era where deregulation is the watch word. Well, Bernie is the poster boy for what happens in a world in which deregulation is the rule.


Al Letson:Bernie Madoff pled guilty to 11 felonies, and is still serving a 150 year sentence in federal prison. The only other people who were convicted were some of Bernie’s immediate circle of fraudsters, including his accountant, the woman who calculated the phony stock trades, and the computer programmers who made the fake statements. Bernie’s right hand man, Frank Dipasquale, pled guilty to several charges, but died of cancer before his sentencing.


Many thanks to Steve Fishman for his reporting on Bernie Madoff and the financial crisis. His complete six part podcast series is called Ponzi Supernova, and was produced by Audible. You can hear it at Audible.com or wherever you get your podcasts. You should also check out another podcast from Steve called Empire on Blood, produced by Ponopoly. It’s a greedy story about murder and justice in the Bronx.


Today’s show was produced by Fernanda [Covernaina 00:51:38] with help from Michael Schiller, and edited by Taki [Telenidis 00:51:41]. Big thanks to Ellen Horn and Kelly Prime, producers of the Audible series. Also, Todd Whitney, Collin Campbell, and Amanda [Reamis 00:51:47]. Reveal’s Catherine [Moscowski 00:51:49] helped with fact checking. Some of the music for this week’s show was from [Periblossom 00:51:52] Music. Glen Coachy, Darren Gray, and Mike Cruz. Our production manager is [Moende Jenejosa 00:51:59]. Our sound design team is The Justice League, J. Breezy aka Jim Briggs, and Fernando, my man yo, Aruda. Our CEO is Krista [Sharfenberg 00:52:08]. Amy Pile is our editor in chief. Our executive producer is Kevin Sullivan. Our theme music is by [Commorado 00:52:14] Lightening.


Support for Reveal is provided by the Reva and David Logan Foundation, the John D. And Catherine T. McArthur Foundation, the Jonathan Logan Family Foundation, the Ford Foundation, the Heising Simons Foundation, and the Ethics and Excellence in Journalism Foundation. Reveal is a co-production of The Center for Investigative Reporting and PRX. I’m Al Ledson, and remember, there is always more to the story.


Speaker 9:From PRX.


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