Grubstakers - (Patreon Unlocked)Episode 214: Bernie Madoff

Episode Date: April 14, 2021

In this one we profile one of the most successful men on Wall Street, Bernie Madoff. We go from his early hardscrabble years trading penny stocks with his earnings from working as a lifeguard to his meteoric rise as one of the most successful and respected men in finance, netting consistent returns of 15-20%. We were particularly inspired by this man's story and hope you will be too.

We find people that basically can't make enough to eat before they go into the fields. I don't believe that. I think that you're looking at other places that are not Central Romana. People actually who focus on and who like getting an orgasm never get one. Pull up your socks and figure out what you're going to do. Any chance I get to be a completely red state? Oh yeah. Well, the future is always uncertain. But more uncertain now.

And listen, Blue Ivy is six years old. Beyonce's dead and she tried to outbid me on a painting. Everybody in Atlanta right now at the Louis Vuitton store, if you black, don't go to Louis Vuitton today. In five, four, three, two. That's why you need to take a meeting with Kanye West, Bernard Arnault. Hello and welcome to Grubstakers, the podcast about billionaires. I'm Eddie Palmer and I am joined by my co-hosts.

Steve Jeffers. Yogi Paywall. Sean P. McCarthy. And today we'll be profiling the one and only Bernie Madoff, a man who is widely known in popular culture as being the most honest man in finance. He is responsible for the biggest Ponzi scheme in history, totaling about $60 billion, though the actual amount that he stole was closer to

uh 10 to 20 billion and with the we'll get into it but the margin is just um uh that margin between you know 10 to 20 and 60 is the uh insane returns that he was promising everyone so everyone thought they had way more money than they did um when they did not but uh yeah and we should mention it is canon that we are talking about the man who destroyed george costanza's life savings made off i was gonna save that for the end, but I was going to list everyone who got ripped off by him or an abbreviated list and then end on George Costanza. But it is important.

Great minds. Yeah, yeah. I like how the Madoff Ponzi scheme definitively proves the six degrees to Kevin Bacon rule because even he was wrapped up in the Ponzi scheme definitively proves the kevin six degrees to kevin bacon rule because even he was wrapped up in the ponzi scheme you know one of the people listed so i mostly for this episode drew from uh the wizard of lies by diane henryx or diana b henryx and she lists a bunch of people who were stolen from and one of them she just says the ex-wife of michael douglas she doesn't give a name she um yeah the wizard of lies was adapted into in uh the book was written in 2012 and it was adapted into an hbo movie in 2017 starring robert de niro clearly practicing for the irishman he's um it's

the main difference between that movie and the irishman is that they couldn't afford to make robert de niro look young so he's old the whole time uh yeah man my favorite scene in wizard of lies is when de niro goes you explaining ponzi schemesier goes you explaining ponzi schemes to me you explaining ponzi schemes to me in the mirror just over and over again it's a great scene diana henricks is is also in it um just uh pretending to interview bernie madoff like she actually interviewed it but she's doing it with robert de niro um it's interesting she does a good job uh so without further ado you guys want to get to know uh the the life and crimes of bernie madoff yeah you know in the in the canon actually jerry seinfeld didn't lose any money with

the madoff scheme because he uh gave it all for lunch money for his high school girlfriend. One of my dreams is going up to Jerry now and asking him, hey, can I get your daughter's number? Because she is about the age that Seinfeld's girlfriend was and I am about 12 years younger than Seinfeld was when he

dated a high schooler. That would be like the perfect thing to throw in his face if you were a guy going after Jerry's 17-year-old daughter. Oh, yeah. I remember watching Seinfeld in high school, and I didn't realize at the time that that guy on that TV was dating someone my age. What a life.

So we looked it up and Michael Richards is the poorest character and also in real life. Yeah, that's true. Unfortunately, he's a meager 30 million. For some reason, he's not working a lot now. Yeah. But, you know, actually being able, saying n-word as a white guy has a 20 million dollar value so he actually you have to add that to his net worth because that it feels as good to a white guy as a 20 million dollar net worth how great would it have been if michael richards was

at the capital coup like just and not even as michael richards just straight i'm cosmo kramer and i happen to be like just the bit of him being at the capitol coup and just on the phone being like jerry they're storming the capitol like he burst through the door and then they shoot a lady behind her some people some people are inside the Senate chamber. A few of the protesters are like, hey, look, it's Michael Richards over here. And they all gather around him and make him say the N-word. They shoot that lady through the neck

and then Kramer does the door opening thing and goes to a mini fridge and gets something out of AOC's office and then just goes back through the door. Doesn't comment on the dead woman on the floor wears a mask but no pants or underwear i think he would do just kind of like a but now that would be a good idea is they could just pay michael richards to go to any economic grievance protest and just be like look michael richards is there this is clearly a white supremacist rally so bernie madoff was born uh april 29th 1938 in queens new york his father His father was Ralph Madoff, who was kind of a, I guess you could say, loser. He worked in various sporting... Well, I mean, it was the Great Depression. Everyone

was kind of a loser. So he worked in various sporting goods companies. First, he was at Everlast. And then he tried to make his own sporting goods company and went out of business. So then he began working as a stockbroker. And then in 1963, Ralph Madoff, Bernie Madoff's father's firm, was cited for being delinquent for not filing the required annual financial statements and had to shut it down and the family saw this as another one of their father's business failures so this is kind of the background of what bernie madoff grew up with as kind of a father who was scraping by trying to make things work couldn't always make ends meet you know and kind of the poor part of Queens. He actually did have kind of a hardscrabble upbringing. Could you just play that audio drop again?

Madoff? Madoff! Yeah, so exactly like that was the last words of the two people who killed themselves as a result of the Bernie Madoff Ponzi. But yeah, so his dad is kind of like a bumbling businessman and that is the upbringing that bernie madoff has in terms of being a successful entrepreneur in the post-depression era did he have did madoff have like kind of like a bernie sanders style upbringing

um you mean jewish in new york in the 40s no i mean like his like first gen immigrant living in like rent controlled whatever in new york that's a decent question i think actually his grandparents um are the ones who immigrated okay yeah not Yeah, yeah. A little different, but still similar. I mean, you know, same location, same time frame. Yeah, it is like two different Ponzi criminals on a different scale. One who realizes that he can just exploit the vulnerable to buy himself three houses. And one who thinks much bigger. One promising 20% returns, one promising ponies and health care.

One of them has a lake house, the other doesn't. I've said it from time to time again, you can't trust three Bernies. Madoff, Sanders, and Mack. All three of them. Untrustworthy. So he attended Far Rockaway High School, which interestingly was the same high school that Carl Icahn attended. And incidentally, the physicist Richard Feynman. He met his future wife, Ruth Alperin, there. He attended the University of Alabama for one year, then transferred and finished college at Hofstra University, where he got a BA in political science. Now, wait a minute, Andy. It sounds like you're saying that he went to a tough school in Queens where they used

to beat up the little Jewish boys. What if I can made Madoff into what he is? Sure. Yeah. Madoff definitely had or has, I guess, kind of a complex about people who were like kind of mainstream rich or I guess the sort of wasp establishment that was in, but he dropped out to pursue a Wall Street firm that he created called Bernard L. Madoff Investment Securities, LLC. And he started this business while he was still a senior at Hofstra. He had saved up $5,000 from selling lawn sprinklers door to door and working as a lifeguard uh yeah those are his paper route stories um so many questions

yeah his his whole thing about the lifeguard like he i guess he was so fond of that time that at one point or he had a um at his palm beach house uh one of his three houses that all bernie's have um he had a statue of lifeguards looking out onto the ocean and the reason the media knew about this is because after the scandal broke in 2008 someone stole it and then uh later returned it with a note that said give back the things you stole bernie so uh yeah he started up his company and you know he played into that mythos uh he the when he started in the stock market in 1960s it was kind of it was called the go-go years

uh the markets were kind of heating up for the first time after the uh kind of slump of the great depression and the war right and uh early on he traded over-the-counter stocks or otc stocks which are penny stocks from small startups looking to raise capital, which didn't meet the requirements to be listed on the New York Stock Exchange or its sister exchanges. And what was convenient about these is that it was very difficult for customers to look up the value of the stock because they weren't listed in the papers um in order to find out the value you basically had to call your broker and take them at their word and so early on the stocks were the penny stocks were actually making a ton of money um uh in a way that's kind of akin to the dot-com bubble of the 90s. Sure. It was actually estimated,

it was hard to estimate how much money the penny stocks were making at the time, like historians have tried to, and it's difficult because all the documentation about them is so obscure and buried. But they estimate that OTC stocks had returns of up to five times that of the Dow Jones Industrial Average

in the early 60s. And so Mado got like friends and family to invest in his um and his company and they probably legitimately saw something like 20 returns which were the kind of returns that he promised throughout his career like you know 15 to 20 percent and at the time it was possible that those were the kind of returns that he promised throughout his career like you know 15 to 20 and at the time it was possible that those were the actual returns that he was actually doing legitimate trading um i would just add if you know um if you know your market history then that compared to the dow in the 60s is amazing yeah well it's so this is like 61 and 60 or 60 and 61 and then part of 62 um and it it is amazing until later on in 1962 yeah and i do also want to mention for our listeners kind of our helpful uh spotting a ponzi scheme um guide if uh if your promised returns of 15 to 20%, that means it's safe to put your life savings in and also your,

your children's college fund. Cause you know, 15 to 20% is the sweet zone. This is, this is the government bonds return right here. Right, right. 25% that person's full of shit.

10% they're ripping you off. Exactly. Your assets should be making minimum 15 a year minimum in seriousness though like i guess what stock market is like seven percent average s&p 500 we've talked about this before the long run average annual return is about seven percent for the s&p 500 yeah so like any investment over like seven to ten percent i get very skeptical immediately i mean this is the exception um he uh made up actually he violated what um was known to market regulators as the suitability rule where a broker is forbidden to

sell their clients investments that are too risky for their individual financial circumstances because of that rule he should not be selling to a lot of the people he was selling to but he just ignored it um and kept doing it anyway and then uh in 1962 there was what was known as the little crash um in may the stock market had its biggest drop since 1929. And the worst hit were all the penny stocks that were wildly inflated. Wow. You know, they were like Petfood.com. They just

turned out to be absolutely worthless and crashed. And Madoff would have had his reputation ruined if he passed on these losses to his customers. But he managed to hide it and maintain his reputation ruined if he passed on these um these losses to his customers but he managed to hide it and maintain his reputation by spending um all of the 30 000 in capital that he'd saved up in his first two years of business um to buy back the stocks from his clients at their original prices oh and so he he managed to to kind of still look good.

I don't know how he explained it, but yeah, in that process, he nearly wiped out his company because like with his capital wiped out, it's hard to, you know, pay the rent at your little brokerage firm. So he managed to stay afloat with a $30,000 loan from his father-in-law, Saul Alperin. And which is what? That's probably $300,000 or so. Yeah, today. Yeah. I'll look it up. What if

Lee Harvey Oswald was just a guy who lost all his money on OTC penny stocks in 1962? And I just got way too into this CIA bullshit. Nobody just checked on Lee Harvey Oswald's portfolio. It's a little like being one of the penny stock YouTubers from today. Right. But he was like that in the 60s.

$30,000 in 1962 is equivalent to $258,505 today. I mean, this guy would be an initial coin offering guy now today. Major into crypto. I mean, but to put that into full perspective, a quarter of a million dollars is the loan he received from his dad to stay afloat. Like that is, hey, you know, when you're struggling in business and you make a couple of mistakes and your parents give you a quarter of a million dollars to then stay afloat. That's how you know when you're doing all right in the business game. How does it not business without really lying it's like um it's not quite the the game

genie of some other uh billionaires we've recently covered but yeah it's substantial friends and family i'll see it is interesting where you said his dad's business has failed so he got this from his dad-in-law so that's like that's the other aspect of uh rich people friends and family connection is sometimes we cover billionaires who are just really good at fucking and just fuck their way into a rich family where it's like either their wife or their husbands you know parents just give them a whole bunch of money uh to start a ponzi scheme i don't have much research on this but i did run across something that said he had an affair um in the

it was either the 90s or 2000s the person who had an affair with him described him as a beast but that's what we should have on the website we're gonna add all these categories for billionaires so we should have good at fucking yes or no we can determine that by whether or not they married into money rory madoff definitely eats the butt. You know, he gets, he gets scrumptious down there. Oh yeah,

that's for sure. He's willing, willing to do what it takes to get those 15 to 20% returns. His wife didn't divorce him when he went to prison. She visited him there after, even after one of the sons committed suicide because of it. Like that's a guy who definitely eats ass that's that's when you know you're putting it down when your your son commits suicide because

of you and your wife still won't leave you just because just can't get enough just because i'm in prison and our son has killed himself i promise to you my love will grow 20% during this time. Yeah, so actually government lawyers got the impression that this might have been the beginning of his Ponzi scheme, even though there's not. Bernie Madoff, for some context, claims that his Ponzi scheme began in the early 90s. and that that was um the when he stopped doing actual trades with people's money and just straight up um lied his way through things but there are various points where there's evidence that it had been ongoing before that um possibly he survived it um and in 1969 bernie's brother peter made off joined the firm uh peter was a lawyer he actually went to law school um and finished it and kind of gave bernie a complex and bernie would even just uh like degrade him in front of other people.

Just put him down. Just be like a shitty older brother. But Peter was largely behind automating trades and setting up the computer system and was referred to in some corners as the company's computer genius.

Though Bernie Madoff claimed that Peter knew nothing about the Ponzi scheme. And, um, even to this day, Peter has never been charged with any crime. Uh, and though that was in, uh,

2012, he might've been since then. Uh, but I, I don't believe he has, um, in the early 1970s, Madoff set up an informal and unlicensed mutual fund arrangement with his

father-in-law, where his father-in-law would send him money from relatives, friends, clients, and Madoff would invest it. And he used the first two rules of Fight Club to promote this fund, cultivating the idea that it was an exclusive fund that only specific elite clients would be allowed to invest in. And so that made more people want to invest in it. Functionally, he was working as an investment advisor, though he never got licensed as an investment advisor. He was only licensed as a stockbroker, and he never listed his company as an investment advisory company. Um,

and that was the case for the entirety of his career. Um, and at the time, go ahead. That's the key to doing a good Ponzi scheme, like against rich people anyways, is you have to have like the velvet rope outside the club with the line and then you have to pretend like you're letting them in past the big line

into the exclusive club where they get to jump out of a hotel window after losing a billion dollars but you know and i think we're probably going to get to this later but kind of a thesis that that we've noticed with a lot of these people, but with Madoff in particular, is that the mistake was they targeted rich people. Oh, yeah. And some of the consequences happen when you steal money from rich people as opposed to just average Joe investors. You know, I just found out that Jeffrey Katzenberg lost about $22 million from this. And it's crazy that this wouldn't be the worst financial scandal he has, whereas Quibi would definitely fuck him over a lot more. In this early company, he recruited two accountants from his father-in-law's firm, two fellows by the name of Frank Avellino and Michael Bienes. And there was a Frontline documentary in 2009 on Bernie Madoff. And Frank Avellino refused to be in the documentary

because he had an ongoing lawsuit due to the fallout of the Madoff affair. But Michael Bienes was happy to talk to Frontline about everything he didn't know and also how great it was making lots of money for Bernie Madoff. And I'll just kind of let him introduce himself here. It was only about $2.5 million in the account.

That was big money to me. We were only taking a small clip off the top. That's all it was. Couldn't take more. We thought that was the rule. And we never were pigs. That's one thing that kept us going we were never pigs they were never pigs so so this is when like um there are more like promised returns of 18 and you know they would pocket a percentage or point or two from those returns and at the time madoff claimed that his investment strategy that

got him such high returns was quote riskless arbitrage which um is what he got into after kind of uh all those penny stocks blew up in the 60s right and the idea of riskless arbitrage was you would just buy a product like a stock in one market where it's kind of cheap and then sell that stock in a different market where it's slightly more expensive and pocket the difference and i guess before there were computers there were kind of discrepancies and prices between different things so it was conceivable that he could do this and make money from it when michael biannis was asked how this process worked and how they could promise returns of 18% to 15%, he said this. 17, 16, even as low as 15. What made you think that he could return 20%?

I don't know. How do I know? How do you split an atom? I know that you can split them. I don't know how you do it. How does an airplane fly? I don't ask. Did you ask him?

Never. The last thing you hear from the doctor right before you go under for surgery. Why would I ask him? I wouldn't understand it if you explained it. Something with arbitrage between bonds and stocks and blah, blah, blah, blah, blah. There was later analysis filed in court in 2012 that found that even in 1977,

many of the arbitrage trades were largely fictitious. Oh, really? Yeah. The way he says bonds sounds like he's talking about barry bonds the baseball player bonds and the steroids and the i do just like that entire speech just the how the hell would i know you just you feel so comfortable giving over your child's college tuition to a man speaking like that yeah in the book they were like yeah uh

michael biennis you know he was uh the sharp accountant and then you hear him speak it's like was he i sound like he just laying his ass off yeah it seems like he was just a convenient person for doing crime oh yeah have you heard his voice if i want to rob someone i'd call that guy just off voice principle i think i think you're just being anti-semitic yogi isn't he italian is he jewish he's like this central central casting like crime accomplice great for you yogi is like something about him just sounds untrustworthy and shifty. I feel like he has secret plans that he's not informing me about. I wanted to mention, though, this kind of debate you mentioned earlier, Andy, about did the Ponzi start in the 90s or earlier? It is kind of one of

those things where a bunch of different people all have the same incentive to pretend it started in the 90s, where I imagine Madoff and some of his associates might have more criminal exposure than they already have if it's dated back to the 60s or the 70s. And also the SEC and all of these prosecutors look like complete fucking idiots because this thing went on for four or five decades and was only exposed by the 2008 financial crisis and you know we'll get to some of the the uh failed investigations but you can see why everybody would like to just pretend like yeah this only started in the 90s yeah he basically gave them like a paper trail to uncover the ponzi. Well, yeah, we'll get into that. So around this time in the 70s,

Evelina and BNS were making up to $10 billion per year just for passing on clients money. They would just find people and be like, hey, we got this great 18% returns. Invest with this Madoff guy. He's a genius. And they would.

yeah, he described it this way. You're making with Madoff guy. He's a genius, and they would. Yeah, he described it this way. You're making with Madoff? Easy. Easy peasy. Like a money machine. I always said I never lifted any heavy weights. People said to me, even recently, oh, you must have worked very hard.

I said, no, I didn't. Oh, come on. I never worked hard. I said, no, I didn't. Oh, come on. I said, no, I didn't. Hell yeah. I never worked hard. We were like an airplane. An airplane, you know, flies itself. But if you make a mistake in your calculations, oh boy, you do a John Denver.

You run out of fuel. Now, interesting note there, in the people who were screwed over by the Ponzi scheme were the descendants of John Denver. Oh, wow. Fucking classic. That rules. Fuck them kids. Did you ever think to yourself, this just is too easy, this is too good?

I said, I'm a little too lucky. Why am I so fortunate? And then I came up with the answer. fortunate and then i came up with the answer my wife and i came up with the answer god wanted us to have this god gave us this sean you're telling me that guy doesn't sound like a guy you do crimes with come on bro that sounds like exactly the person i want on my side during a bank heist i love i love his justification because in his world in his world god decided that he needed the money more than the metropolitan council on jewish poverty one of many victims of bernie madoff's fraud

that uh hundreds of millions was stolen from i like how it keeps coming back to an airplane analogy i don't know how airplanes work we were in an airplane they crash sometimes um by the way i never worked hard is the official motto of grubstickers podcast so um even if this even if madoff's firm was doing legit business or wasn't doing the Ponzi scheme at this point, it is likely that it's been found that even early on the firm was using money that people gave for investments

as capital within the firm, which is illegal, and is kind of a mini Ponzi scheme, though they were easily able to get away with it just by paying out profits. and is kind of a mini ponzi scheme um though they were easily able to get away with it just by paying out profits um and uh avalino and bienes would refer to their investors as lenders instead of investors like they're lending our company money and then we're giving them returns um and are they doing go ahead were they doing all of this in Florida or New York?

Because I think, if I remember correctly, he was in Florida for a bit. They were doing this in New York. He eventually, once he got a lot of money, I don't know, I don't have when exactly, but he bought a bunch of houses, you know, what you do when you make a lot of money. One of them was in Palm Beach, where all the legit above-the-board people live. And, yeah, he had another one in Montauk. So,

in 1979, Madoff became a member of the NASD committee that helped create an electronic system linking all the regional stock exchanges within the New York Stock Exchange. The idea was that customer orders would be routed seamlessly for the best price. And that work kind of led into NASDAQ. And later in the 90s, I'm sorry, in 1987, Madoff actually, or 1990, Madoff became the chairman of NASDAQ, which further bolstered his reputation as a legitimate and respectable businessman.

There's something below board going on at NASDAQ, you can tell because of who their chairman is. Interesting thing about NASDAQ, it was almost completely designed by the government. Oh, really? Yeah, there was an act of Congress to tell the SEC to basically just, all right, we need to create an all-electronic trading system. So make them do that.

And so they passed this thing called National Market System, I believe it was, the legislation in MS, and that created NASDAQ. So NASDAQ is basically like a government psyop to try and get the New York Stock Exchange to do electronic trading rather than people on the floor yelling things.

NASDAQ is all electronic, whereas New York Stock Exchange, even today, has pit trading and stuff. Well, I'm learning things from our podcast now. Still a factoid. So in 1983, Madoff opened an office in London

called Madoff Securities International, LTD. Great name. Yes. It was framed as their office for trading in European markets, but its main purpose was it became a location where they could move money from Manhattan and back in order to make it look like they were trading overseas in markets. And that led to Madoff getting three counts of money laundering. And by 1987, the company was doing well enough that they were able to buy office space in in this building in manhattan called the lipstick

building uh which is it's like it's got an oval shaped floor plan sure uh it's you know it looks like a tube of lipstick a really ugly thing that people in the 80s thought looked cool right um and uh they had one floor at first but later after after the shit first started to hit the fan, they had a second floor that became the infamous 17th floor of the lipstick building. And I'll get into that now. So in 1992, there was an investigation where a financial advisor said Madoff's 15%

returns didn't seem realistic and reported him to the SEC who then launched an investigation. This advisor wasn't directly associated with Madoff. He just saw some documentation and wrote to the SEC. Do you know what we call people who think 15% returns aren't realistic? We call them haters. We call them jealous people who just don't understand what a true winner looks like. They don't get it. These fucking haters, they show up and they think they know better because they got opinions on what's good and bad, but they just hate.

Yeah. They hate. They're just talking shit on Twitter. Well, we're out here doing shit in the real world that's right we're out here making moves getting things done providing 15 to 20 returns for our clients like a boss you know they're gonna remember our names they're gonna forget your names because you're not providing 15 to 20 returns totally above board so uh this investigation focused on avalino and viennes who were suspected of running a ponzi scheme i don't know how they got that impression

but um it took place after somebody had printed out a brochure advertising their accounting business stating there was no risk and high returns. When they found out the SEC was investigating them and why and we don't have an audio clip of this BNF said oh my god no. What is he insane? He knows the rule. Anyone who deals with us knows the rules which is

don't print a brochure. Don't put our name don't put our name in writing right uh so when the sec called avalino in june of 1992 they became increasingly suspicious uh when they asked him what he does with the money uh they borrow and he stated that he invests the money in, quote, real estate and some securities. And nowhere in their documents does it mention that they invest in real estate.

So he was just shooting from the hip with the SEC. Yeah, his improvisation almost worked out as well as Michael Richards did. So Bernie got them a lawyer who uh actually used to work for the sec named iris sorkin uh and he was bernie's lawyer once the shit really hit the fan and iris sorkin actually ran the sec's new york office in the 80s so you could say he kind of knew how the game was played uh made off also created a bunch of phony records to back up the claims about how much money was in Avelino and Bienes' accounts with him which later created a paper trail that allowed investigators

to determine that the Ponzi scheme was up and running well before 1992 despite Madoff claiming otherwise and instrumental in creating these records was a fellow by the name of frank de pascali who in the movie was played by um uh chief wiggum um his area oh gotcha uh and Uh, and he, uh, used his computer skills to create this phony baloney trail of records, um, for trades that never actually happened. Um, basically, uh, yeah, he, he was, he became the kind of the guy who really got his hands dirty in the ponzi scheme uh and he was the along with bernie he was the other man guy who got the book thrown at him uh once the shit really hit the fan um and just because he did a racist apu oppression that's right that's right that's what got him

canceled uh so sorkin tried to negotiate a deal to allow Abelino and Bienes to keep working as investment advisors even though they weren't licensed. And the SEC figured... So the SEC kind of... The way they ruled on it was they were like,

listen, this was illegal. You have to return everyone's money. And they didn't even look into Madoff because he had a great reputation on Wall Street. His trades represented about 9% of all trading on the New York Stock Exchange, allegedly. Hell yeah. And so Avelino Bienes had to pay $350,000 in fines and return about $400 million to their investors. Madoff actually managed to get $400 million from his friend Norman Levy, who was under the impression that he was giving Mado off the money for an investment uh and so once all that money

was paid off to the investors the sec uh more or less was like oh okay all good uh nothing he gave them back their money everything's above board now uh and they closed their investigation and so madoff used a ponzi scheme to hide his ponzi scheme and it fooled the sec this was like 87 you said uh this was 92 92 oh yeah my bad and andy you're saying all of this was legal um according to the sec yes everything was above board and totally fine um it's interesting this just about lines up with the savings and loans collapse which i think uh the correct thesis of our michael milken episode was he was also doing a ponzi scheme but he was just better connected

and uh stealing from uh retail investors so he got away with it and is now still worth billions whereas madoff is in prison for life yeah yeah one of the things that's kind of tragic is that all the investors who got their money back if they just you know took their money with those wildly high returns and left they would have gotten off you know scot-free but they figured we just got kicked out of the best deal that anyone could ever find and they took that money and reinvested it with madoff it just makes it look more exclusive that's all the sec did like no you can't invest in my ponzi scheme you're not good enough you got to be better dressed you got to be richer you got to be more aristocratic it just makes people want it more look at what the sec tried to take from you

okay they hate you for your freedom basically all right reinvest with me the investment scheme that is so good the government tried to ban it uncle sam doesn't want you to make 15 to 20% per year because he's jealous. BNS, after this happened, was pissed off that he was the fall guy, and he chewed out Madoff. And as he describes it, All right, I said, you son of a bitch. It's over now. Cost us a lot of money and a lot of grief. And it's all your fault, Bernie. Damn you. It's your fault. Because we asked you, should we be registered? Should we get registered?

We were willing to do it. We were willing to pay any lawyer, any fee. And you said, no, no, no, no, no, no, no. And you assured us, big shot, that we were fine. We were just investors. When you knew damn well we weren't. Afterward, I got there and he says, look, I heard enough from you. Now I want you to stop. You're starting to get to me.

Very low, very cool. So I said, Bernie, I'm sorry. I'm just a very scared person and let's forget what i said and go on with this i apologize yeah and i actually i have a clip from uh bernie madoff what he said to that right there i ain't scared of you motherfuckers i ain't coming for no foolishness bernie mack was tragically killed by angry investors um so after the 1992 investigation uh madoff started relying more and more on Hank Azaria to automate his fraud.

Madoff began leasing the 17th floor of the Lipstick Building, ostensibly to, quote, hold their computers. But it was really just to create a more secure environment to do crime. And it was this time that DePasquale created a program to look up trades from the historical record, and then it would backdate his client's accounts to make it look like he was making all the right trades to secure high returns. So you say he made up this program and would enter all these trades, and we gave the figure earlier that he stole $ to 60 billion but did we minus out what the actual fair market value of that labor that he was performing is because clearly that's worth some amount of money to make up a program to pretend you're doing trades and to to sell hours of your time sitting in an office making fake

return spreadsheets. So, he should have made some money, just probably not as much as he actually made. I'm imagining at the sentencing hearing, Iris Harkin's like, Your Honor, my client here has done a great deal of emotional labor. Just imagine the stress of

knowing you stole money from all these people and it could fall apart at any time like he he deserves some compensation compensation bernie like bernie is thinking of all of a whole mess of things on behalf of his clients the mental load is immense, Your Honor. So, yeah, so this is when Bernie claims that... Oh, go ahead. Yogi, could you play that Bernie Madoff audio drop again? Oh, yeah, one sec. I got a fucking prose of being with Slavic women advertisement.

All right, one sec here. I ain't scared of you motherfuckers. I'm gonna tell you something straight off the motherfucking press. I ain't coming for no foolishness. That's actually what Bernie Madoff said to the Aryan Brotherhood his first day of prison. Yeah, there are a lot of different

rumors about what his prison life was like and one of them was that like some people said he got into fights. The book claims he didn't get in as many fights as were reported um by the media um but apparently he at a certain point became friends with a former boss of the colombo crime family to kind of get some protection right because he's the kind of guy who would have to pay protection money in prison. But you do have to imagine he might just give it a go like, okay, so I could give you protection money.

But what if you just invest the protection money with me and you will get 15 to 20% every year? And then he goes like, you start the Ponzi with the Aryan Brotherhood, then you go to the Mexican Mafia, then you go to the Bloods and the Crips, and you just kind of hope you die before the Ponzi within the prison implodes. It's just, his life is just the producers. He's just doing the same thing in prison.

Yeah, so this is when the Ponzi scheme really started to take off, or at least this is when he admits that it started. And whether or not that's true, this is when it became an almost industrial operation that was automated, that had all kinds of moving parts. They had their own floor in the lipstick building to um just do ponzi schemes the other floor actually uh was his the stock brokerage wing

of his company and that's where they did legitimate trading and whenever like people would be like oh let's go visit bernie madoff um let's go see what he's doing they would go into that which was like you know a nice office lots of you know coked up 20 somethings on computers at like Bloomberg terminals doing trades and that was all legitimate and that's where his sons actually worked

when they joined the company but have you guys seen the show industry no no on HBO well the that's just imagine that listeners Have you guys seen the show Industry? No. On HBO? Well, just imagine that, listeners, if you've seen it. Is that a new one? Yeah, it's new. I'll check it out.

I heard people complaining online that it was woke. So now I don't know if that's real or if that's culture war. I wouldn't let that deter you. It's pretty good, actually. There's some woke stuff sean people you associate with online complain that everything is woke exactly look i would love to watch your show steve but i actually do have loyalty to the reddit board r kataku in action i made a promise to the guys there that I wouldn't watch anything woke. Your internet friends would complain that American

History X is too woke. It's true. I am a man without a country. I'm a man without a country. So I'm going to throw to Stephen to explain the mechanics of how this Ponzi scheme actually worked and what was going on here. Yeah. So we used how this Ponzi scheme actually worked and kind of what was going on here yeah so we used the term Ponzi scheme a few times and we defined it before but let's just do that

again so it's basically a scheme where you the gist of it is you take in investments from investors and then pay out those same investments to other older investors. You take it in from the initial ones and then you have another wave of investors. And then the new investors pay the older investors. And you're not actually doing any trades or anything like that if it's a complete Ponzi scheme,

all of the principal balances that are coming in, with which a legitimate hedge fund would use to buy securities and hopefully earn a profit, and then they get a cut of that, you're not doing any of that. You're just taking in money from some people and then shifting it to other groups of people. That would be a pure ponzi scheme and at times bernie medov's scheme was that but for the most part it was kind of it wasn't a pure

ponzi scheme because like you're saying andy there was a brokerage arm to medov's firm which was doing legitimate business operations that earned profits for the most part like they would it was a stock brokerage they were like structuring trades and stuff for people and they made commissions off of that and that was kind of a front

for the Ponzi part which was a speculative advisory firm that took in money and said they were doing specific types of hedged trades but for the most part didn't do those and one of the in their advertising uh for bernie medov's firm believe it or not they're advertising for Bernie Madoff's firm, believe it or not, they're advertising for private equity

and hedge funds to rich people. They would advertise 15 to 20% returns at times in which those level of returns were not normal. And they would, if you called the number or emailed the email address on the advertisement, you would speak to someone who'd say, well, it's all legitimate, you see, we do something called a split-strike conversion.

And this is the name of a legitimate hedging technique that traders do use, but Bernie Madoff wasn't generally using. He was just saying he was doing it. But on the times in which he did legitimately do it, what he was doing was he would buy a basket of 30 to 35 stocks from the S&P 100, which is like the top 100 by market cap of this S&P 500. And then if he

believed that they were going to, if he was generally feeling bullish about the market or neutral to slightly bullish in that he thought the price would increase. So he would buy those stocks and then he would simultaneously sell an out-of-the-market call and buy an out-of-market put

on those same stocks. And in this way, he could hedge himself by limiting his losses but while at the same time doing so at the expense of cutting away the max profit that you could get from them. Every now and then he would do this legitimately but for the most part he would just say he was doing it

and then do a Ponzi scheme instead. He would just tell people like, I've been doing so many split strike conversions and it's going great. He was taking in new, he was taking in new investments and then giving them to the original investors or anyone who wanted to redeem,

uh, the returns that he said they were getting. If you want to know kind of just how blatant the crime was, all the money that people thought was being invested was in a single chase bank account hell yeah just money in money out yeah um i think you andy you mentioned it a little bit earlier but um some people some analysts were people obviously took notice to these on wall street took notice to these on Wall Street took notice to these insane returns

and they were at times double what the market was paying out in terms of the S&P 500 and they're like one such analyst, his boss was like I need you to figure out how Bernie Madoff is doing this and he's like okay

and so he looks through Bernie Madoff's SEC filings which they're required every quarter to file any any securities firm is required to file a list of everything they own each quarter and so if you're an analyst you can take each of those quarterly reports and then see how what they change what they own changes each quarter and then deduce from that what their returns like probably realistically were given all of their expenses and stuff.

And so he went and did that and it was never was it statistically likely and at times it was mathematically impossible that he was getting 15% returns based on what was actually on what he said was owned versus what could be confirmed against exchange lists of trades. This actually goes back to the introduction of NASDAQ

where they said we need a way to track every single trade that's going through this thing electronically. So you can look at that versus what was reported to the SEC. And so what they were reporting was either just not right or it was like on a given day there would be

like a hundred, say there was a hundred call options sold for the given stock. And Bernie Madoff would say oh I bought 180 of them. So it's just not possible. So this guy, they bought more than were actually sold.

The analyst who just deduced that this was a fraud basically went to the SEC, like Andy was saying, and he actually wrote a book about this called No One Would Listen. It's Harry Markopoulos? Yeah, Harry Markopoulos.

Yeah, Harry Markopoulos. They're like, he's Greek. He doesn't know what he's talking about. Those people can't do numbers. There's an anecdote in the book about him that when he was about to get married, he said to his fiance, well, if we're going to get you a two-carat diamond, you should get breast implants,

and then it's something we both can enjoy. Madoff said this? No, no, Markopoulos, the guy who called bullshit on him. Oh. Yeah. Yeah. So I guess Madoff was the good guy,

is what you're telling me. Yeah, yeah. What I'm saying is... Yes. I was like, even the heroes of Wall Street are still this type of guy. Brought down by a witch hunt. Imagine Madoff releases a New York Times op-ed that says, Harry Markopolos was no angel. You know, guys, it's not too late to pivot this into a Bernie Madoff is innocent podcast.

That would be like a real change up for the listeners. If we were like Bernie Madoff is the good billionaire, he was hunted by all the worst people. We're calling on President Trump to pardon Bernie Madoff. I was thinking before the episode, like, how could I maybe spend this, that, you know, a lot of the people he screwed over were pro-Israeli charities, and so... But it never quite fleshed out. So, as far as the court case

that he would later be charged for and sit for in 2009, this... All the SEC would say is this started as early as 1992, which you could make the case that it started earlier, but perhaps there was some political bullshit that the SEC didn't want to admit that they didn't catch this earlier. But Harry Markopolos reported this in 2000,

and he gave them a pretty detailed report about why it was either extremely unlikely or at times mathematically impossible to get 15 plus returns like he was saying. One thing that I thought was really funny about the computer algorithm is basically what it would do is it would look up all of the best stock trades you could have

made yesterday and it goes yeah we did that that's a pretty cool algorithm though yeah we did it guys yeah i did want to mention uh andy you said he's just sticking all this ponzi scheme money in a jp morgan chase account um kind of the way Madoff gets talked about a lot is lone villain. He's the scapegoat. He's the bad guy. But should just be noted from Wall Street on Parade, JPMorgan Chase got two felony counts that they pleaded guilty to in 2014 from their negligence in how, quoting from Wall Street on Parade, it ignored the money laundering going on for decades in the business bank account it handled for Ponzi schemer Bernie Madoff.

So, you know, JPMorgan Chase made plenty of fucking money on this. And I'm sure just looking at that account, they would know there was money laundering there for decades, but they just looked the other way. And then they got to pay a fine and slap on the wrist felony count for the bank one of many yeah yeah i don't know the exact number but they made millions off of him and yeah anyone who was running that account would have known like there's just money coming in and coming out from this guy who says he's investing people's money but clearly the money's just sitting in this bank account right yeah you think there's anything wrong with that 10 billion dollar account that just doesn't do anything but

like pay out and take money in and pay out and take money in money goes in money goes out you can't explain that you think there's that one business account that handles madoff's entire business is uh at all suspicious. Well, you did... I like how his accomplice was like, it's like splitting the atom. I mean, you can't explain I don't know how that works, but someone does. He did. I was thinking like

well, splitting the atom is possible whereas what you said you did wasn't. Right. You think it's weird that this account has a higher balance than the market cap of Madoff's entire company? So back in 1992, after his Abbott and Costello duo were no longer allowed to bring in their friends and family to invest in Madoff. He started expanding and attracting hedge funds. One of them was Jeffrey Tucker, who was a former SEC lawyer and a guy named Walter Noel. They formed a hedge fund called Fairfield Greenwich Group in Greenwich, Connecticut. And their hedge hedge fund when they first started it it was

it wasn't going very well and then um uh jeffrey tucker told walt jeffrey tucker a former sec lawyer told his partner walter that he knew a guy with really impressive returns and um uh they they talked to madoff and madoff impressed them when he said he wouldn't take any fees, um, just, just commission. And they were like, wow, this guy's the real deal. Walter Noel's daughters married a bunch of high level financiers in different parts of the world, uh, which allowed them at Fairfield Greenwich group to make a lot of connections to, uh, a lot of finance people all over the world

and attract investors to their fund, which was then investing in Bernie Madoff. Madoff also got European aristocrats involved with the fund, including a French aristocrat who we'll get to again in the fallout named René Thierry Magone de la Villeche. Advice for the listeners, if you hear that name, don't rent them a hotel room. It was his office, Sean.

Oh, I thought he did it in a hotel. And he was very clean about it. He put down a trash can. I was going to say, I hope he left a tip for that maid gotta don't skimp on the tip for housekeeping if uh you're gonna go out in the uh hotel bathtub it was it was it was kind of misguided because like he they said like oh he put down a trash can to collect so i'll just get to it now he slid his wrists when it all when the shit hit the fan um and the story is that uh he stayed in his office and you know uh

told the cleaning staff to leave early and then locked himself in his office put down a trash can and slid it in the trash cans to collect the blood so it wouldn't get on the carpet um but that's i mean that's misguided because eventually you're going to fall over and you're still bleeding he split his wrists horizontally or vertically do we know uh it said his wrists and his upper arms so i think it was both across the road and down the street gotcha i actually know a little bit about this because i wrote a stand-up bit that goes something like um there was this guy he lost a billion dollars like one billion dollars with madoff it's a lot of money so i go there was this guy who lost one billion dollars with bernie madoff

and then he killed himself over it and that's what you that's how you know rich people look down on us is they would rather die than go back to being like us every day i wake up in the same financial situation as a guy who killed himself because of his financial situation yeah it's true it's it's weird in the frontline documentary they you know had this uh aristocratic european guy who's a friend of him who was like oh he did it the honorable old-fashioned way to watch himself bleed for his crimes but yeah he he lost 1.6 billion for his fund and then i think 50 million for himself um but going back to the 90s he uh got a bunch of aristocrats and european royalty to invest in his firm uh and so in a way i'd say madoff's a good guy for screwing over all these

people oh yeah um i mean there are all these pictures of this this french guy you know in a sailboat whenever they wanted their like stock photo of him like a big yacht it's like oh okay i will say i can't remember this might be the first grub stakers episode where i actually hate the billionaire less as the episode goes on like this guy he's sounding like vladimir lenin right now he's stealing from european royalty he's murdering them in their offices i mean free my man free man you didn't say my favorite punchline from that bit which is just like he just you know he took one bite of a pop tart and was like i can't do this yeah so i didn't want to because this is like basically hanging out with my friends i didn't want to do all the tags but then yeah the tag is like i like to imagine

that he was kind of excited about being poor at first he's like i get to ride on a bus i've never done that but then he just takes one bite out of a pop tart and goes this isn't life and ends it all this is going to become uh comics unleashed uh soogi you I hear that you saw a sign for seeing eye dog that well that's right Byron Andy what I did see is a sign for a lost dog I'm not doing my bits

so Andy I heard you've been going to a lot of slaughterhouses and this makes you think about the French Revolution. Well, Mr. Palmer, I heard you've got a new idea for a children's attraction at local playgrounds. Yeah, it's a climbing gym for children. So Yogi, I heard you have a joke where the punchline is watermelon. I was going to do that one. If you heard me stumbling to the dog one,

I was about to do the watermelon one, and then I was like, no, I can't do that to Yogi. I don't care. It's fine. It will end my career. The real listeners know. So this is a clip of Bernie Madoff

when he was in prison and he learned that the Aryan nation would no longer protect him. Is that the Oceans movie? This is a Bernie Mac and Oceans 11, yeah. Yeah, yeah. I don't know why. That line is always what got me. Might as well call it whitejack.

So Madoff also told hedge funds who invested with him not to mention that they were investing with him. So again, fight club rules. So in 1999, the SEC investigated him again. They sent examiners to his firm to review its trading practices.

They were worried the firm wasn't properly displaying orders to others in the market, violating a trading rule. And Madoff responded by outlining new procedures to address the findings, and the SEC decided everything was fine. There was also a rumor

of front-running. There was an article in Barron's that came out questioning how Madoff was able to make such consistently high returns, hinting that he must be doing insider trading. Specifically, the kind of insider trading known as front-running,

where an investor buys, or they kind of get a tip that there's going to be a major purchase of a stock. And so they buy it right before that when it's at a lower price and then you know a larger market buys the stock and it boosts the price of the stock you bought for your investors or you can do it within your own stocks where um you buy the shares for some favorite investors first and then buy a bunch more shares for the rest of your investors and it boosts the price for the favorite investors so the sec in 2004 opened a limited investigation into whether madoff was front running

and uh they found no evidence that he was front running um yeah uh because he was running a ponzi scheme and so um they closed that investigation then in 2005 um they invested bernie his brother his two sons and his niece who all worked for him and um they found that his investment advisory business had 16 clients so i assume we're hedge funds and managed eight billion dollars and legally any firm that offers advice to more than 14 clients is required to register with the agency and undergo reviews. The SEC reported that Madoff, quote, would not acknowledge that these accounts were an investment advisory business because he received commissions from trades,

not a percentage of the profits, which is the typical arrangement for hedge funds. So he basically was like, by your logic, everything's above board. And Madoff also said the firm's trades were executed in foreign markets outside of U.S. trading hours, which actually it was later found that some of his trades were done during

hours when it would have been impossible to trade them on weekends. No one noticed this. I like that the initial investigation meant front running. They went in looking specifically for front running when they didn't find it because he just wasn't doing the trades.

He just said he did for the most part. Now Andy, when you're describing all these SEC investigations that went nowhere, I think the total number was six that all went nowhere. Does this have anything to do with this sentence that I'm looking at in my notes? Quote, from 1991 to 2008, Bernie and Ruth Madoff contributed about $240,000 to federal candidates, parties, and committees, including $25,000 a year from 2005 to 2008 to the Democratic Senatorial Campaign Committee. And I guess it says here that a guy named Charles Schumer returned about $30,000

worth of Bernie Madoff donations uh what's the last part there uh some guy named charles schumer returned about thirty thousand dollars in bernie madoff donations yes yeah so it sounds like it's above board yeah that's true he gave the money back so that was he found out something was wrong he gave the money back he wasn't influenced by that at all. He gave all the money back. It's the eBay protection. So the SEC examined, this is in the 2005 investigation, they examined customer statements made over four days in January 2005 and concluded that they matched the investment strategy Madoff described, which I guess he described a strategy of,

yeah, I make all the right trades all the time. And the SEC said the findings quote somewhat alleviated their concerns about front running um they're just asking like is this your trade he's like i don't know was it the best trade possible that day and they're like uh actually yeah and he's like then yes yeah there's um so then uh towards the end of the investigation in early 2006 the sec asked made off for a list of all the accounts through which he executed, cleared, or settled any trades. And this was a bit difficult for him because they weren't executing, clearing, or settling any trades because it was a Ponzi scheme. Right.

And so he knew that if he gave them information about what he was doing, it would lead them to his fraud. Sure, of course. But he also knew that if he refused to give them information, it would set off a bunch of alarm bells and they would dig deeper. and made like a six page list of all the financial entities through which he was allegedly conducting trades along with the account number at the depository trust clearing corporation and he also visited sec headquarters without a lawyer um and told the investigators or like you know and you know talk to the investigators to kind of alleviate their worries. And he kind of waxed philosophical about the art of stock trading, where he said, people are always trying to ask me what makes a good trade or why can you trade better than other people and so on.

It's the same thing. We are proprietary traders and market makers. Some guys have more guts than others. Some of them are just stupid. They don't get frightened when they should be getting frightened some people just feel the market some people just understand how to analyze the numbers they are looking at and so he said the explanation for his success is simple he was one of those people who just feels the market sounds good to me and the sec never followed up on any of it and after two years of inaction, they closed the investigation in January 2008,

less than a year before it blew up. I will say walking into the SEC with no lawyer when you've got your back up against the wall is really kind of the Walter White from Breaking Bad desperation move that pays off in the end. It is like the season finale isie madoff going in and just fucking improvving his way through the sec headquarters and getting away with it it's so clearly obviously i mean this is mostly a story about one incredibly greedy deranged billionaire but also it's one of just bureaucratic incompetence. Yeah. Yeah. Because they were repeatedly warned over decades by various people

and then given shoddy explanations by Bernie. And if they had actually followed up on those documents that he gave them at all, they would have caught him. And they just didn't. And one of the things that they mention is that, or that Diane Henricks mentions in they mention is that um or that uh diane henricks mentions in her book is that like at the sec there's a lot of um turnover because if you're the kind

of person who like you know has to know enough about finance to get a job at the sec the pay at the sec is much much lower than you would get anywhere else in the finance world. Yeah, I was going to say, I lean more towards probably corruption. I'm sure there's some level of incompetence, but from what I've seen, at least some of the actual SEC investigators doubted whether Madoff was trading at all. So I think it's kind of the thing where when you look at his political donations, they actually all start at like 91 with his initial early investigations. So it's just kind of a thing where when you're under government investigation, it's smart to just send some money around to various local New York bigwigs, and then they lean on these people and put pressure

on. So you have maybe lower-level investigators who might realize what's up, but then the people above them, well, they want to get the revolving door money. They don't want to upset a powerful, make a powerful enemy on Wall Street. They don't want to do that. And I don't know the exact situation,

but I would imagine it's that kind of revolving door corruption definitely played a big part in these six investigations that went nowhere oh yeah I guess I should rephrase like I think it's a mixture of incompetence but also I mean I think the people directly involved in the case probably didn't know on some level

but they also starting one's career in high finance at the SEC is somewhat common so like you stay there for two to three years then you go to wall street yeah and i'm guessing yeah probably the there might have also been a thing where you know you're investigating someone like this the higher-ups are restricting funding you know maybe they're not ostensibly saying hey kill this investigation there's nothing here but they'll be like oh you know we can't pay for you to you know look through these records you know it's just not in our budget right now

things are tight well they'll just say like oh this is being handled at a higher level like that's the easiest thing where you know everybody at every job or i shouldn't say everybody but people are fine with kicking things upstairs and being like all right i did my job it's not my responsibility nobody will get mad at me and then your boss is happy to be like hey i want to get a job with made off later so i'll take this off your hands you know this is being handled upstairs you don't need to investigate this anymore and they'll be like cool i get to go back and uh play solitaire so you know yeah that higher level is God. So also in 2005, this is when Harry Markopoulos, who was an executive at a rival country, sent a 21-page report outlining all the concerns that Madoff was operating the world's largest ponzi scheme. He had contacted the SEC in 2001, but apparently while explaining his findings to an SEC lawyer, the lawyer

apparently got confused and couldn't make any sense of it. He just started drawing things on a whiteboard and the lawyer's eyes glazed over. He also sent a letter in 2001 which an SEC investigator told her supervisor didn't warrant further investigation

and then when asked about it later by Henrik's that supervisor said she didn't even remember reading the letter and doesn't know why she said it shouldn't be pursued oh wow which is good good ass covering and this led the SEC to open an enforcement case

sorry go ahead the lawyer is just like whatever this shit's boring who cares I do like something we, whatever, this shit's boring, who cares? Yeah. I do like, something we have discovered on this podcast is I can't remember is the get out of jail

free phrase. Yeah, seriously. Worked for, oh, do you remember Alberto Gonzalez when he got

quizzed by the Senate Judiciary Committee and just said, I do not recall like a hundred times. Yeah. Bill Gates and his depositions you know lots of people if you want i guess bill gates did some filibustering too he did some other stuff but pharrell in his when asked about if his note signature was similar to uh for blurred lines

to marvin gaye he just said i'm not comfortable with this question i'm just not comfortable you just say you're not comfortable with this question. I'm just not comfortable. Just say you're not comfortable with questions. So the SEC opened an enforcement case to ascertain whether the allegations had any factual basis. The interviewed Madoff again, sifted through documents, and concluded that neither Madoff

nor Fairfield Greenwich Group were telling investigators that Madoff was making all the investment decisions. And Fairfield responded by changing its disclosures. The SEC found that Madoff misled the agency about his strategy for customer accounts and withheld information about accounts and violated SEC rules

by operating as an unregistered investment advisor. However, quote, the staff found no evidence of fraud, according to the SEC case memo. And Madoff agreed to register his business that September and the SEC didn't make its findings public. Madoff's scheme also nearly ran out of money in 2005. Many people started leaving his feeder funds like Fairfield Greenwich, which started charging higher management fees because they were getting all these great returns with Madoff. They deserve more money.

But people started leaving that, and so he almost ran out of money. To keep the fund afloat, he borrowed money from his brokerage firm, the legitimate wing of the company, so that he could continue the fraud. You need to raid the one legitimate part of your business to fund the ponzi

part yeah and that worked for about three years um i have one other quote here uh from my notes from wikipedia this might again this might i'm not sure if this is relevant it might have something to do with why all these sec investigations failed uh madoff said in june set on june 17th 2009 in an interview that sec chairman mary shapiro was quote a dear friend and that sec commissioner elise walter was quote a terrific lady whom he knew quote pretty well unquote so i'm not sure if his personal relationship with the chairman and commissioner of the SEC as of 2009 had any bearing on this. That's true.

It's worth remembering that it wasn't that long ago that Bernie was on the board of NASDAQ. Oh, yeah. Yeah, the board and the chairman will meet with SEC all the time. And, you know know i guess it's common sense if you're committing a massive crime you want to buddy buddy up with the people who um would be disinclined to investigate you because they're friends with you right of course and it is

and it's why it's so disingenuous when people kind of pretend that he's this lone wolf or this uh you know lone gunman lone financial fraud and oh we punished him we dealt with it he was like you just said chairman of nasdaq he clearly had relationships with the sec he clearly had relationships networking all over wall street for decades all these people just can't do what they do without a wide network around them that enables them. And then as soon as it blows up, then everybody backs away and said, whoa, I can't believe he fucked us all over like that. Right, right. So in 2008, after Bear Stearns collapsed in March and Lehman Brothers in September, his investors got antsy and started asking to pull out their money in droves uh they tried to

withdraw about seven billion dollars from the firm and so madoff started soliciting more investors from people he knew in order to pay out the people who were asking for withdrawals one of them uh was former subject kinlan goan who turned him down uh he then started soliciting bank loans but the banks all shut their doors on him they uh stopped lending money to made off um you know they uh they got off scot-free but they're like we're not going to lend money for him for whatever reason we're not going to say why um imagine being such a pussy that you pull your money out when you're making 15 to 20 annual returns just because you get a little scared about the market conditions you got weak hands brother

weak hands you're not going to succeed you're never going to make it um on december 4th he told frank de pascali that he was finished on december 9th he told his brother that he was finished and on december 10th he told his sons to distribute 170 million of the firm's remaining 200 million that was on the chase bank account right uh as bonuses two months early to all the employees family and favorite investors um and his sons mark and and, asked how he could distribute that money if they didn't have any money to pay investors. And Madoff then asked his sons to follow him to his apartment

where he admitted that the asset management arm of the company was a Ponzi scheme and quote, one big lie. Mark and Andrew immediately contacted a friend of theirs who was a lawyer who then called the authorities on their behalf and madoff thought he would have like a week to wind down the business i didn't know that his sons were snitches right and so he assumed that

you know in that week basically he would take all the rest of the money and give it to everyone he could before it all came crashing down but on December 11th an FBI agent came to his house and said we are here to find out if there's an innocent explanation and Madoff replied with there is no innocent explanation he was

actually released the same day of his arrest after posting a 10 million dollar bail he and his wife served at their passports were subject to travel restrictions a 7 p.m curfew um at his penthouse condo and an ankle bracelet and a lot of the media called it penthouse arrest uh on january 5th 2009 prosecutors demanded that madoff's bail be revoked after his wife mailed about $1 million worth of jewelry to relatives, including her sons. She claimed there were heirlooms, but a lot of them were like, you know, expensive watches and stuff.

And also, they didn't come from like huge money, so they're not going to have a million dollars worth of heirlooms. Right, right. It has happened, though. I've just become fully sympathetic to M made off throughout the course of this episode like my man my man could have made a run for it if his fucking sons weren't snitches that's true like if imagine you're watching the bernie made off tv show at this point you would want him to be like okay let me just pull 10 million and just see if i can make things work in venezuela like let's get on a plane let's get the fuck out of here and, you know, see if it works out. But his sons didn't even give him a week.

No. Monsters. They're dead now. It's okay. Yeah. His son felt so bad about fucking his father over and not letting him run to Venezuela. And he should. No, no cooperation. Snitches get stitches. and not letting him run to Venezuela. And he should.

No cooper. Snitches get stitches. So it had been discovered that 173 million in signed checks were found in Madoff's office desk after he'd been arrested. And despite all this, his bail was not revoked. The judge just ordered that

his mail be searched and then on march 12 2009 madoff pled guilty secure to securities fraud investment advisor fraud mail fraud wire fraud money laundering false statements perjury making false filings to the sec and theft from an employee benefit plan wow uh wait a minute you're telling me as an employee of Bernie Madoff's I am not going to get a pension? Oh no, you're going to get a pension. It's not your pension that's being rated.

Some of them are just like so I guess no bonus. It would be pretty funny if he put his employees pensions in his Ponzi scheme. How fucking mad are you if you're the guy who's a pinch who's pension chief investment officer uh talked to that guy from the frontline documentary and was like hell yeah let's do it this is this seems like where our

employees want to be investing right now it's's like you could either, the pensions benefit manager to the employee is like, you could either take a payout now and get healthcare, or you could leave it in the fund and get 15 to 20% return. Don't you want your money to make money? That's just smart investment. Look, I know you're just like a simple uh office clerk so maybe you don't understand the big high finance stuff like i do okay 15 to 20 percent a year is a really good return that's right you can't lose with this so Um, fallout. Uh, he, uh, made off claimed that he was the sole, um,

perpetrator of the Ponzi scheme. And, um, so there was no, he just pled guilty to everything. There was no trial. Uh, and that way he,

he, uh, wouldn't snitch on anyone. Right so he got 150 years at sentencing uh frankie pascali also went to jail the sons did not uh though uh they pretty much lost everything uh anyone who made a bunch of money from the company lost everything. Yeah. Andrew Madoff would eventually die of mantle cell lymphoma at Memorial Sloan Kettering Cancer Center at 48. And his older brother, Mark Madoff, would hang himself in 2010. Incidentally, from an article on the list.com, their wives would then have to deal with lawsuits of the madoff incident because lawyers would claim that the wives of the sons should have known there was a ponzi scheme going on and like that's that's fucking that's rough that that is the reality they had to live in um just to be like yeah my dead ex-husband's

father committed a crime and now i'm being sued over millions of dollars oh yeah yeah george she lost her husband you shouldn't be suing her jerry i want my money i want my money. I want my money, Jerry. The, um, yeah, the, like the kids, it is kind of tragic because the kids were, um, they're never charged with any crimes. I mean, it's, it's half tragic because on one hand, um, they were, they did grow up incredibly rich and all the way up until, 11, 2008, were still very rich. And so they had a nice life of luxury. And then it all came crashing down on them. And to their credit, they were fairly contrite after it all came crashing.

I mean, you know, Mark hung himself to kind of at least. But that is an example of being contrite. Hanging yourself is an example of being contrite, I would say. Yeah. So. They begin the letters with sorry they yeah so they though they weren't the biggest victims uh the family wasn't the biggest victims because you know for most of the time this was going on they were actually able to use the money

and live a life of luxury whereas the other people who had invested it you know they thought you know it was in this great savings account basically and so and then once they found out it was all gone a bunch of them lost everything lost their house um so uh and another thing that complicated it is that many of the victims were also co-conspirators in a way because there were some people who you know would put a little bit of money in and then take a lot of money out right um and all that money that they took out was clearly other people's money it wasn't from their returns and if you kind of knew this was a ponzi scheme and then cleared it out before the shit hit the fan you know you were uh the you're a co-conspirator even though on paper you're a victim. And during the bankruptcy filings

for the Madoff estate, there were a lot of people who were ostensibly victims who were then pursued by the bankruptcy lawyer. I think his name was Irving Picard. And yeah, yeah. And he made it so that um there eventually was a very adversarial relationship between some of the people who did well under the ponzi scheme and some of the people and and um

but claimed to be victims and picard himself so here's a brief list of the victims um uh after the fraud was revealed major banks in Europe began issuing press releases. Banco Santander's Optimal Funds had invested with Madoff. Funds affiliated with UBS might have invested with Madoff. HSBC said they may have been exposed through its hedge fund administration unit. And BNP Paribas had about $500 million at risk through trades and loans to hedge funds. Some of the famous victims include, some of them we've already mentioned, Baseball Hall of Famer Sandy Koufax,

Morton Zuckerman, the owner of the New York Daily News, Keira Sedgwick, Kevin Bacon, John Malkovich. That's one time you don't want to be John Malkovich if HSBC invested with him that means El Chapo Guzman also lost money on it screenwriter Eric Roth the heirs of John Denver again Michael Douglas's

ex-wife the foundation set up by Jeffrey Katzenberg the co-founder of DreamWorks as well as David Geffen and Steven Spielberg's charitable foundations, a Korean teacher's pension, minor royalty in England and Monaco, two

Catholic schools on St. Croix, part of the International Olympic Committee, the foundation set up by Holocaust survivor Elie Wasel and uh so many jewish charities that the jewish journal had a blog about the unfolding scandal titled swindler's list wow and uh finally uh george just stands the inventor of the iToilet app. Madoff?

Madoff! And I guess Madoff didn't say anything, and I guess that's probably why he's still alive. Or he claimed it was all him doing everything. T. Pasquale, Frank Azaria, he snitched on everyone to get a reduced prison sentence

um nice yeah let's see like again this only is made this episode we've done almost two hours and it's only made me like bernie madoff more than when i came into it because this guy honored the code of omerta how many billionaires have we found who honored the code of omerta the mafia doesn't even do it anymore no i'm just picturing bernie defending his sons to the judge and he says like basically they're like they're goody good boys basically listen they're really sorry one of of them's going to hang himself. Bernie Madoff is more of an anti-FBI crusader than many leftists. He did make, he made a, not a billionaire, but a hundreds millionaire kill himself.

That's true. So that's good. I said two suicides at the top of the episode but I think it's actually three that I know of. There might even be more but in terms of ones that were reported in the news it was that aristocrat it was his son and then

there was some other guy who just like recently a few years ago jumped out of a window in Manhattan who lost a bunch of money on the fraud i think there was another guy i don't i don't have it in my notes but um there was some like world war ii veteran who like shot himself after losing everything yeah geez again this direct action four Four-digit body count. He wasn't a German World War II veteran. You don't know that, Andy. It's not in your notes. I think it was British.

He tried his hand at Antifa for a while. Yeah. To try and make it worth it in his mind. So, that has been the story of the one good billionaire. Or 800 billionaire. I count all the money that he stole as a billionaire, or as his personal net worth, because it was just in one bank account.

So I'd say his net worth was $20 billion. But perhaps, Yogi, I understand you have some anecdotes about Bernie's life in prison. Maybe we could just close out the episode with that, because I'm sure I myself am curious, and I'm sure the listeners are curious to know, how are guys doing right now? What's life like on the inside for the best billionaire we've ever covered there's not much out now from what i did find though when he was arrested i mean there's that one video of him being ushered in and he gets like shoved and the look on his face is like why would someone push me there is a lot of bernie madoff feeling almost incredulous over the entire affair uh from a 2011 interview with barbara walters madoff said that he was happier in prison than he was on the outside while under intense media scrutiny. And with New York Magazine, he confessed that while he's remorseful for what he did, he cannot stomach the public's perception of him. Everybody on the

outside kept claiming I'm a sociopath, he said. And I just love that he doesn't understand that he ruined people's lives. like there's one thing for madoff to be like i mean okay i committed a giant fraud and it was a shitty situation but for him to be like i don't understand why people thought that they could retire with the money they gave me but then they're now cleaning homes is such a big deal that that thing where he said like i was doing great in prison reminded me that you know in the real arrested development michael kills himself yeah that's true he hangs himself in the model home and then the rafter falls down i'm just looking at the wikipedia here for his incarceration which tells you the level of

research i contributed to this episode but apparently like he got involved in a couple of altercations in prison but then later on he got the friendship with carmine perseco that we've mentioned here but apparently there's some sort of altercation where he got slapped because he changed the channel on the prison tv and then it's believed that perseco had intimidated the inmate who slapped made off in the face after that in the book they say that some of the media reports about his fights were overstated

just for sensationalism um though it's i mean he's in prison it's entirely possible he's been in a few i mean like his kids hated him after this whole thing uh there's a quote from andrew made off and he said even on mybed, I will never forgive him for what he did. And like, it's really Madoff was fucked up.

But this is a man that has cancer. That's like, I'm going to die soon, and I still will not forgive this motherfucker. of lies when it had come out and the scene where made off deniro's made off and his wife are going to take sleeping pills to kill themselves over christmas but then the next day they just wake up well rested it doesn't work and like they took they took a bunch of ambien and i don't know if this was meant as a joke but it was a nice touch that while they're like starting to fade out judy garland singing on the tv so you know it's one of those things where like at the end there i feel like madoff had a couple of exits but then kept like almost narrowly avoiding them somehow yeah but that was andrew's mistake because you know actually forgiving your father does cure

your cancer it's it's it's caused by stress and guilt and you gotta clear the chakras you gotta drink kombucha with it too forgiveness and kombucha cures cancer gt dave taught us this um from that list of celebrities malkovich has my favorite quote over the entire incident uh john malkovich says i don't view it as a negative experience. To me, it was, you think you have a bunch of money and you don't. So what? Most people don't have a lot of money. I think it kind of reconnected me to how most people live all the time.

And unlike a lot of people that were involved in the Madoff thing, I could just go back to work and it was fine. So a relatively healthy uh uh reflection on the whole thing by malkovich because you know anytime interviewers ask the people aren't reporting how much they lost because like everyone from any mentioned that list to like larry king from one report i found that the mets owner uh, what the fuck's that guy's name? Yeah, the Mets owner, Wilpin, supposedly lost $500 million over the whole Madoff deal.

So, like, you know, the Mets never win. But that's like one pitcher. That's just one pitching prospect that doesn't pan out. That's nothing. So, yeah. Oh, one other thing. Apparently in, I think, 2011, out that's nothing so yeah oh one other thing apparently in i think 2011 it was discovered that madoff sent a letter to his daughter-in-law that said that he was being treated in prison

quote like a mafia don and they just have a quote from it here quote they call me either uncle bernie or mr madoff i can't walk anywhere without someone shouting their greetings and encouragement to keep my spirit up it's really quite sweet how concerned everyone is about my well-being including the staff it's much safer here than walking the streets of new york he's just like that jeffrey tambor character all the way down to like uh unsolicitedly squeezing women's asses. And you know, he has asked Donald Trump for a commutation or pardon of his sentence. Yeah, Trump White House never responded, but we are recording this January 11th,

so you might know something we don't by the time we release this one. So he was a great guy. He made a lot of people a lot of money, and we wish him the best in all of his future pursuits. Yeah, free my mans. He has chronic kidney failure, according to his lawyers, so he has to be let out of prison. You know that kind of chronic kidney failure that's going to kill you in a year,

but then you live another 20 years after you get out of prison. That's what he has, man. Free my man, Donald Trump. Pardon him. And with that, this has been Grubstakers. Appreciate all your reviews. Got some new ones in here, and we'll check out some of the billionaires

that are mentioned in our new reviews. Appreciate all the new cats posting stuff. I'm Yogi Paywall. I'm Steve Jeffries. I'm Sean P. McCarthy. Thank you for listening. Thanks for supporting on Patreon. I'm Andy Palmer.

Keep your eyes out for great investment opportunities. Yeah. 15 to 20%. That should be the minimum of what you're in. You're a grub stakers listener. You don't accept less than 15% annual return. Okay. Yeah.

Fucking 10%. That's for red scare listeners. Okay. That's pussy shit. I won't stop. our listeners, okay? That's pussy shit. No touch! No touch! No touch! No touch! I won't stop. That didn't help.