Radiolab - Radiolab Presents: Ponzi Supernova

Episode Date: February 10, 2017

We thought we knew the story of Bernie Madoff.  How he masterminded the biggest Ponzi scheme in history, leaving behind scores of distraught investors and a $65 billion black hole.  But we had never heard the story from Madoff himself. This week, reporter Steve Fishman and former Radiolabber Ellen Horne visit our studio to play us snippets from their extraordinary Audible series Ponzi Supernova, which features exclusive footage of the man who bamboozled the world.  After years of investigative reporting – including interviews with dozens of FBI and SEC agents, investors, traders, and attorneys – the pair scrutinize Madoff’s account to understand exactly why he did it, how he managed to pull it off, and how culpable he actually was. Was he a puppetmaster or a puppet? And if the latter, who else is to blame for the biggest financial fraud in history? You can hear the entire series on iTunes or for free on Audible Support Radiolab by becoming a member today at Radiolab.org/donate.    

Wait, you're listening. Okay. All right. You're listening to Radio Lab. Radio Lab. From W. N. Y. C. See?

Yeah. So maybe you just want to start at the beginning. So how did you bump into this? You've been following financial stories? I did some financial stories, but I think my beat was more people in the headlines at the worst moments of their lives. And then I would go in and. become their friends. And we talk intimately about what downfall means when you've been at the mountain.

Top. Hey, I'm Chad Abumrod. I'm Robert Krollwitch. This is Radio Lab. And today, a behind-the-scenes look at the greatest financial fraud in history. It's a series called Ponzi Supernova from audible.com. And just to set up how we got to it. Ellenhorn, the great Ellenhorn, who was one of the founding members of Radio Lab.

A couple years ago, she left us. It was very sad for us. But she went off to Audible, teamed up with a guy named Steve Fishman, who you just heard. And together they produced this series, which has tape in it that has never before been heard. And it's pretty extraordinary. And kind of, you know, given what's happened recently with financial reforms up for reconsideration, what you're about to hear, you will find a little bit troubling and extremely. timely.

Yeah. And so what we did a couple days ago, we got Steve and Ellen into the studio to play us some stuff and to talk about it. Yeah. Sure. You spend the first episode really, oh, sorry. You spend the first episode really chasing the guy. Yeah.

Trying to get access to Bernie Madoff in prison. Yeah. You know, I did all kinds of things. I mean, this was like years long pursuit. I would send Bernie novels in the mail. I would try and insult him. I copied out Sartre's play No Exit, and I sent that to him, you know, just to try and get a rise. I put money in his commissary account and then, you know, sent him a your welcome note, never receiving a response.

Do you know why at this point? What was driving this? I mean, listen, Bernie has done this. I mean, everybody knows, and we keep reading about the details, and we keep trying to. triangulating Bernie from friends who very obviously didn't know him, investors who obviously didn't know him. I want to hear this guy. Tell me, I want to say, Bernie, why did you do this? You were already rich.

Come on. What's going on here? I mean, Bernie had the greatest seat in the house to what was going on behind the scenes. So, Steve has explained to us for years, you just kept pestering the guy in prison. He ended up talking to a whole series of other prisoners asking them to get the word to Bernie, and eventually just to cut to the chase one day. My home phone rings. So I pick it up.

It's a Sunday evening. The Jets game is on, and I got my two young kids running around. You have a collect call from an inmate at a federal prison, and then you hear Bernie's voice saying Bernard Madoff in this kind of slightly kind of disgusted tone of voice. And I'm... This is like Captain Ahab, but now you have kids running around the room. A Jets game on. Here's the phone call. Oh, my God.

Are you ready? Oh, and I'm not ready. I don't have a pen and paper. I don't have a tape recorder. And my kids are in the background. So my first reaction to Bernie on the phone is, hey, kids, shut up. It's Bernie made off.

So then it calls come only in 15-minute bursts. And then for whatever reason... Meaning at exactly... 15 minutes? Exactly 15 minutes. It just ends. And then the inmate has to wait 15 minutes to call you back. Wow.

So he hangs up. I know I have 15 minutes. I'm running around. I must have a tape recorder. Find one in the closet. You know, tested. At this point, we're just going to drop into the series. Bernie.

Yeah, hi, Dave. Hi. You got turned off in the middle of saying something. You said you were just, I was so, and then you got cut off. Well, yeah. I was just saying it was great to talk to you because, you know, talking to you in person is so different than reading about you, all the kind of caricature out there and the whole sense of you as being, you know, just as one-dimensional person. It was nice talking to you to stay there through all these years. Yeah, that's right.

So. Burning Madoff is the greatest financial crook in history, but his voice is familiar to me. Madoff could be the uncle I run into at Bar Mitzvizvus. We have common roots, middle class, New York Jews, and also an interest in the Jets. I'm going up the game for you. I got it recorded. Okay.

Yeah, I like that. I can freeze through commercials if I want to. What do you do? Are you near the TV room now? Yeah, yeah, the phones are right near the TV room. I try to imagine the former chairman of the NASDAQ at a pay phone in a cell block. Inmates lined up behind him.

with prison-made tattoos, prison-honed muscles. Oh, and you can call at night, too? Yeah, I call up until 10.30 at night. Prison is not what Bernie expected. I guess aside from being, you know, separated from everybody and, well, the... Oh, it's, you know, you're probably not talking to Ruth right now. No, it's just...

Time's up. It's frustrating. A call starts, we build momentum. Bernie begins to open up. and then the guillotine falls. Trust is tough to build on a timer, and I need to be the person he will trust with the whole story, at least as he sees it.

Bernie lets me know he has a story to tell. He's been misunderstood. I'm a good person he tells me. He starts with this. His family didn't have a clue. Bernie insists he shielded his family, nobly kept them in the dark. until the unseasonably warm afternoon of December 10, 2008.

At that stage, I sort of been in a panic about the whole thing. He was at his office. Bernard L. made off securities, a family business. What happened was Andy and Mark came into my brother during the afternoon and said, what's wrong with that? They went into Bernie's study. That's what I pointed. Andrew, Bernie's youngest son, had been diagnosed with lymphoma five years earlier.

he fought it and recovered fully. He considered changing jobs, but Bernie talked him into returning to work beside his dad, his brother, his uncle, his first cousin. As for what happened next? And didn't hear from them again until two years into Bernie's 150-year sentence,

his oldest son, Mark, sent a message in the most horrible way. The chaplain came to get you, and what does he bring you to the chaplain? Right. And Ruth's on the phone and she tells you. Mark Madoff killed himself at age 46, hung himself with a dog leash in his Soho loft,

while his toddler slept in the room next door. The date, December 11, 2010, two years to the day after his father's arrest. To Bernie, Mark's message to him was clear. You ruined my life. I tried that. Bernie told me he still hoped he could reach Andrew and explain.

But Andrew's cancer returned. He blamed the relapse on his father's crimes, the stress and shame of it all. Andrew Madoff died in 2014. Bernie, though, is a survivor. Once he confessed to the largest Ponzi scheme in history, for him, the worst was over. It must have been something of a relief

to finally be able to get this off your shoulder. Yeah. Oh, me. Yeah. I mean, you were looking down the barrel of this for you. I guess you kind of knew it would end up here, you know, where you are now sooner or later. When I say nightmare, that's a nightmare. Imagine not being able to tell anybody that I destroyed the family.

They said, why did you need to do it? That's what I try and figure out here once a week. The psychologist is in place. And unfortunately, they have a wonderful psychologist here. and they're very helpful to me. Wow, that's great. That's great. Believe me.

That's great. I have two full sessions with her. A New Yorker and his shrink, seeking reassurance, searching for answers. Where does a monster come from? I asked him a psychopath after I was seeing this, they said, you're absolutely not a sociopath. They said, you have morals, you have remorse.

I came to think of my conversations with Bernie as a kind of session, too. So I... Steve, do you. I mean, I'm just curious. What are you thinking at this point as you're talking to? I mean, we're running through his story, and we've developed a kind of rapport. I mean, you know, there's a different generation, but Jewish roots, New York area, this is a guy who's familiar to me. And we develop a report, and Bernie kind of tells me the story of his father and of how he got into this.

My father built a sporting goods business. He owned a company called Dodger Sporting Goods. And he invented the Joe Palooka punching bag. Oh, is it right? You know, the stand on a metal rod. Sure. And they had a big successful business. And then during the Korean War, it was a steel short.

He couldn't get steel. And his business failed. So, you know, I look through that. You watch that happen. And you see your father who idolized, you know, build a big business, and then lose everything. You're frightened about... You know, if that's something like that happening.

Bernie was determined to attain success, lasting success, the kind that had eluded his father, whatever it took. I started the company in 1960. 22 years old, he convinces a handful of investors to trust him. Friends parents, former customers of his high school lawn sprinkler business, clients of his father-in-law's accounting firm. The first thing I did was I participated in a couple of new issues. New issues were hot in the 1960s,

though without the mad scramble and hype of today's IPOs. Back then, there was no CNBC, no computers. With new issues, he thought he'd hit on a money-making strategy. And then the market cracked the 62 with it. The whole new issue market went into the tank. Bernie lost almost all of his client's money. As he tells it, he was embarrassed. He was in tears.

Ruth took him to her father. Bernie begged for a bailout. His father-in-law saved him. Bernie needed a better strategy. The odds were against him as he saw it. Bernie wasn't one of the Wall Street elite. Did they make that clear that, you know, you're not in the club? Oh, yeah.

I mean, it was obvious to everybody. I mean, everybody knew it. You know, we want to remember the New York Stock Exchange. You know. Steve says that idea, like, of Bernie as that, as a lower-class kid from Queens who wanted to prove himself to the big boys and be accepted, Steve says that's one of the keys to really understanding how a guy like Bernie Madoff could have gotten into this gigantic fraud.

Because when Bernie's business started to really take off possibly increasingly through fraud, all of a sudden he had all of these guys from the big banks calling him up and wanting to take him out to lunch. By the mid-90s word had spread. People clamored to put their money in Madoff's IA business. So I opened up the individual accounts of people and I started thinking in these funds. hedge funds, bank funds, and feeder funds created to funnel money to Madoff, who pumped out those incredibly consistent returns. So all of a sudden, if you have all these major banks... It's flattering. It's flattering, too, all right?

Yeah, of course it is. It feeds your ego. I mean, you know, 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, they're willing to give you a billion dollars. I had all of these major banks coming down and entertaining me. It is a hedge fund. trip. Everyone wanted to be with Bernie. Country club golfers, hedge funds, prestigious banks. They said, you know, but we need you to commit to the money. I said, okay, you know, I think I can do it. Because I thought that even if I started to short some of the stock to them, it would just be a matter of weeks or that months, and, you know, I'd be able to recover from it. According to Bernie, this was the turning point. The market went against him. The boy, genius failed. And the deluge of money? That was his undoing. He couldn't move billions of dollars

in and out of the market. My mistake was I just should have left it at that. Instead, these funds just, you know, just kept on pouring money into me. And it was very hard to turn down. Irresistible for the young man once shut out of the club. I mean, I guess the other thing there is, you know, where you had a history of, you know, breaking up the country club at the New York Stock Exchange Right. The market makers. And, you know, now in some sense,

I guess you're finally getting the recognition from those kind of same people that they need you. Yeah, that's right. And then it just, the whole thing sort of spun out of control. But let me just kind of get something out of the way. So a Ponzi scheme, which we sort of need to know, Ponzi scheme is, I give you money to invest. Yeah.

You pretend you invest that money, you don't. Instead, what you do is you go out and you get new investors, take their money, give it to me, and then you go out and get even newer investors, take their money, give it to the ones before them, and on and on, and on. So, like, all you're doing is just repositioning money, like taking it from the new guys, giving it to the slightly less new guys, making it look like you're trading when you're not, and it only works as long as you have new people coming in. You need a constant stream of new people coming in with new money. But that all sort of fell apart in 2008.

In 2008, when we had a huge stock market crash, Bernie woke up after decades of getting a lot of money in. All of a sudden, one day, people said, I want my money back. I too, me too, me too. And he had not done anything except expect more money to come through the front door. On that day, there was no money coming in the front door. The whole thing sort of spun out of control. And so, Bernie's version, the fraud started because impressive people threw money at him.

a good person who made a mistake. And we spent hours talking about this, and it seems to me at some point that there's always going to be that next phone call. But there's that gap, you know, 15 minutes I have to wait until the phone rings, and one time the phone doesn't ring. Bernie doesn't call back. And I get from the prison a letter basically explaining that I have been declared a security risk.

What does a security risk mean? I have no idea. And, you know, it's some kind of catch-roll. I mean, I try to appeal that to the Bureau of Prisons. It's unappealable. So basically the warden says, you know, we don't want this. There's a hassle. You know, he's a security risk.

He can't talk to him. And just to synopsize, just so at this point, having spent a hunk of time, you went into this thinking, okay, I'm going to sit in his shoes, and I'm going to feel him. And where are you right now at this point? So now I've spoken to him for three or more hours, and I've taken this journey with him. I've heard his story, and, you know,

I have felt some empathy for Bernie from his point of view. And so now I start to listen to the tapes, and I start to really kind of dig in. And it occurs to me that Bernie's telling me two stories. Bernie Madoff, on one hand, is this wizard conducting this incredible financial criminal wizardry, a mastermind. And on the other hand, he's this kind of pawn.

Pawn. Not a word you normally associate with Bernie Madov. No, and actually that's more on that after the break. Because what ends up happening, one of the cool revelations of this series, is the way in which Bernie actually sees himself as a victim. And it's here where the story's story starts to expand beyond him.

And you start to sort of see... A much bigger field of play. Yeah, that's coming up after the break. This is Alicia Bridges, calling from Saskatoon in Saskatchewan. Radio Lab is supported in part by the Alfred P. Sloan Foundation, enhancing public understanding of science and technology in the modern world. More information about Sloan at www.sloan.org. Hey, I'm Chad Abumran.

I'm Robert Crulwich. This is Radio Lab. Today we're playing a series of excerpts from a brand new series from Audible called Ponzi Supernova. It comes from reporter Steve Fishman and Ellen Horn, our former executive producer. And it's a series about Bernie Madoff, the largest financial fraud in history. It's sort of a behind-the-scenes look. And in this series, there's lots of really kind of crazy, frankly, descriptions of how Bernie Madoff and his team pull it off. and how on many occasions they almost got caught.

Former U.S. Attorney Matthew Schwartz told me about one of the closest of the close calls, one starring Frank D. Pascalli, Madoff's top lieutenant. D. Pascali testifies that he's, you know, seeing in a conference room with the auditors. They ask for this report called a Syak, S-I-A-C report. So picture it, a conference room full of auditors. One asks for this routine report. something a legitimate trading firm would have on the shelf. Of course, Madoff isn't a legitimate trading firm, so they don't have it.

Think quick, Frank, and be cool. In front of the auditors, Frank phones the computer programmers and says, Hey, can you bring up the SIAC report? And the guy says, basically, the sciac report, you told us we didn't need the SIAC report. Where the hell am I going to get a SIAC report? And he says, great, I'll see you in 10 minutes. And then he does, as he described it, a little soft chew to stall for time.

Meanwhile, the team has minutes to prepare a false report and then make it appear as if it's been idling on a shelf. They're frantically putting together and printing out this report, which is, you know, it's 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 mile. 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 it around the room to one another to make it look weathered, and then they run it up to DiPascali. Here's the Sciac report. Who coolly hands it to the auditors. Their close calls over and over again. It's fabulous theater.

Steve actually described Bernie Madoff's operation that created this massive $65 billion fraud as like super rickety, basically held together by tape and safety pins and old dot matrix printers and their series goes into a lot of detail about sort of the mechanics and how it worked. What caught our attention

was the thing that we sort of mentioned before the break, this idea that Bernie saw himself not as this like all-powerful criminal mastermind, but as kind of a pawn. Yeah, there was an original group of investors that Bernie Madoff found, and this group is called the Big Four. That's exactly right. The Big Four, they came to be known.

Even Madoff calls them the Big Four. I had four prime big clients, Jeffrey Pekauer, Norman Levy, Carl Shapiro, and Stanley Chase, commonly referred to as the Big Four. It was very clear that those accounts in particular, Shapiro, Levy, Pickauer, and Chase. Former Assistant U.S. attorney Matt Schwartz again. Were handled very differently from other accounts and were handled in a way that, you know, it mattered less if there was a mistake. For these accounts, the workmanship was quite different, more demanding, less exacting. Some employees were more meticulous than others and some clients you could afford to be less meticulous with.

Annette Bonjourno had been there a long time. She was employing number one in the Ponzi business. Garfinkel told me she handled the accounts of the big four. Steve Garfinkel was one of the FBI agents who investigated Bernie Madoff's operation. Inette's clients, the way she figazied their account state, There were some instances when the customers got their account statements from Annette and complained that, oh, you know, you promised me, you know, 18%, and I only got 16%. And they sent the statement back to Annette. So then she would do a new statement when miraculously you got the, you know, your new statement with a new higher return.

Maidoff himself, says the accounts of the big four were Fagazied. They were doing all sorts of shmadre trades. It's a Jewish term that we used. They were, you know, taking lost trades. And the stuff that they did was unbelievable. And they were doing it through me. They demanded Bernie do kinkier maneuvers.

Stanley Chase, for example, there was explicit testimony that he would not tolerate a single losing trade in his accounts. And he had a particular trading strategy where sometimes you could have a losing leg of a trade, but the trade as a whole was a winner because it was a three-legged trade. He wouldn't even tolerate that. For some reason, every single trade, every single leg of every single trade had to be a winner. That doesn't happen in real life. And no one can demand that of their money manager. Each of the big four paid back millions. In Pickhauer's case, billions of dollars.

One of them claimed Madoff had duped them. They weren't prosecuted, and it's impossible for Schwartz to say for certain, who knew what? What he can say is there was activity in the accounts of the big four that. I think would raise questions in the eyes of anyone. Now, you might believe that your genius money manager can get you 700% return in a good year, but no one has the ability to rewrite history and turn stocks in terms. of bonds. And so these men, mostly older, powerful mentors to Madoff, opened for me a new door into the Madoff Ponzi operation. They gave Bernie his break and then demanded that he

provide them things he couldn't honestly achieve. These people are, these people, and about that, I mean the big four, whether it's them personally or their lieutenants or whoever it is, they are asking for things that are not possible. Bernie is accomplishing those things. So now ask yourself, who has the power in that relationship? Is it Bernie because he knows he's doing illegal things for these parties? Or is it the party who's now making Bernie do illegal things? It's both of them. Well, when Bernie said to you, gosh, like, I discovered that people are really greedy. Remember, that was in the beginning? Is this what he means that these people were using him? This is what Bernie means. And Bernie has actually a particular,

emmary for those big four. One of them, Jeffrey Pickauer, took out $7 billion. $7 billion from this scheme. Right, beyond what he invested. That's Ellen Horn, who produced the series. Now, the story of Jeffrey Pickauer is one of the more dramatic moments in this series. Ten months after Bernie Madoff's arrest, Barbara Pickauer, wife of Madoff's largest investor, Jeffrey Pickauer.

dialed 911. This call is hard to listen to. At the bottom of the pool, at the bottom of the pool. This call is hard to listen to. It's upsetting. Okay, stand the line. I'm going to start the medics to you. Don't hang up.

Okay, I'm going to put your speaker to let me try to... The fact of Jeffrey Pickauer had a heart attack and drowned it's pool, you can congratulate me on that. According to Madoff, before Pickauer went for his final swim, Bernie phoned him. I called up Jeffrey Pickauer, and... and, you know, I said, you have to give the money back. I said, you guys owe me money, and I want the money back.

Pick hour, you know, said, well, you know, I don't have it all. And I said, Jeffrey, I know that you have the money there. You're worth $9 billion, and I want $7 billion back. Consider what Madoff's tone regarding the death of someone he knew for decades, what this says about Bernie Madoff, who he is. Whenever someone hears that I interviewed Madoff, they always want to know, does Bernie feel remorse? I've interviewed serial killers, child rapists, people considered monsters. I suspended judgment.

I wanted to hear their stories to understand them. This doesn't mean I wasn't horrified by what I heard, but I tried to see the world through their eyes and exercise in empathy. At times, I feel empathy for Bernie. But here's what struck me about Bernie. He didn't feel empathy. He claimed to feel remorse. He milded the words, but there was always a but. On the phone with me, every single time, Bernie mentions victims.

He can barely get through the apology before interrupting himself. They were warned. They were greedy. Always this strange, sorry, not. sorry. I said, if you want to guarantee, you know, put your money in government bonds. It's impossible to tell the story of the fall of the House of Madoff without understanding that there were real victims, real suffering. Back in early 2009, victims were telling stories of their ruined lives,

on TV, on the radio, on every local talk show. It was the worst thing that ever happened to us. This can't be real. We have lost everything. I have lost everything, and you've lost everything. Everything that we work for is down the grain. I manage on food stamps. Sometimes at the end of the month, I scavenge in dumpsters.

To them, they're all, they're living out of dumpsters, and their traumatic experience for some. Did you catch the remorse, or was it too fleeting to register in your brain? My producers and I were in touch with dozens of victims, To the victims, Bernie's indifference was enraging all over again. But it wasn't the slightest bit surprising. What is surprising is what happened to victims since Madoff dragged their $65 billion down a dark hole. I mean, there is now, this is eight, nine years later.

There is an industry that is created around the Madoff collapse. There are hundreds of lawyers. working on recovering money. And that's a very complicated story. And when we try and tell, because you know what, a lot of people who lost money didn't have any inclination, couldn't have had any inkling that this was going on. So the justice group comes in, private lawyers, courts, judges,

the Justice Department, and they try to make amends. Have they? Justice is a very complicated. issue in the universe created by Bernie Madoff. You have a trustee appointed to recover funds for victims. Well, some of those funds went to people who took those funds in good faith. They'd given Bernie millions of dollars. They took out a million plus one.

And so they thought they were doing the right thing. They thought it was their money. But we've got to give money back to the people who lost more money. money than they put in, you're going to have to give some of your money to them. So it's a very complicated moral universe. Well, there's the individuals, and then in the last category, there are the banks and the investment institutions that sold Bernie to ordinary people all over the world. Yeah, there are these financial institutions. Hedge funds raised billions of dollars, took them to Latin America, to Europe, all across the United States, market, and

Bernie Madoff as a safe bet. You know, he was weaponized by the financial system. And so we wondered why weren't those hedge funds accountable for not doing their job? Yeah, and this is the still happening, still unraveling, still needs to be reported part of the story. Absolutely. That question about why the people who, quote, weaponized Bernie Madoff haven't been punished yet, probably will never be punished. That is something that Ellenhorn and Steve Fishman

tackle in the final episode in their series, and we definitely recommend you check it out at audible.com slash Ponzi supernova. We'll link you there as well from radiolab.org. And thank you to Stephen Fishman and to Ellen Horn for sharing this work of theirs with us. Also a shout out to producer Kelly Prime, who helped Ellen and Steve work on the series.

Yeah. So thank you, Audible. Thank you for listening. I'm Chad Abumra. I'm Robert Crow. which we'll see you next time. Yeah. Hi, this is Logan from Hamilton, Montana. Radio Lab is produced by Jad Abumrod. Dylan Keefe is our director of sound design.

Soren Wheeler is senior editor. Jamie York is our senior producer. Our staff includes Simon Adler, Brenna Farrell, David Gabel, Matt Kielty, Robert Krulwich, Annie McEwan, Lateef Nasser, Melissa O'Donnell, Ariane Wack, and Molly Webster. With help from Tracy Hunt,

Valentina Boanini, Nigar Fatali, Phoebe Wang, and Katie Ferguson. Our fact checker is Michelle Harris.