60 minutes rewind
it's been two and a half months since bernard al-madoff was picked up and charged with what's
believed to be the largest financial fraud in history yet we still don't know much more about
the alleged 50 billion scam than what madoff initially told the fbi agents who arrested him
there are still no indictments as federal prosecutors continue to unravel the case
and to try and figure out exactly what happened and who all was involved
but the proof that it happened can be found in the ruined lives of thousands of victims
the one person who knows the most and is willing to talk is harry marco polis the man who figured
out made off scheme before anyone else he sat down with us for his only television interview
until a few months ago harry marco polis was an obscure financial analyst and mildly eccentric
fraud investigator from boston who most people would never notice on the street my modern greek
hero how you doing but today he enjoys an almost heroic status pursued by journalists and movie
producers and honored by colleagues as the man who went to the securities and exchange
commission and blew the whistle on bernie madoff in his 50 billion dollar fraud
thank you thank you please take your seats but he seems uncomfortable with all the attention
and knows that he is no hero i stand before you a 50 billion dollar failure
how many times did you send material to the sec may 2000 october 2001 october november and
december 2005 then again june 2007 and finally april 2008 so five separate sec submissions
and in spite of all of the things that you did it still ended up in disaster there's nothing to
be proud about in this case i feel horrible about the result it's been a total disaster
for the victims it began a decade ago when marco polos was working for a boston investment firm
his boss told him that bernard madoff a former chairman of the nasdaq stock exchange
was running a huge unregistered hedge fund that was producing incredible returns
he wanted harry to reverse engineer its trading strategy and revenue streams
so that the firm could duplicate madoff's results he had the patina of her being a respected citizen
one of the most successful businessmen in new york and certainly one of the most powerful men on wall
street you would never suspect him a fraud unless you knew the math so i mean you're like a math guy
right i've taken all the calculus courses from integral calculus through differential calculus
as well as linear algebra and statistics both normal and non-normal how long did it take you
to figure out that there was something wrong it took me five minutes to know that it was a fraud
it took me another almost four hours of mathematical modeling to prove that it was a fraud
what were the things that caught your attention it was the performance line
as we know that markets go up and down and his only went up he had very few down months only
four percent of the months were down months and that would be equivalent to a baseball player in
the major leagues batting 960 for a year clearly impossible you would suspect cheating immediately
maybe he was just good no one's that good harry said there were only two plausible explanations
either madoff was using insider information to rack up huge profits or he was running a
giant ponzi scheme so either way he was doing something illegal either way i knew he was going
to go to prison in may of 2000 marco polos took his suspicions about bernie madoff to
the boston office of the securities and exchange commission did you have any financial motive yes
he was a competitor of mine in 2000 to 2004 while i was still in the industry and when someone's
competing on your playing field who's a dirty player you want him tossed off the field he also
thought he might be eligible for a sizable reward if the fraud involved insider trading but that
turned out not to be the case in your first letter to the sec back in 2000 you're a little tentative
you say look i have no smoking gun in 2000 it was more theoretical in 2001 it was a little bit
more real by 2005 i had 29 red flags that you just couldn't miss on but by 2005 the degree
of certainty was approaching 100 percent over time and with some simple math calculations
marco polos concluded that for madoff to execute the trading strategy he said he was using
he would have had to buy more options on the chicago options exchange than actually existed
yet he says no one he spoke to there remembered making a single trade with bernie madoff's fund
i would talk to the people i had trading relationships with and asked did you have a
trading relationship with mr bernard manoff and they all said no we don't think he's for real
could you find anybody i found no one that ever traded with mr manoff and i traded with
the largest equity derivative service in the world and that's because madoff's investment
fund never actually made any trades at least going back to 1993 and probably further a fact confirmed
last week at a meeting of madoff investors by the trustee charged with liquidating his assets
no one knew the depth of the fraud but a lot of people had questions
who else figured this out besides you i would say that hundreds of people suspected something was
amiss with the madoff operation if you look at who the victims were not you'll notice that the
major firms on wall street had no money with mr manoff i mean you write in the this is the letter
i'm quoting from the letter to the securities and exchange commission red flag number 20.
madoff is suspected of being a fraud by some of the world's largest most sophisticated financial
services firms and then you list some of the firms yes i do the biggest firms on wall street
in conversations with people high up in those firms that is correct and the sec ignored that
did they call any of these people all the sec had to do was pick up the phone they never did
if you had executives at the biggest investment houses on wall street that knew something was
wrong why do you think they didn't go to the sec because people in glass houses don't throw stones
and self-regulation on wall street doesn't work in january 2006 the new york office of the securities
and exchange commission finally opened a case file to look into harry's allegations about bernie
madoff despite uncovering evidence that madoff had misled them about his investment activities
the sec closed the case 11 months later without ever opening a formal investigation the staff said
there was no evidence of fraud what i found out from my dealings with the sec over eight and a
half years is that their people are totally untrained in finance they're unschooled
most of them are just merely lawyers without any financial industry experience
well if the people there aren't trained in securities work what are they trained in
how to look at pieces of paper that the securities laws require they can check every piece of paper
perfectly and find misdemeanors and they'll miss all the financial felonies that are occurring
because they never look there even when pointed to fraud they're incapable of finding fraud
no one at the sec would talk to us on the record about harry marcopolis allegations but one person
who seemed to have had a high opinion of the agency was bernie madoff i'm very close with
the regulator so i'm not trying to say that they can't you know that what they do is bad as a
matter of fact my niece just married one besides his niece's husband who no longer works at the sec
madoff has had long-standing ties to the agency and has been called upon to give advice at this
2007 meeting of a non-profit group called the phil octady center madoff seemed to think the
sec was doing a great job you know in today's regulatory environment it's virtually impossible
to violate rules when this is something that the public really doesn't understand
but you it's impossible for you to go under for a violation to go undetected certainly not for
a considerable period of time but don't try and tell that to the phil octadies center today
its main benefactor the betty and norman levy foundation was fully invested in madoff one
of dozens of charitable organizations that have been devastated or wiped out
madoff's customer list single spaced with small type is 162 pages long with victims
running the gamut from hollywood royalty to a carpenter's pension fund in syracuse new york
shelley ludlow has been forced to put her mother in a medicaid assisted living facility
while she packed up their apartment to move in with a friend all because of bernie madoff
their whole lives were turned upside down by this man that sits in his penthouse and smirks
the same day last week 70 miles away len and marge forest were leaving their house that they just
sold in setup at long island and were preparing to drive to south florida to sell their home there
they had their money with bernie madoff for 30 years and lost an eight-figure family fortune
two days before his 80th birthday do you have any money to live on
enough i would say for 60 days do you know other people who are in the same situation oh yes
we have a lot unfortunately and i think probably the thing that tears me up more than anything
is the fact that i recommended made off to a number of people and they lost their money
and i i'll never stop feeling responsible for that they were all close family and friends
len forrest and his friends thought they were part of a small exclusive group of investors lucky
enough to have a connection with bernie madoff and because they thought they were making 12 percent
a year they weren't inclined to ask a lot of questions harry marcopolis called it the classic
affinity scam an affinity scam is where you prey on groups that are similar in nature to yourself
so i'm greek if i was going to run an affinity scam i would run it on the greek american
community here bernie was jewish so he ran into the jewish community in the united states
but that didn't that wouldn't get him enough customers because he
always needed new money to keep the scheme going the story will continue after this
over time madoff extended his reach from new york to palm beach where he enlisted hundreds
of wealthy clients many of them recruited from his own country clubs and he also
made connections that gave him entree to europe and the hedge fund capital of america greenwich
connecticut it was here that bernie madoff made some of his biggest deals with large investment
firms that were willing to feed him billions of dollars of their clients money to manage
and in return bernie madoff agreed to pay these so-called feeder funds a fortune in annual fees
the largest of the feeder funds was the fairfield greenwich group how much money did fairfield make
off bernie madoff every year hundreds of millions of dollars if you're a feeder fund what are you
supposed to do for those hundreds of millions of dollars you're supposed to identify the world's
best hedge fund managers and invest only in them and you're supposed to make sure they're
not running ponzi schemes the real steroids here were the feeder funds that's what made it
an international ponzi scheme attorney david boyes is one of the most prominent lawyers in the
country and is representing fairfield greenwich investors who lost nearly seven billion dollars
when madoff went under they're suing the firm for gross negligence claiming it failed to investigate
madoff thoroughly or monitor his activities as it promised to do in its marketing materials
analysis of portfolio composition portfolio stress testing risk management asset verification
do you think that really happened no we know it didn't happen
because we know all they did was turn the money over to bernie madoff and they did that for 20
years they did nothing they essentially did nothing except lose their investors money
and enjoy very luxurious lifestyles from the money they took out walter noel one of the founding
partners of fairfield greenwich declined to talk to us and has reportedly been lying low with his
wife at their compound on the private island of mystique but in a statement to 60 minutes
his firm said that it too was a victim of bernie madoff that it had placed too much trust in his
then impeccable reputation and in the fact that there had been multiple reviews of made off by the
second in the end harry marcopolis had been right about bernie madoff he will be going to prison but
not because of anything that harry or the sec did in a bad economy madoff's lies simply collapsed
under their own weight no one was investigating mr manoff at the end so he turned himself in before
anybody in a position of authority began a serious investigation that's typically how the sec does it
they come in after the crime has been committed they toe tagged the victims count the bodies
and try to figure out who the crooks were after the fact which does none of us any
good
you