Safer so this was the scene of the crime. Irving picard gave us a tour of Bernie Madoffs 19thfloor offices, an impressive landscape of emptiness. His desk was here. Safer picard has the thankless task of finding the money, the billions that madoff scammed. watch ticking Arlan Galbraith who called himself the pigeon king convinced hundreds of american and Canadian Farmers there was good money to be made raising the birds for food. And everybody we talked to said this guy washe was on the up and up. Nobody had a bad word to say about him. watch ticking stahl welcome to 60 minutes on cnbc. Im leslie stahl. In march 2009, Bernard Madoff pleaded guilty to perpetrating whats believed to be the largest financial fraud in history. He received the maximum sentence for his crime, 150 years in prison. But while madoff is behind bars, theres still much we dont know about the scam which involved, by some accounts, a fraud of more than 50 billion. Investigators are still trying to figure out who was involved and where the money went. This Edition Features some of the people most intimately familiar with madoffs schemes Irving Picard, the courtappointed trustee charged with finding the missing money, some of the crooked financiers victims and the man who figured out madoffs crimes out before anyone else, Harry Markopolos. Plus, morley safer examines why, even today, investors are so susceptible to con men. We begin with markopolos. At the beginning of 2009, he sat down with steve kroft for his First Television interview. Kroft until the end of 2008, Harry Markopolos 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 . Kroft 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 and his 50 billion fraud. blows whistle thank you. Thank you. Please take your seats. Kroft but he seems uncomfortable with all the attention, and knows that he is no hero. I stand before you a 50 billion failure. laughter kroft how many times did you send material to the sec . May 2000, october 2001, october, november, and december of 2005, then again june 2007, and finally april 2008. Kroft hmm. So five separate sec submissions. Kroft and in spite of all of the things that you did, it still ended up in disaster. Theres nothing to be proud about in this case. I feel horrible about the result. Its been a total disaster for the victims. Kroft it began markopolos 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 reverseengineer its trading strategy and Revenue Streams so that the firm could duplicate madoffs results. He had the patina of 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 of fraud unless you knew the math. Kroft so i mean, youre like a math guy, right . Ive taken all the calculus courses from integral calculus to differential calculus as well as Linear Algebra and statistics, both normal and nonnormal. Kroft 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. Kroft what were the things that caught your attention . It was the performance line. As we know, markets go up and down, and his only went up. He had very few down months. Only 4 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 expect cheating immediately. Kroft maybe he was just good . No ones that good. Kroft 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 gonna go to prison. Kroft in may of 2000, markopolos 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 someones competing on your Playing Field whos a dirty player, you want him tossed off the field. Kroft 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, youre 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 couldnt miss on. By 2005, the degree of certainty was approaching 100 . Kroft over time, and with some simple math calculations, markopolos 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 Madoffs fund. I would talk to the people i had trading relationships with and ask, did you have a trading relationship with mr. Bernard madoff . And they all said, no. We dont think hes for real. Kroft could you find anybody . I found no one that ever traded with mr. Madoff, and i traded with the largest equity derivative service in the world. Kroft and thats because madoffs Investment Fund never actually made any trades, at least going back to 1993 and probably further, a fact confirmed 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, youll notice that the major firms on wall street had no money with mr. Madoff. Kroft i mean, you write this is the letter. Im 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 worlds largest, most sophisticated Financial Services firms, and then you list some of the firms. Yes, i do. Kroft the biggest firms on wall street and conversations with people high up in those firms. That is correct. And the sec ignored that. Kroft did they call any of these people . All the sec had to do was pick up the phone. They never did. Kroft if you had executives thatsat the biggest investment houses on wall street that knew something was wrong, why do you think they didnt go to the sec . Because people in glass houses dont throw stones. And selfregulation on wall street doesnt work. Kroft in january 2006, the new york office of the securities and Exchange Commission finally opened a case file to look into harrys 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. Theyre unschooled. Most of them are just merely lawyers without any financial industry experience. Kroft well, if the people there arent 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 theyll miss all the financial felonies that are occurring because they never look there. Even when pointed to fraud, theyre incapable of finding fraud. watch ticking stahl Bernie Madoff was committing a massive fraud, one leaving a trail of ruined victims in its wake. Probably the thing that tears me up more than anything is the fact that i recommended madoff to a number of people. Kroft when 60 minutes on cnbc returns in a moment. Kroft when 60 minutes on cnbc returns in a moment. watch ticking if yand youre talking toevere rheuyour rheumatologistike me, about trying or adding a biologic. This is humira, adalimumab. This is humira working to help relieve my pain. This is humira helping me through the twists and turns. This is humira helping to protect my joints from further damage. Doctors have been prescribing humira for over ten years. Humira works by targeting and helping to block a specific source of inflammation that contributes to ra symptoms. For many adults, humira is proven to help relieve pain and stop further joint damage. Humira can lower your ability to fight infections, including tuberculosis. Serious, sometimes fatal events, such as infections, lymphoma, or other types of cancer, have happened. Blood, liver and nervous system problems, serious allergic reactions, and new or worsening Heart Failure have occurred. Before starting humira , your doctor should test you for tb. Ask your doctor if you live in or have been to a region where certain fungal infections are common. Tell your doctor if you have had tb, hepatitis b, are prone to infections, or have symptoms such as fever, fatigue, cough, or sores. You should not start humira if you have any kind of infection. Ask your doctor if humira can work for you. This is humira at work. Stick with innovation. Stick with power. Stick with technology. Get the flexcare platinum. New from philips sonicare. Kroft no one at the sec would talk to us on the record about Harry Markopolos allegations, but one person who seemed to have had a high opinion of the agency was Bernie Madoff. Im very close with the regulators. Im not trying to say that they cantyou know, that what they do is bad. As a matter of fact, my niece just married one. Kroft besides his nieces husband, who no longer works at the sec, madoff has had longstanding ties to the agency and has been called upon to give advice. At this 2007 meeting of a Nonprofit Group called the philoctetes center, madoff seemed to think the sec was doing a great job. You know, in todays regulatory environment, its virtually impossible toto violate rules, and this is something that the public really doesnt understand. But youits impossible for you to go undefor a violation to go undetected, certainly not for a considerable period of time. Kroft but dont try and tell that to the philoctetes center. 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. Madoffs customer list, single spaced with small type, is 162 pages long, with victims running the gamut from hollywood royalty to a Carpenters Pension fund in syracuse, new york. Shelly ludlow has been forced to put her mother in a medicaidassisted living facility while she packed up their apartment to move in with a friend, all because of Bernie Madoff. Our whole lives were turned upside down by this man that sits in his penthouse and smirks. sighs kroft 70 miles away, len and Marge Forrest were leaving their house that theyd just sold in setauket, 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 8figure family fortune two days before his 80 birthday. Do you have any money to live on . Enough, i would say, for 60 days. Kroft 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 madoff to a number of people, and they lost their money, and ill never stop feeling responsible for that. They were all close family and friends. Kroft 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 a year, they werent inclined to ask a lot of questions. Harry markopolos called it the classic affinity scam. An affinity scam is when you prey on groups that are similar in nature to yourself. So im greek. If i was gonna run an affinity scam, i would run it on the greekamerican community here. Bernie was jewish, so he ran it on the Jewish Community in the united states. But that didntthat wouldnt get him enough customers because he always needed new money to keep the scheme going. Kroft 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 funds 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 socalled 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. Kroft if youre a feeder fund, what are you supposed to do for those hundreds of millions of dollars . Youre supposed to identify the worlds best Hedge Fund Managers and invest only in them, and youre supposed to make sure theyre not running ponzi schemes. The real steroids here were the feeder funds. Thats what made it an international ponzi scheme. Kroft attorney david boies is one of the most prominent lawyers in the country and is representing Fairfield Greenwich investors, who lost nearly 7 billon when madoff went under. Theyre 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 didnt happen because we know all they did was turn the money over to Bernie Madoff. And they did that for 20 years. Kroft they did nothing . They essentially did nothing except lose their investors money and enjoy very luxurious lifestyles from the money they took out. Kroft 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 mustique. 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 thenimpeccable reputation and in the fact that there had been multiple reviews of madoff by the sec. Mr. Madoff, what do you have to say for yourself . Kroft in the end, Harry Markopolos 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, madoffs lies simply collapsed under their own weight. No one was investigating mr. Madoff at the end. Kroft so he turned himself in before anybody in a position of authority began a Serious Investigation . Thats typically how the sec does it. They come in after the crime has been committed, they toetag the victims, count the bodies, and try to figure out who the crooks were after the fact, which does none of us any good. Stahl the mastermind of the ponzi scheme of all ponzi schemes, Bernard Madoff, may be in prison, but he is hardly forgotten. His untidy little business that bilked thousands of people out of billions of dollars is no more, but the big question, where did all the money go . Remains unanswered. Irving picard is the courtappointed trustee assigned to find that money and return as much of it as possible to madoffs investors. Its a daunting and thankless task, for while hes suing whoever he can on behalf of the victims, hes also suing many of the victims, those, who he says, benefitted and should have known they were investing in a house of cards. In june, 2010, picard and his chief counsel David Sheehan sat down with morley safer to update us on the legal battle. Safer just before the whole thing collapsed, Bernard Madoff sent out statements to his clients. How much were they told they were worth . About 64. 8 billion. Safer so the statements were total lies . Yes, absolutely. Safer the 64. 8 billion that investors thought they had was just an illusion, designed by madoff to keep investors investing. Then the roof fell i