Madoff feeders kept the scheme going

Kai Ryssdal May 12, 2009

Madoff feeders kept the scheme going

Kai Ryssdal May 12, 2009


Kai Ryssdal: The court-appointed trustee handling the liquidation of Bernie Madoff’s assets filed yet another lawsuit today. He’s trying to get back some of what Madoff’s clients lost in that multi-billion dollar Ponzi scheme. As investors try to figure out how to recoup some of their losses, others are asking how Madoff got away with it for so long. One reason is that investors were often held at arms length. They could only get into a Madoff fund through what are called, logically enough, feeder funds. Those funds fed investors’ money to Madoff but allowed for some distance between the sucker and the con man. Tonight on PBS, “Frontline” has a new look at the Madoff affair, including an interview with one of Madoff’s original feeders, a guy named Michael Bienes. I asked Frontline correspondent Martin Smith to explain how Bienes and his accounting partner Frank Avellino got involved with Madoff in the first place.

MARTIN SMITH: Well, Madoff gets out of college in 1960 and marries his high school sweetheart, Ruth Alpern, and then he gets a desk at his father-in-law’s Saul Alpern’s accounting firm. And he meets these two guys there. They’re accountants working for his father-in-law, and he says to them, “Look, you guys can get me clients. We’ll invest the money, and we’ll give these people these returns.”

Ryssdal: And it was all incredibly secret, too. One of the passages in the show from this evening is that this guy Michael Bienes hid his involvement with Madoff from almost everybody. Let’s role that tape.

Michael Bienes on Frontline: I never used his name. I never used his name. To me it was like the secret name of God. Even when we had the business, I tried not to use his name.

Ryssdal: Would it have mattered if he had gone around and said, “Hey, I’m working for Bernie Madoff?

SMITH: Well, nobody would have known who Bernie Madoff was. But, of course, what was true of Bernie Madoff all along was that he had a lot of people handing their money over to feeders who then handed it over to Madoff. And a lot of these people didn’t know where it was being invested. They didn’t really ask. One of the astounding things of all this is how willing people are to give their money off to strangers.

Ryssdal: Well, and when they’re getting 17, 18 percent returns as these guys were getting, you don’t tend to ask too many questions, do you?

SMITH: Well, but you should. And even though Madoff had a stellar reputation you should ask hard questions. I mean, every good con man has a great reputation. That’s how they con.

Ryssdal: This guy on the program this evening, Bienes, was he a con man do you think?

SMITH: Well, he conned himself and Madoff conned him. He didn’t ask hard questions. He said in the interview, look, I don’t know how you split an atom. I know you can split one, but I don’t how you do it. And I don’t know how an airplane flies. I asked him if he ever asked Madoff what he was doing and he said, yeah, it was something about arbitrage between stocks and bonds and blah, blah, blah, blah. He had this sort of attitude that that didn’t matter. So he conned himself into believing that those 20 percent, 18 percent returns was all he needed to know.

Ryssdal: Do you think that belief that he had, that conning of himself, made it easier to go out and get people to invest in what he really probably in his heart of hearts had to have known was a gimmick?

SMITH: You know, in the interview I pressed him on that. I said do you feel any remorse or any regret for having led all these people to the trough. But he says he feels no remorse.

Ryssdal: Yeah, well, there’s actually a great piece of tape that we’ll play here of you asking him if he had any regrets.

SMITH ON FRONTLINE: What do you say to the people that are watching this, that got involved in this through you and Frank, and who are angry? Feel like they were misled, feel like they’ve been violated?

BIENES ON FRONTLINE: I didn’t violate them. Madoff did. Focus on who was the perpetrator.

Ryssdal: Fact is, though, that none of this works without these feeder funds.

SMITH: That’s right. These people enabled Bernie Madoff to collect the kind of money he did. And it kept Bernie, in a way, insulated from the clients. Madoff wasn’t such a social butterfly, as people imagine, even though he was a member of all these clubs. He let these other people gather the money. They couldn’t have done it without him.

Ryssdal: What happens now to Michael Bienes and everybody else who ran these funds for Madoff? Madoff obviously is going to jail for a long time. What about the rest of these guys?

SMITH: Well, there are a lot of lawsuits flying around. As far as I know Bienes has not yet be sued. There are people thinking about it. But there’s a lot of investigation yet to come. And there’s also his family, Madoff’s family, his sons, his brother, his wife, who are still the subject, going to be the subject of investigations going forward.

Ryssdal: Any reason to believe that this won’t happen again sometime? Where people will once more not ask the hard questions?

SMITH: Well, Madoff has set a record here in terms of length and size. So, I don’t know that anybody is going to be able to come forward with something of this scale, certainly not in the near future.

Ryssdal: Frontline tonight on PBS is called the “Madoff Affair.” Martin Smith is one of the reporters on that series. Martin, thanks so much.

SMITH: Thank you.

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