0:00 The number was seven-oh-three.0:02 That was the account number at Chase Manhattan Bank.0:06 From 1986 to 2008, over one hundred and fifty billion dollars flowed into and out of account 703.0:14 This wasn't the account for a multinational corporation.0:19 It was the entire engine for a lie worth sixty-five billion dollars.0:24 Last week, in our look at corporate fraud, we discussed the principle of following the money.0:32 In the case of Bernard Madoff, the money trail led back to a single, shockingly simple deception.0:40 When the FBI arrested Bernie Madoff on December eleventh, 2008, he described his entire investment advisory business with three words: "one big lie." For decades, Bernard L.0:54 Madoff Investment Securities presented itself as a pillar of Wall Street.1:00 It had two parts.1:01 One was a legitimate, high-volume market-making brokerage.1:06 That part was real.1:08 It generated prestige, and it provided cover.1:11 The other part, the investment advisory business that managed money for about four thousand eight hundred clients...1:21 was a complete fabrication.1:23 No trades were ever made.1:25 Madoff sold a story about a "split-strike conversion" strategy.1:30 It sounded sophisticated.1:32 It promised steady, impossible returns of ten to twelve percent, year after year, no matter what the market did.1:41 But the statements sent to clients showing these trades were fake.1:47 The money from new investors was simply deposited into account 703, and then used to pay withdrawals for older investors.1:57 A classic Ponzi scheme, hidden in plain sight.2:01 So who knew?2:01 Who benefited?2:03 The firm was a family affair.2:05 Madoff’s brother, Peter, was the senior managing director and, ironically, the chief compliance officer.2:14 His job was to PREVENT fraud.2:16 He was later sentenced to ten years in prison.2:20 His sons, Mark and Andrew, worked on the legitimate trading side of the business, and claimed they were ignorant of the fraud.2:30 His niece, Shana Madoff, was a compliance attorney at the firm.2:35 She was also married to a former SEC official who had, at one point, investigated her uncle's business.2:44 The conflicts of interest were staggering.2:47 The lie held for decades.2:49 But in the fall of 2008, the global financial system seized up.2:54 Fear replaced greed.2:56 Madoff’s wealthy clients, spooked by the crisis, started asking for their money back.3:03 And not just a few.3:04 They wanted SEVEN.3:06 BILLION.3:06 DOLLARS.3:07 That is the death knell for a Ponzi scheme.3:11 Madoff went to the bank.3:13 He went to account 703.3:14 And of the billions he supposedly managed, he had only three hundred million dollars available.3:22 The money was gone.3:24 He was, in his own words, "finished." On December ninth, 2008, two days before his arrest, Bernie sat his sons down in his Manhattan apartment.3:36 There was no complex explanation.3:38 He just said it.3:40 "I'm running a Ponzi scheme...3:42 and we're out of money." The next day, they turned him in.3:47 The scheme collapsed not because it was discovered by regulators—who had investigated and missed it multiple times—but because it ran out of fuel.3:59 It wasn't undone by a brilliant forensic accountant.4:03 It was undone by basic math.4:05 You can't pay out seven billion when you only have three hundred million.4:11 The story of Bernie Madoff isn't about financial genius.4:16 It’s about the power of a simple lie, told to people who wanted to believe it, and protected by a circle of trust where asking the right questions was bad for business.
