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Frontline Examines Role of Key Players in Madoff Affair

May 12, 2009 at 6:35 PM EDT
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An accountant and his partner helped Wall Street financier Bernard Madoff recruit clients beginning in the 1960s. The NewsHour airs an excerpt of Tuesday's Frontline, which explores the role of some of the key players in the fraud scheme.

JIM LEHRER: Next tonight, from “Frontline,” the world’s first global Ponzi scheme.

Financier Bernard Madoff pleaded guilty in March to defrauding thousands of investors, a fraud that prosecutors say may have totaled $65 billion.

“Frontline” correspondent Martin Smith interviewed Madoff accountant Michael Bienes. And his partner, Frank Avellino, helped Madoff recruit clients beginning in the 1960s. This extended excerpt includes some material not used in “Frontline’s” report, which airs later tonight.

MARTIN SMITH, correspondent, “Frontline”: Tell me how you get going with investing with Bernie, how that…

MICHAEL BIENES, Avellino and Bienes: Well, Saul, his father-in-law, had been doing it. He gave Frank a piece and I got a piece when I became a partner. There was only about $2.5 million in the account. That was big money to me.

We were only taking a small clip off the top. That’s all it was. Couldn’t take more. We thought that was the rule, and we never were pigs. That’s one thing that kept us going. We were never pigs. We were never pigs.

Madoff recruiter speaks

MARTIN SMITH: The arrangement was simple. With Madoff's guarantee of 20 percent or better, Avellino and Bienes could pocket a few percentage points while issuing promissory notes to their clients with set rates of return.

You were promising people how much?

MICHAEL BIENES: It all depends. Big amounts, 18 percent. Smaller amounts, 17 percent, 16 percent, even as low as 15 percent.

MARTIN SMITH: What made you think that he could return 20 percent?

MICHAEL BIENES: I don't know. How do I know? How do you split an atom? I know that you can split them. I don't know how you do it. How does an airplane fly? I don't ask.

MARTIN SMITH: Did you have any warning that anything was amiss?

MICHAEL BIENES: As God as my only judge, on my mother's grave, not an inkling, not a tickle, nothing, may he strike me dead.

The phone rings, and my wife is working with this guy in London on her new computer and a fax. And I pick up the phone, and he says, "Hello, Michael, it's Frank." And I said, "Frank, what's wrong?" because I could hear it in his voice.

"Michael, Bernie Madoff" -- I said, "He died," in a nanosecond, he died -- "was arrested." I said, "Oh, no" -- and then, another nanosecond, sex crime or some (bleep) you know? "For stock fraud." And then I said, "Someone's setting him up," in my mind, "Someone's setting him up."

He was arrested by the FBI and he said he was guilty of being a Ponzi swindler, schemer. I said, "Oh, my god. Frank, I'm ruined." I did the arithmetic. I was wiped out, and I was in debt, and I didn't have the assets to cover the debts to the bank. I said, "Frank, I'm ruined. I'm dead."

Bienes claims surprise at scandal

MARTIN SMITH: Were you never aware that there were people raising serious questions about Bernie Madoff's operation, such as Harry Markopolos and others?

MICHAEL BIENES: As God as my judge, never, never read the Wall Street Journal, never got the New York Times, never got Barron's, never read Forbes, never read anything. When I was here, I grabbed the Miami Herald and the Sun-Sentinel and go right to the local section to see what's what.

MARTIN SMITH: So you were surprised when you learned about all these other people?


MARTIN SMITH: Then the guy gets arrested, FBI comes to him, he tells them it's all one big lie.

MICHAEL BIENES: How could he exactly do it? I still can't figure it out. I keep saying, "How could he do this? He doesn't have a heart. Something is missing there inside of him to do this to people."

There's no need for it. If he got into trouble, you go to your lawyer, you go to the SEC, they put a receiver in, you pay off 60 cents, 70 cents on the dollar, you close your business down, and you're a gentleman.

Other houses have done that. Merrill Lynch just did it, and Lehman, and all the others. You do the righteous thing. "Hey, we did some bad deals. We are finding our capital base has been eroded." You go to these wealthy people in Palm Beach and tell them the truth.

Untangling who knew what

MARTIN SMITH: And you never suspected that he was up to no good?

MICHAEL BIENES: If I had any hint about him, wouldn't I have taken my money out?

MARTIN SMITH: No, because you could have thought he was bad, but thought that it would last longer.

MICHAEL BIENES: Oh, my God. That's a nursery tale. Please.

MARTIN SMITH: Well, that's possible.

MICHAEL BIENES: Oh, no, it's not. You get word that somebody is -- I'm an accountant. I can figure it out.

JIM LEHRER: The accountant's tale is just one part of a much bigger story. You can watch "The Madoff Affair" in its entirety tonight on PBS. Please check your local listings for the time.