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Madoff Pleads Guilty to Massive Wall Street Fraud

March 12, 2009 at 6:00 PM EST
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Bernard Madoff pleaded guilty Thursday to fraud charges totaling an estimated $65 billion. Analysts discuss the case and the prospects of victims recovering any money.
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JUDY WOODRUFF: Financier Bernard Madoff pleaded guilty today in what may be the largest swindle in the history of Wall Street. Jeffrey Brown has our lead story report.

JEFFREY BROWN: Helicopters hovered overhead, crowds gathered on the sidewalk, and all eyes were on Bernard Madoff as he arrived this morning at the Manhattan federal court, the first time the 70-year-old financier would stand face-to-face with some of the victims of his alleged $65 billion Ponzi scheme.

Madoff pleaded guilty to all 11 counts he was charged with, including fraud, perjury, and theft, which carry maximum sentences of up to 150 years in jail.

He told the judge, “I am actually grateful for this opportunity to publicly comment about my crimes, for which I am deeply sorry and ashamed.” He added, “As the years went by, I realized my risk and this day would inevitably come.”

MADOFF VICTIM: I’ve lost everything, and I want to see justice.

JEFFREY BROWN: About 100 of Madoff’s victims were inside the courtroom.

HELEN CHAITMAN, Madoff Victim: It’s hard to comprehend what $64 billion is. But when you realize that there are probably 100,000 people who’ve lost their entire life savings because of that one man, it’s stunning to look at him and see him standing there.

JEFFREY BROWN: U.S. District Judge Denny Chin denied bail, and there was applause as Madoff was led out in handcuffs. He avoided eye contact with his victims, including Miriam Siegman.

MIRIAM SIEGMAN, Madoff Victim: As he was led away in handcuffs, I sort of pushed my way up to the front and saw him in silhouette. He’s not a man who feels, I don’t think, remorse.

JEFFREY BROWN: After the hearing, federal prosecutors released a statement, saying, “His admission certainly establishes guilt. We are continuing to investigate the fraud and will bring additional charges against anyone, including Mr. Madoff, as warranted.”

Ira Sorkin, Madoff’s attorney, had only this to say outside the courthouse.

IRA SORKIN, Attorney: We intend to appeal the remand.

Madoff's tone was 'measured'

Diana Henriques
New York Times
As Mr. Madoff was handcuffed, there was a silence in the crowd that several people seemed to nod in satisfaction. Some women were weeping as he was led away.

JEFFREY BROWN: Madoff was taken to this Manhattan correctional center, where he'll await final sentencing on June 16th.

And for more on today's events and the prospects for recovering any money, we're joined by Diana Henriques of the New York Times. She was at the courthouse today. And Ken Yormark, he co-leads the forensic accounting and financial investigations practice at LECG, a worldwide expert witness consulting organization in New York. He is not currently working on the Madoff case.

Well, Diana Henriques, tell us more, first, about what it was like inside the courtroom this morning.

DIANA HENRIQUES, New York Times: Well, as you showed, it was a day of tense emotion, very raw feelings, and yet generally a very well-behaved group of people. The smattering of applause, the judge quickly silenced.

And I noticed that, as Mr. Madoff was handcuffed, there was a silence in the crowd that several people seemed to nod in satisfaction. Some women were weeping as he was led away. I asked them, "Why?" And they said, in one case, it was relief that some justice had been done. And then the other, she said she was still just so angry at the damage that had been done to her family. So it was an emotional day behind that stately minuet that always obtains in a courtroom.

JEFFREY BROWN: And I quoted some of what Mr. Madoff said. Tell us more about what he said and how he said it.

DIANA HENRIQUES: Well, he was very measured in his tone. He had to stand at the defense table. His lawyer, Ike Sorkin, stood next to him throughout the 20 minutes or so it took to read the printed statement that he read.

He opened with deep apologies. I think they sounded heartfelt; we can never know, of course. But he acknowledged that he knew what he did was wrong, indeed, criminal. He realized he, as he said, had deeply hurt many, many people, and he apologized several times and expressed his remorse.

He gave a version of how he fell into this crime; I should say that the government still disputes it. But he claimed that he began the Ponzi scheme in the early 1980s when markets were difficult and he found it difficult to earn the kind of earnings for his clients that they expected.

He went on to say that he thought he could get out of it quickly, but ultimately, as the years went by, he realized that there was no way out except the route that he has now followed into court and now into jail.

JEFFREY BROWN: And one more question about today, Diana. Was it a surprise at all that the judge sent Mr. Madoff directly to jail?

DIANA HENRIQUES: I don't think so. I think that was the default position. The burden shifted to the defense to prove why he should not be jailed. Mr. Sorkin made that appeal and, as you saw, said he plans to appeal it further.

But without much discussion, Judge Denny Chin just simply said, "No, no bail." He didn't carry it any further. The government didn't make much of an argument, but Judge Chin did say that he felt that he was at a great risk of fleeing and, therefore, he was going to jail Mr. Madoff until sentencing in June.

Multiple billions still missing

Ken Yormark
LECG
I would be surprised if we cannot find more money than has already been disclosed. And it's hard to find -- it's hard to lose $50 billion without knowing where it goes.

JEFFREY BROWN: Now, Ken Yormark, let me bring you into this. As I said, the prosecutors said that the investigation continues. How much do we know at this point about what happened to the money, what everybody's focused on at this point? And what kind -- what are the key questions that investigators would be asking?

KEN YORMARK, LECG: Well, I think the first thing they're going to have to do is just look at the books and records and establish where, in fact, the dollars look like they are on those books and records.

And then, obviously, they're going to have to go back to the investors and some original documentation and establish, in fact, whether that is the case. And, ultimately, they're going to have to go to outside sources, to third parties, tracking these funds.

So I think that we are -- we have not seen the end of the funds that Bernie Madoff has taken. The numbers at this point are $1 billion, and I would find it hard to believe that we won't be able to find more.

JEFFREY BROWN: Well, explain that. You mean a billion dollars that they can -- that they can put their hands on or know where it exists?

KEN YORMARK: That's correct.

JEFFREY BROWN: And what you're talking about is, you think it's doubtful that they'd be able to put their hands on much more?

KEN YORMARK: No, I would be surprised if we cannot find more money than has already been disclosed. And it's hard to find -- it's hard to lose $50 billion without knowing where it goes.

So at the end of the day, if we can follow the funds and find out -- look at a timeline, for example, of when the funds came in and see what, in fact, happened with those dollars. I mean, the investments happened. They were brought into the accounts. You don't just lose $50 billion overnight. So...

JEFFREY BROWN: No, I'm sorry. But just to be clear, $50 billion is a lot of money. You don't lose it. But is there actual expectation, do you think, that some of these people could get much of their money or any of their money back at this point?

KEN YORMARK: Typical scenarios on Ponzi schemes, the answer is it's not a good scenario. Most of the cases -- I don't think there have been any studies on it, but most of the cases that I've experienced are somewhere in the range of 10 percent to 20 percent that people would recover at the end of the day.

Early investors benefited

Diana Henriques
New York Times
Well, I think you're right that there's a very low chance of recovery in Ponzi schemes. Typically, the money has been used to pay early investors.

JEFFREY BROWN: Now, the nature of a Ponzi scheme is often that the new money goes to keep the older investors happy. Some people clearly made money, at least for a while. Is there a question now about whether some of those people might have to give some of that money back?

KEN YORMARK: Yes, there are discussions about what's known as clawbacks, where the people -- the early investors, in fact, reaped rewards that were actually the funds that were given in by investors that came in more recently. So there's a definite possibility of that.

JEFFREY BROWN: Diana Henriques, what would you add to this investigation of seeking the money, how much is even out there, and how investigators are going about it?

DIANA HENRIQUES: Well, I think you're right that there's a very low chance of recovery in Ponzi schemes. Typically, the money has been used to pay early investors. And, indeed, the government charged that some early investors got very preferential rates, which would mean that they would have taken a lot more money out.

The government is going after a very high amount of forfeiture money here. The actual court documents show $170 billion that they are going to claim if they can find it. I think they're laying the groundwork to try to gather in any dollar that ever moved through the Madoff businesses over the period that they say the fraud was operating.

JEFFREY BROWN: And, Diana, is there any hint at this point that Mr. Madoff as part of his plea is cooperating in all this?

DIANA HENRIQUES: To the contrary, I think today's hearing made it clear that he's not cooperating, at least not with respect to the case against anybody but himself.

The fact that the prosecutor had to stand in court and say, "We're going to devote a lot of resources to investigating where the money is and who else might have helped," when the man who could have answered both of those questions was sitting a few feet away indicates that there's been a very minimal degree of cooperation so far. And now with a life prison term ahead, there's very little incentive for him to cooperate further.

Additional charges?

Ken Yormark
LECG
If they have to go through and build the case based on investor money and actually go through and do a forensic audit of the documentation, that could take a very long time.

JEFFREY BROWN: So when the investigators say that they're continuing their investigation, we may see some charges against some of his family members or other people involved?

DIANA HENRIQUES: And you may see additional charges against him.

JEFFREY BROWN: And, Mr. Yormark, based on your experience and the history of these kinds of things, would you expect an investigation like this to go on for a very long time, medium time? How do these things work?

KEN YORMARK: Well, it's really going to depend on how many people they can get to in the organization who will ultimately turn and start to divulge some really significant information. If they get good information from the individuals, they'll be able to track those funds a lot quicker. If they have to go through and build the case based on investor money and actually go through and do a forensic audit of the documentation, that could take a very long time.

JEFFREY BROWN: All right, Ken Yormark and Diana Henriques, thank you very much.

KEN YORMARK: Thank you.