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Madoff Expected to Plead Guilty as Details of Alleged Fraud Case Emerge

March 10, 2009 at 6:40 PM EST
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Lawyers for Bernard Madoff, who allegedly defrauded investors of nearly $50 billion, said that the former Wall Street financier would likely plead guilty to 11 criminal counts on Thursday. New York Times reporter Diana Henriques updates the story.
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GWEN IFILL: Finally tonight, the government’s case against money manager Bernard Madoff. His lawyer told a federal judge in New York today that Madoff is expected to plead guilty to 11 criminal counts on Thursday. Madoff has been accused of defrauding investors out of $50 billion in a giant Ponzi scheme.

Late this afternoon, government prosecutors released new details about the scheme, including these. It dates back to at least the 1980s. Madoff hired employees who knew almost nothing about finance and promised some clients annual returns of 46 percent.

Diana Henriques has been covering the story for the New York Times and she joins us again tonight. Thank you so much for doing this, for joining us.

DIANA HENRIQUES, New York Times: You’re welcome, Gwen.

GWEN IFILL: Diana, how could he have gotten away with this? What did the prosecutors say about how he pulled this off, allegedly?

DIANA HENRIQUES: Well, they underscore that their investigation is continuing, but they detailed what they called a broad infrastructure, almost a sort of Potemkin village of staff — ill-trained and, as you said, inexperienced — who generated customer statements and sent out fraudulent documents.

The government’s charges, though, leave as many questions unanswered as they answer. They do not say how much these staff members may have known about the allegedly fraudulent activity or whether any of them were involved in it.

As you note, they also raised the price tag on this fraud. Mr. Madoff had allegedly told people when he was arrested that he estimated the investor losses at $50 billion. The government’s charges put a higher price tag on that, almost $65 billion that investors thought they had entrusted with Mr. Madoff that most of which, in fact, was gone.

GWEN IFILL: And 4,800 investors, clients, who were involved in this. So do we not know from the case that was brought today whether anybody else was involved? We’ve heard tell about his wife, his sons. Any other names mentioned in this complaint?

DIANA HENRIQUES: No other names were mentioned. There were no unindicted co-conspirators or even references to shadowy Employee A or Family Member B.

But one thing that is clear throughout not only the charges but the government’s letter to Mr. Madoff’s lawyers about the sentence they intend to seek and the forfeiture that they intend to seek, they are alleging that some of this money that he obtained was used to support his supposedly — a legitimate business.

Other amounts — hundreds of millions of dollars — were used to support his own lifestyle. So, certainly, the wealth that the family has accrued over the years in this apparently successful trading firm suddenly has been cast into the pot here by these charges.

GWEN IFILL: So if you were someone who invested with Bernard Madoff and you wanted to one day pull your money out, they would pay you that money, but they would use the money that had not been invested from other investors to pay you?

DIANA HENRIQUES: Yes. If I were an investor and I wanted my money out, he tried to get money from you to pay me and then promise you returns.

GWEN IFILL: So did the government — this was not a plea deal, precisely. The government has not stopped this investigation?

DIANA HENRIQUES: It has not stopped its investigation. And it emphasizes, because of the enormous sensitivity on this topic among his victims, they emphasize that they have not entered into any negotiations that have reduced in any way the jail time or the financial penalties that Mr. Madoff is facing.

GWEN IFILL: So a lot of this looks like a giant shell game. And I saw one term in the complaint that I would like for you to explain it to us. It was a split-strike conversion strategy, which is — I guess gets to the bottom of exactly how they were getting away with this, if this is what they were doing.

DIANA HENRIQUES: Well, that’s a smokescreen of complexity, as you point out, Gwen. There is a split-strike conversion strategy. It’s a complex strategy that uses real stocks that are then offset by options that limit your downside risk and your upside potential. That really exists.

But Mr. Madoff wasn’t doing any of those trades. He was actually just moving huge amounts of money around from bank accounts here in the United States to bank accounts in Europe to give the illusion that he was actually trading money.

GWEN IFILL: You know, it pays to remind our viewers exactly how he could have gotten away with this for so long, if this is what he was doing since the 1980s. Was it just that the regulations weren’t stiff enough or he created this elaborate plan that was undetectable?

DIANA HENRIQUES: It was an incredibly orchestrated fraud. And, in fact, the actual charges that were filed today include a transcript from a sworn interview that Mr. Madoff gave with SEC lawyers in 2006 in which, according to them, he simply lied about what he was doing over and over again. He created phony books, phony records, phony account statements. It was a very detailed and amazingly well-constructed plan to deceive people.

GWEN IFILL: And who were his employees? Obviously, he didn’t do this all by himself. Did he hire the best of the best in order to pull this off?

DIANA HENRIQUES: No. According to the government — and we already knew this from our own reporting — these were little more than clerks, people who had served with him for a long time. We don’t know how much they knew about what they were doing, but the government says they didn’t know much about the business at all.

They don’t make clear whether or not they were in on the fraud, but they do make clear that these were the people who helped send out the statements and generate the records that were part of this smokescreen.

GWEN IFILL: Diana, he goes to court again this Thursday. And what happens then?

DIANA HENRIQUES: Well, that’s when he’s scheduled to go to court. We always have to be prepared in this case that things can get adjourned. They have been several times.

But what will happen then is he will essentially appear before Judge Denny Chin in federal court in Manhattan and admit in detail what he did. It’s a proceeding called an allocution. He will stand in court and, either through being questioned by the prosecutor or being told by the judge to give a recital of his own, he will explain what he did and admit what he did in open court.

GWEN IFILL: And what is the potential penalty if everything that he’s been accused of so far today is true and he does plead guilty to these things? What is the potential penalty?

DIANA HENRIQUES: He is facing life in prison, no ands, ifs or buts. His exposure is so far over the line that I think it technically calculates out to 150 years in prison. He’s 70 years old. He’s essentially going to spend the rest of his life behind bars if he pleads guilty to all of these charges and the court stays within those guidelines when they sentence him.

GWEN IFILL: Do any of the investors get repaid?

DIANA HENRIQUES: Well, we don’t know yet. The government is going to impose a restitution order. They are going to try to seek forfeiture of any assets they can trace as the fruits of this long-running crime.

There is a court-appointed trustee, as you know, in a — in a bankruptcy court trying to unravel Mr. Madoff’s estate for the benefit of investors. So far, we only know of just under a billion dollars that has been…

GWEN IFILL: Oh, my.

DIANA HENRIQUES: … able to be identified for investors’ benefit.

GWEN IFILL: OK, Diana Henriques of the New York Times, thank you so much.

DIANA HENRIQUES: You’re welcome.