Unraveling Madoff's investment scam

By Sam Allis
Globe Staff / May 12, 2009
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Bernard Madoff has secured his place in the pantheon of criminals, but he needs more room. The man is bigger than Wall Street. He is now a cultural icon, rather like Dracula.

But we still don't really know how he pulled off his Ponzi scheme, the biggest in history, scamming investors for more than $60 billion. What exactly did he do?

We get the best explanation yet from "The Madoff Affair," a "Frontline" documentary that airs tonight on WGBH-TV (Channel 2). The program is yet another example of what "Frontline" does best: unravel complicated stories in ways we can understand. And if there were ever a tale that needed unraveling, this is it.

The show is a taut hour of superior investigative reporting that moves in linear fashion from the start of Madoff's career in the early '60s to his spectacular fall late last year. Veteran correspondent Martin Smith leads the on-air hunt. Thankfully, "Frontline" avoids Wall Street jargon for plain English. The program is propelled by a range of captivating interviews, some exclusive, with ex-Madoff employees, investors, and a former head of the Securities and Exchange Commission who failed, utterly, to catch Madoff and his illegal operation.

Madoff was rotten from the beginning. In 1960, he started working at his father-in-law's accounting firm, and soon set up his outfit matching buyers with sellers of stocks. The company was a success because he paid clients like Fidelity Investments and the Charles Schwab Corporation a penny a share to trade through him. This kickback arrangement, while controversial, was not illegal, and it brought him huge volume.

This kind of sweetening on a larger scale was the core of Madoff's gamy career on Wall Street. He eventually developed a network of feeders - hedge funds, private equity of all stripes - who over time steered him billions of dollars. He would waive his half of client fees for them. This meant many millions of dollars to the fund managers involved. At one point, Madoff was trading shares equal to 9 percent of the trading volume on the New York Stock Exchange. His name spread to Europe and Asia, where investors were flooding him with their money.

His client statements were mendacious. "We were spitting them out statements constantly," recalls one former employee who was unaware of their contents. "The fact that all of these statements were just sort of made out of thin air is pretty shocking."

Madoff, obviously, didn't want the SEC looking at his operation, which is why he flew under the radar his entire career. He barred investment organizations from using his name to market their products. They all agreed like lapdogs because they were making fortunes.

"The Madoff Affair" also adds color to the inside operation. We hear from some true characters like Michael Bienes, who with his partner Frank Avellino steered major money to Madoff for sumptuous cuts. He describes how effortless it all was: "Easy. Easy-peasy. Like a money machine."

As the program ends, we find Bienes has avoided jail but has lawsuits coming his way. Madoff, whom we see but never hear from, awaits sentencing. And investigators are looking to find out who else was involved, who else should be put away.

The show is as discomforting as it is enlightening. It chronicles how long a savvy, slimy character can get away with financial murder on Wall Street. Could it happen again? Madoff is a rare creature. That said, if you believe in evil, you've got to believe there will be more Bernie Madoffs in our future.

Sam Allis can be reached at

Correction: Because of a reporting error, "Frontline" correspondent Martin Smith's first name was incorrect in a review of "The Madoff Affair" in today's "g" section, which is printed in advance.

FRONTLINE: The Madoff Affair On: WGBH, Channel 2

Time: Tonight, 9-10