line." i'm craig melvin. thank you for watching. [theme music] >> in this episode of "american greed"... >> ebbers is an amazing story because he came from nothing and was on top of the financial world. i mean, he was worth billions. >> bernard ebbers, ceo of "worldcom," rises from rags to riches. >> mr. ebbers, what is your response to the verdict? >> and then, falls from pinstripes to prison stripes. >> don't push, guys! don't push. >> but when he tumbles, ebbers brings thousands of investors down with him. >> people that invested in the stock were definitely, you know, victims to a con game. >> and later... >> it just seemed like a-like a sure hit. it really did. >> hollywood producer, joseph medawar says he's working on tv's next big hit. >> we gotta get these people out of here! >> but it's really just a big scam, robbing more than 70 investors

out of millions of dollars. >> medawar was extraordinarily, um, good at what he did. he was the consummate con man. [ music ] >> i would ask the, uh, witnesses to, uh, rise... and-and raise your right hand. >> in the summer of 2002, a ceo is called before congress, grilled about why his company has gone bust, and why shareholders have lost a total of $180 billion. >> each of you is now under oath. >> good afternoon, mr. chairman. i served as ceo of "worldcom" for 17 years. during that time, i helped a small company rise to one of america's largest corporations. >> bernard ebbers, former ceo of "worldcom," symbolizes an era

of corporate greed and fraud. "worldcom" is one of the fastest rising companies in u.s. history... and one of the hardest to fall. the year is 1983. at a diner in the small town of hattiesburg, mississippi, local businessmen meet over coffee and donuts. ma bell's monopoly on long distance is breaking up. the businessmen see an opportunity to get in on the long distance game. >> in the early days, the hardest, uh, hardest job that we had was ex-explaining to people and convince them that we could do the same thing that, uh, at&t had been doing at that time. that we could provide long distant service and provide it for 'em for less money. >> murray waldron is a mississippi entrepreneur and the idea man behind a new venture called "long distance discount service," or "ldds" for short.

waldron is seeking investors to help him raise $650,000. among the seven partners who sign on, is bernie ebbers. >> i was impressed with bernie. uh, i think bernie, you know, had a-a-a good heart. he was hard working. he was business. i mean, he-he was not a lot of joking and fun, or anything like it. but, uh, i liked what i saw. >> at this point, bernie ebbers is totally obscure. he's worked as a milkman, a bar bouncer, and a basketball coach. then, he gets into motel business. this is ebbers' first property. a humble little place on the edge of a mississippi highway. here, ebbers earns the reputation as a penny pincher. >> bernie told me a lot of times that-that, uh, he didn't know anything about the long distance or the telephone business, but he knew how to read numbers. and he was a number cruncher. and even in his first-- the first motel, uh, you know, they cleaned the rooms,

they did the washing, they cleaned all the linens and everything. but, you know, instead of hiring somebody to do it, he did it himself. >> ebbers' frugal ways served the start-up well. "ldds" needs to be lean and mean, in order to offer cut rate long distance. before long, customers are beating a path to its door. >> it-it mushroomed fast. you know, it went from 240 to a thousand. and then just-just tens of thousands. and i couldn't even tell you how fast that growth was. >> a year and a half later, bernie ebbers moved from partner to president. under ebbers' watch, "ldds" goes on a buying spree, snapping up other long distance carriers throughout the south. and in just ten years, the little company that was born in a mississippi diner has grown into one of the world's largest telecom companies, with the market capitalization of $6 billion.

ebbers gives the company a new name... "worldcom." a name that seems to fit ebbers' outsized personality. >> he was sort of this brazen guy who just started doing all these acquisitions-- buying, you know, smaller companies. all of a sudden, he went for the big kahuna, which was "mci" and swallowed it, and everybody was sort of amazed because this was this tiny, you know, brash, little company in mississippi buying "mci" which was a household name. >> "worldcom" has seven billion in annual revenue, a fraction of the annual revenue of it's take over target, "mci" which brings in 18 billion. >> in business news, several federal agencies are going to work reviewing "worldcom's" proposed buyout of "mci" this would be the biggest corporate merger in u.s. business history. >> and he-he called it "worldcom"-- didn't call it "mci" and, uh, he just sort of build it from there. >> in 1996, "worldcom" builds a sparkling new corporate campus. its stock is a highflier, enriching both investors

and employees. >> it was constant change, constant excitement. >> glyn smith is an internal auditor at "worldcom." >> the stock price, when i came over, was, you know, very, very high. so, a lot of the talk you hear around the water cooler was, you know, "when you gonna "sell your stock?" it was exciting. it was fun. people enjoyed working there. uh, so it was a good place to work. >> bernie ebbers, a former high school basketball coach, is now the toast of wall street. >> well, people were excited. partly because they had the backing of, um, "salomon smith barney" and "citigroup," and there was sort of this sense that these were, you know, the new kids on the block, and they had a great idea, and, um, you know, they were gonna take over kind of the sleepy telecom business and shake it up. >> bernie, you know, he-he's-he's tough person. he's got a big ego. and he could, man, he could eat that ego up. you know, when people start patting him on the back, tell him what a good company it was and everything. >> in 1999, bernie ebbers' salary is $935,000 a year.

but like many ceo's, his salary is dwarfed by the income he receives from bonuses and stock options. that year alone, ebbers received $27 million worth of "worldcom" stock options. despite his wealth, ebbers walks and talks like a good ol' boy and earns a nickname-- "the telecom cowboy." >> and that's sort of the-the vibe that he gave out around the office. you know, he walked around in pressed blue jeans and an unlit cigar and, you know, very casual, very folksy, kind of guy. wall street loved that. he wasn't your typical suit and tie type ceo. and that really played well to the investors. it played well, certainly, down south. um, and-and i think wall street saw that as a refreshing change. >> i think some people thought he was, you know, a little goofy, maybe we're laughing at him a little bit. but they thought, "hey," you know, "he's done pretty well. "he's built this "company from nothing." and they just bought-- you know, they just swallowed a big whale. so, there's gotta be something to this guy's strategy. >> the strategy is one of aggressive acquisition of

"worldcom's" competitors. the other part of the strategy is cost control. just like in the old motel days, when ebbers would clean rooms himself to save a buck, he still has the reputation as a skinflint. >> everybody agreed that he was very hands on. um, they liked to call him a micro-manager. i mean, he was just very much in the weeds. he was very focused on money. um, lot of people called him cheap. but he would also do other strange things, like count coffee filters to make sure, you know, that people weren't drinking too much coffee. >> it was communicated throughout the company that-that, uh, there would be no more free coffee. and i can remember the day. i came to the office and, sure enough, the movers were there. they hauled out the free, you know, the-the coffee pot and rolled in the machines. you've seen the machines where you, you know, paid 35 cents, a cup drops down. his idea was sort of-- if you-if you really hammer those pennies, then the dollars will take care of themselves. and he managed that way. >> but bernie ebbers is a study in contradiction. while he runs "worldcom" like miser, in his personal life,

he's a spendthrift. when "american greed" returns, see how bernie ebbers' free-wheeling ways put investors' fortunes in jeopardy. >> he loved buying things. um, and he loved buying things with other people's money. [ music ]

>> in the late '90s, bernie ebbers, the ceo of "worldcom," is flying high.

his long distance company is a wall street darling. and nearly everyone seems to be shouting, "buy!" and in "worldcom's" hometown of clinton, mississippi, bernie ebbers is a hero. >> oh, everybody thought they had it going on. you know, they were gonna buy sprint and, uh, didn't look like there was any stopping for 'em. >> john mosley owns an auto body shot in clinton. mosley and his business partners sank $35,000 into "worldcom's" stock. >> we felt great. thought it was gonna be a good deal, you know. a-a good investment, something to grow a little bit of money for a long term, and-and felt good about it. >> bernie ebbers is feeling good, too, about "worldcom's" future. the telecom cowboy is pulling in $36 million a year. most of it in the form of "worldcom's" stock options. all the while, ebbers is taking away employees' free coffee. but when it comes to spending money on himself, ebbers spares no expense. >> well, um, it might be easier to talk about

what he didn't buy. >> sean coffey is a lawyer who represents "worldcom" investors. >> he bought a hockey team. he bought a yacht building company. he bought lots of yachts. >> by 1996, he had, like, a 132 foot yacht, called "the aquasition," instead of "the acquisition." that's his little play on worlds. the aquasition actually had a remote control that you could steer from a hot tub, which, um, i don't know if he ever used it. i imagine he did. but, he went from buying yachts, to actually buying a yacht building company. >> he bought the largest ranch-- privately owned ranch-- on the planet, up in canada. he bought a half a million acres of timberland in the southeast. um, he bought a crawfish farm. he bought a golf course. >> he invested in a refrigerator trucking company. he invested in a soy bean and rice farm. >> he built a $5 million lodge in clinton, mississippi. so, um, it was conspicuous consumption in uppercase letters. >> the money to buy all these trophies comes from personal loans, underwritten by

"j.p. morgan" and "citibank." and all the loans totaled $408 million. ebbers secures them with "worldcom's" stock. >> he was getting all these loans based on, you know, the company's, um, uh, you know, reputation. and i think that was because he sort of saw these things as-as the golden ring of having, you know, worked so hard and climbed so far. >> for the moment, ebbers is enjoying his farms and ranches and yachts. his life is built on the belief that "worldcom's" stock will continue to defy gravity. but there's trouble on the horizon. by early 2000, the outlook for the telecom business is stormy. >> the long distance business was just not a cash cow anymore. it once had been. but it had just been decimated, partly because there was so much competition. >> on wall street, the entire telecom sector takes a nose dive. in june of 1999, "worldcom" is trading at $62 a share. by the end of 2000,

it's tumbled 70 percent to just $18 a share. but bernie ebbers remains an aggressive cheerleader for "worldcom." >> is "worldcom" a financially sound, solid, surviving company? >> absolutely. we are free cash flow positive. we announced that today. >> at a shareholder's meeting in 2001, ebbers says "worldcom's" best days are yet to come. >> the machine that is producing the revenue, or the units, is doing very well in the company. >> in large part, because of ebbers' salesmanship. "worldcom" still has many true believers, especially back home in mississippi. >> i'd never invested in the stock market, uh, prior to my venture into "worldcom." >> sam owens doesn't know much about picking stocks. an insurance salesman, owens has always stuck with real estate for his investments. but when "worldcom's" stock drops, owen figures the market has overreacted. he think "worldcom"

will rise again. >> their stock had gone down, uh, in the $17 range, and i decided to-to take the plunge and bought a considerable amount of-of the shares. >> owen's timing proves to be disastrous. in 2001, "worldcom's" stock tumbles more than 30 percent. like thousands of investors across the country, owens is watching his investment dwindle. and on wall street, analysts are getting nervous. >> "citigroup," through its traveler's arm, loaned him a half billion dollars through some family trusts, so he could buy lots of things. well, those loans were secured by the value of his "worldcom" stock. >> the banks tap bernie on the shoulder and request their money back. bernie's in trouble. to pay back the banks, he may have to sell his "worldcom" stock. >> a margin call. and when the ceo begins to sell a lot of stock, investors get nervous because they take it as a sign that the ceo thinks the future

is-is poor for the company. and you had this, sort of, spiraling circumstance. >> "worldcom's" board of directors desperately wants to avoid a fire sale of "worldcom" stock. so, to bail ebbers out, the board approves of $408 million loan to its ceo. the move attracts the attention of the securities and exchange commission, which wants to know more about the bailout. and that's not all. the sec is highly suspicious of "worldcom's" financial reporting. even amid tough times in the telecom business, "worldcom" is issuing glowing financial statements. >> thank you for coming here tonight-- >> in march of 2002, ebbers sits down with cnbc anchor, maria bartiromo. >> bernie, nice to have you back with us. >> thank you for having me. >> what do you want to say to the shareholder, out there, that's holding "worldcom," that just got the news that the sec has conducted an informal inquiry. >> uh, it-it's a very difficult thing to know what to say, because i don't have enough definition to what they're asking. uh, it was no anticipated.

uh, it's one of those things that you have to live through. it's a very time consuming prospect, 'cause they ask a lot-- for a lot of information. but the thing that i feel very confident in, in-in my heart of hearts, is that there are not issues that our share holders ought to be concerned with, with respect to the investigation by the sec. i would be the first to tell them if i thought there were some issues. >> he couldn't stand to lose. he wanted to make sure that they continued to be the company that was reporting profits. you know, he had sort of built this empire and he wasn't about to see it fall apart, just because the business he'd gotten into was suffering. >> one month later, on april 29, 2002, "worldcom's" board asks ebbers to resign. the reason? all of ebbers' loans, which support his lavish lifestyle. >> how are you? >> i'm hanging in. >> good. >> in jackson, mississippi, wlbt, the nbc affiliate, nabs an interview with the fallen ceo ebbers is asked about the 408 million he owes "worldcom."

>> that will be paid back, 100 percent plus interest, will be paid back. >> what do you say to the person who had faith in you a long time ago, when you were "ldds" and, uh, invested in your stock went up to what? over 80 at one point? >> mmm-hmm. >> and-and all of a sudden, it's two, and they're left all in the bag. what do you say to that-that person? >> well, you tell me, what do i say? i feel like crying. uh, i, uh, it's terrible. it's sad. uh, but i guess i would say, uh, is, if at all possible, hang on. i can tell you, if i had spare money, i'd be buying today. >> go out and buy? >> absolutely. >> for $2 or whatever it is? >> absolutely. you could really make some real money. >> ebbers is a pitch man to the very end. but "worldcom" hasn't hit rock bottom, yet. when "american greed" returns, this man blows the cover off an $11 billion accounting fraud. >> i-i think that day was really when the, uh,

house of cards began to fall. [ music ]

[♪] think you need to buy expensive skincare products to see dramatic results? try olay skin care. just one jar of micro-sculpting cream has the hydrating power of 5 jars of a prestige cream, which helps plump skin cells and visibly smooth wrinkles. while new olay retinol24... provides visibly smoother, brighter skin. for dramatic skincare results, try olay. and now receive 25% off your purchase at olay.com brand power. helping you buy better. >> "worldcom,"

the telecom giant, has seen better days. the ceo, bernie ebbers, has been sacked. he's nearly half a billion dollars in debt. and "worldcom" stock is in a free fall. >> we rode it all the way down to the $2 range. i had it in my mind if it could go back to five we could cash out and break even, and, of course, it never did. it became worthless. >> investors, like sam owens and even "worldcom" employees, are beginning to wonder if the company is a fraud. >> part of being a good auditor is what's called "professional skepticism." >> glyn smith is an internal auditor for worldcom. >> someone from management can tell you one thing and, as an auditor, you're obligated to be somewhat skeptical about that. >> in the spring of 2002, smith and two colleagues see something highly unusual in worldcom's accounting. what they see could be the death nail for "worldcom." the company's leases for phone lines are booked

as a capital expense. >> when you capitalize something, you recognize the expense over a much longer period of time. >> ordinarily, these leases are booked as an operating expense. an expense that would lessen the company's income every month. "worldcom's" slight of hand is making the company appear much healthier than it really is. >> whereas, before, we would expense the cost of those lines on a-on a monthly basis, all of a sudden, we're taking those costs, we're moving them to the balance sheet, and we're expensing them over a seven, ten, fifteen year period instead. so, the result of that, what happens is your expenses in a given period are fewer, your net income's greater. >> in this case, smith discovers "worldcom" has overstated its profits by a staggering $3.8 billion. smith confronts "worldcom's" chief financial officer, scott sullivan, about the entries. sullivan tries to defend his accounting as a way to save "worldcom."

>> well, i-i think that day was really when the, uh, house of cards began to fall. >> let's head to the news desk where ann-- >> on june 25, 2002, "worldcom's" board goes public with the investigation. >> there is big trouble this morning for the nation's second biggest long distance provider. "worldcom" said last night that an internal investigation has uncovered massive accounting fraud, almost $4 billion in disguise expenses, in what could become one of the biggest accounting scandals in u.s. history. >> "worldcom's" board fires cfo, scott sullivan. but the big question on everyone's mind is-- "what did bernie ebbers know?" the justice department launches an investigation. what they discover will cause the biggest bankruptcy in u.s. history. additional "worldcom" audits place the total accounting fraud at $11 billion. on march 24, 2004, the feds filed criminal charges. >> "worldcom," the company's former ceo, bernie ebbers, was charged today with falsely

inflating earnings at the long distance phone company to the tune of $11 billion. "worldcom's" former chief financial officer, scott sullivan, agreed, today, to plead guilty to the same charges and cooperate with prosecutors. >> in january of 2005, bernie ebbers stands trial in lower manhattan. in opening arguments, prosecutors say bernie ebbers was motivated by greed. his wealth was all tied up in worldcom's stock. and when the stocks started to tumble, he authorized an accounting fraud to help prop up the company. key to the prosecution's case is the testimony of chief financial officer, scott sullivan. >> scott sullivan said that bernie ebbers told him to hit the numbers. so, he went ahead and he found a way to meet those numbers. the former cfo says that in a series of one-on-one meetings, he and bernie ebbers discussed ways to inflate "worldcom's" profits... >> and that bernie ebbers knew full well what was going on,

and encouraged him to keep doing what he was doing, and that bernie ebbers was very much a detailed guy, and had to know what scott sullivan was doing. bernie ebbers was looking at everything down to the price that they were paying for coffee! >> yes, he knew about the coffee! >> reid weingarten is ebbers' defense attorney. >> and he did have these idiosyncrasies, and yes, he was hands on, in many respects, and yes, he knew every minute of telephone time that was sold by "worldcom." not disputed, stipulated. but that doesn't mean he had a clue about the technology or that he had any idea about how the accounting worked. he had vision. he had charisma. but, no doubt, he didn't appreciate the sophistication of either the technology or the accounting. so, he had to defer. and indeed, he deferred to his accounting department, and they messed up. >> it was, uh, derided by the prosecutors as the "ah, shucks" defense. um, "he-he couldn't have "known what was going on. "he was the salesman. "he was the cheerleader. "he was building this company. "he wasn't paying close "attention to all the numbers."

>> ebbers seems upbeat. he jokes with the media. and even asks a cameraman for a cigar. >> that is great, thank you. >> my pleasure. >> i owe you one. >> but ebbers' jovial mood is about to change. on march 15th, 2005, the jury has a decision. the verdict? bernie ebbers is guilty of conspiracy and securities fraud. >> he seemed a little misty as he came out of the courtroom. uh, you know, this clearly was-was a blow. this was a-a, you know, a total turn around for someone who was at the pinnacle of corporate america. >> ebbers is sentenced to 25 years in federal prison, one of the longest sentences for white collar crime in u.s. history. >> it was the only time in my experience in court where something happened in court where i was so upset and so stunned, that i couldn't react. you know, bernie's a man in his 60s, late 60s, has

a volatile heart condition. and had the judge given him six or seven years, um, that would have been, in effect, a life sentence. i concluded upon much reflection, that the sentence really didn't have anything to do with him. it had everything to do with sort of sending the signal, "blah-blah-blah-blah." yes, it's important to send messages, but this is a human being. and he should have been sentenced based upon his own conduct, uh, and-and how-- who he is, how old he is, and what's the rest of his life gonna be about? >> he's free on bail until the summer of 2006. in august of that year, ebbers drives himself to the oakdale federal prison in louisiana. ebbers then steps out of his white mercedes and into a prison uniform. >> you know on a-on a one level, it's tragic. you have a man who's gonna die in prison. a proud man, who was once on top of the world. um, but my sympathies lie with the victims. >> sean coffey represents thousands of defrauded investors of "worldcom."

collectively, they lost a total of $30 billion. >> i don't think white collar criminals should be treated more gingerly just because they wear a suit to work. i mean, mr. ebbers was able to do a lot of damage, and so, i think the sentence was appropriate. >> i got great satisfaction out of seeing bernie convicted. >> insurance salesman sam owens lost $100,000 investing in worldcom, and he has little sympathy for bernie ebbers. >> he can't get enough punishment to suit me. >> sean coffey later settles a record $6 billion suit against "worldcom" and several wall street banks. more than 90 percent of that figure goes back to investors, but most received just pennies on the dollar. >> i thought about suing him myself, and decided i'd be throwin' good money after bad. and, uh, i've gotten maybe $2,500 or $3,000 back, uh, just a fraction of what we spent.

>> any way you look at it, the people that invested in the stock were definitely victims to a con game, aided by bernie ebbers and scott sullivan. >> the man knows right from wrong. i don't think he set out to wrong, but he knows right from wrong... and he hurt a lot of people. >> coming up on "american greed"... >> who doesn't want a piece of hollywood at just the cost of a dollar a share? >> it just seemed like a-- like a sure hit. it really did. >> a hollywood dream turns into a nightmare for investors. >> you know the-- never did i believe that i was gonna lose this money. [ music ] hey frank, our worker's comp insurance is expiring, should we just renew it? yeah, sure. hey there, small business owner. pie insurance here with some sweet advice to stop you from overpaying on worker's comp. try pie instead and save up to 30%. thirty percent? really? get a quote in 3 minutes at easyaspie.com. wow,

that is easy. so, need another reminder? no, no no, i'm good. uh, yes please. oh. ho ho ho, yeah! need worker's comp insurance? get a quote in 3 minutes at easyaspie.com. ♪

(sensei) beautiful. but support the leg! when i started cobra kai, the lack of control over my business made me a little intense. but now i practice a different philosophy. quickbooks helps me get paid, manage cash flow, and run payroll. and now i'm back on top... with koala kai. hey! more mercy. (vo) save over 40 hours a month with intuit quickbooks. the easy way to a happier business. my bladder leak underwear.orried someone might see so, i switched. to always discreet boutique. its shape-hugging threads smooth out the back. so it fits better than depend. and no one notices. always discreet. becwe stay focused ons me all my finwhat we do best.lace,

with netsuite by oracle, you get a full picture of your business, and it's everything you need to grow all in one place. schedule your free product tour right now at netsuite.com/boots.

[ music ] >> washington dc, the nation's capital. it's here where members of congress spend long hours serving the american people. but republican, dana rohrabacher isn't your average congressman. in his spare time, this southern california native is also an avid surfer and aspiring screenwriter. >> they get in a big fight, and they end up at this mission... >> thirty years ago, rohrabacher wrote his first script. it's an action-adventure buddy flick titled "baja." over the last three decades, the script does draw the attention of hollywood producers, but rohrabacher never cinches a deal, that is, until 2003,

when a hotshot producer named joseph medawar expresses interest in "baja." >> i met medawar years ago, in my church. and he, uh-- his family goes to the same church that my family went to in palos verdes. >> over the years, medawar has had some modest success in hollywood. >> everybody we spoke to had the same impression of him-- charming, intelligent, successful-- i mean, he did-- he exuded, you know, that sort of success. >> medawar pays the congressman $23,000 for the option to make "baja" into a film. then, he lets rohrabacher in on his next big project... "d.h.s.-- the series." "d.h.s." stands for "department "of homeland security." medawar pitches the show as a dramatic television series profiling real cases handled by the federal agency. >> it was gonna be like the old fbi series where you take really-- real stories,

national security stories, and you would make them into a, uh, a tv series. >> medawar says "d.h.s.-- the series" will follow the exploits of two fictional investigators, agents jack callahan and andrea bacall. >> we gotta get these people outta here! >> medawar says he has started production and shows rohrabacher a trailer that has been designed to pitch the show. >> hey, johnny, do me a favor. say a prayer! >> he had about a five minute, uh, video made, uh, of what he had in mind for the department of homeland security. and it was very impressive. >> rohrabacher is so impressed with the pitch, he offers to help medawar by setting up fact-finding meetings with government officials. >> i wanted the department of homeland security project that, uh-- to be as accurate as it possibly could be. i made sure he got to meet the people who would then explain to him how the system worked. >> and with that, joseph medawar

is rubbing elbows with some of washington's most elite players and generating big buzz for his tv series. >> and so, on his website, he very prominently displayed some of these meetings that he had with the department of home-homeland security staff, some congressional people, and-and a couple of congressman. >> medawar and his leading lady, alison heruth-waterbury, also attend political fundraising dinners. at one, they even meet the president. medawar prominently posts these pictures on the show's website. he could then use that as, uh, as, uh, essentially, a calling card, an opening, to-to meet new people. >> and it's an extremely effective calling card, one that joseph medawar will use again and again to lure investors. in the fall of 2004, mortgage broker, ramon alvarado learns about the "d.h.s." show from a co-worker. >> he actually said, "hey, "you know, they-they are "looking for investors.

"um, would you want "to be one of 'em?" and the website, that-that really got me excited. >> for alvarado, it seems like the right idea at the right time. >> i mean, having or-- having the-the blessing of the president, you know. and then, uh... i mean, it sounded good. >> ramon learns medawar is selling stock in his production company for just one dollar per share, and the company is about to have a public offering. >> gosh, i mean, you know, just a simple math, at 1,000 shares at 40, um, that-that's a decent, um, amount of return for your investment. >> ramon wants in. he hands over $15,000. and soon, his investment should be worth close to $1 million. >> it just seemed like a-- like a sure hit. it really did.

>> ramon is just one of more than 70 investors who sink their money into "d.h.s.-- the series." >> who doesn't want a piece of hollywood at just the cost of a dollar a share? >> when "american greed" returns, medawar turns to religion and finds a whole new pool of investors. >> these people really believed that they were going to be doing something that god wanted them to do. >> see more behind-the-scenes footage of "d.h.s.-- "the series," log onto americangreed.cnbc.com. ♪

want to freshen your home without using heavy, overwhelming scents? try febreze one; it eliminates odors with no heavy perfumes, so you can feel good about using it in your home. for a light, natural-smelling freshness,

try febreze one. >> freedom and democracy are under attack. >> in early 2004, hollywood producer joseph medawar says he's working on tv's next big hit, "d.h.s.-- the series," a dramatic tv series profiling the real cases of the department of homeland security. >> "d.h.s." is becoming the-the focus of our company, steeple distributions. >> medawar even has support from some washington heavy hitters, including veteran congressman, dana rohrabacher. >> it was a great idea and, uh, uh, he told me they were gonna do a pilot movie and then a tv series. >> medawar has also collected $1.5 million from investors, who have bought stock in his company, steeple entertainment. and medawar assures them production is well underway. >> let's go. >> he told people that he had 26 episodes, um,

in production, and even as far as saying in post-production, and he was working, uh, with various networks to sell the show. sometimes, he talked about offers he was receiving. >> offers from major television networks like fox and hbo to buy "d.h.s.-- the series". the show was also starting to get some buzz, as the media picks up on the story of the hot, new tv show that has the backing of president george bush. but there's something washington officials and investors don't know. since the fall of 2004, investigators from the irs and the fbi have been keeping a close eye on joseph medawar. they learn that medawar was cited for selling phony stock for another company in 2001. now, investigators fear he may be up to his old tricks, scamming "d.h.s." investors. irs agent walt finnigan begins tracking medawar's spending. >> all the money that came in from investors was immediately

used to, um, basically fund a lavish lifestyle that he lived. >> which includes shopping sprees on rodeo drive and expensive dinners. one of medawar's largest expenses is $40,000 a month for this beverly hills mansion. medawar rents it for the star of his show, alison heruth-waterbury. >> and that was-- ended up being a large chunk of money, 'cause $40,000 a month over a short period of time added up to pretty close to a quarter of a million dollars. >> throughout 2004, the producer and his leading lady attend swanky hollywood galas promoting their show. their trips are first-class all the way-- top flight hotels, fancy jewels, and limousines. >> the problem was is that his personal expenses far exceeded his business expenses, so, therefore, the money would definitely go out very, very quickly. >> medawar needs new money fast.

by the fall of 2004, he is working a new crop of investors. he targets his pitch to southern california churches, emphasizing what he says are the show's "religious themes." >> here, there was an interesting kind of confluence of money, uh, patriotism, and religion. i mean, these people really believed that they were going to be doing something that god wanted them to do. >> for the churchgoing audience, it was "we are going to air "this on a church network, "a faith based network, and this "is going to be something that "is gonna be true to the faith." >> one of the churches medawar pitches to is a small congregation called "desert blue ministries." fifty-two year old murray spencer has been a member for more than five years. she remembers how joseph medawar quickly became a fixture at her church. >> joseph was at the church every sunday. he was always there,

sittin' on the front row. >> for spencer, investing with medawar is an opportunity she can't afford to pass up. >> you go to work every day, but still you don't have enough. we're living from paycheck to paycheck. >> and immediately, the people would, um, buy the stock, because they just thought that they were gonna be millionaires within a short period of time. >> murray takes out an equity loan on her house in the los angeles community of watts, and invests $57,000 in medawar's company. >> that money would double or triple. so, with the money that i invested, it would've gave me enough money to pay my house off. >> in all, medawar collects $3 million from church groups. in the meantime, initial "d.h.s." investors like ramon alvarado are eager for medawar's company to have its promised ipo >> he came across as a real warmhearted individual. it was very difficult not to, you know, right from the get-go, not like the guy. he did say that all this

money is refundable, if you wanna get out. >> by early 2005, ramon has invested $120,000 of his money into steeple entertainment. >> uh, we were gonna extend the living room. >> ramon anxiously waits for the next seven months for the company to go public. he plans to use the money to remodel his home. >> i had that hope, eternal hope, that "please-please-please, "let it happen." >> when we return, investors like ramon are about to learn that things with joseph medawar and his company aren't what they seem. >> medawar was extraordinarily, uh, good at what he did. he was a consummate con man. [ music ]

[ music ] >> by the summer of 2005, joseph medawar has been promoting his tv show, "d.h.s.-- the series" to public officials and investors for more than two years. in that time, more than 70 people have plunged more than $5 million into his company's stock. but over the last year, investigators from the irs and fbi have been quietly looking into joseph medawar and his company. now, investigators find medawar has been spending so much money on himself, so quickly, he hasn't shot nearly any of the 26 episodes he has promised investors. >> he basically was just taking the money and spending it as it came in. even if he wanted to, you know, make a show, he had no money. >> i don't believe that medawar had any intention or ability to put a show together.

>> assistant u.s. attorney david willingham helps build the case against joseph medawar. >> the "d.h.s." website was essentially the soup to nuts of the lies of the investigation, uh, that-that we had uncovered. >> where are the choppers? >> as far as we know, that's the only acting. >> from the beginning, medawar's project was a scam. there is no series. even the "d.h.s." trailer he used to lure investors is a fake. >> the trailer was made up from a bunch of stolen scenes from other movies or shows. and the trailer was made very early on, in order to use as a solicitation tool for contacts and investors. >> even with a federal investigation underway, medawar keeps up his front with investors, insisting that steeple is a well-funded company that's on the verge of an ipo >> you know that-- never did i believe that i was gonna lose this money. it just seemed like a-- like a sure hit. it really did. >> in the summer of 2005,

joseph medawar sends this letter to his investors, touting his company's worth. >> this says "steeple," uh, "entertainment today "is worth 200 million." >> there's only one problem. it isn't. >> i didn't see $200 million worth of, uh, assets in the company. it was very minimal. >> the claims mr. medawar was making about what was going on with the company going public were untrue. i-i talked to the investment banks and found out that he did not have any relationship with them, and that they were not in the process of taking his company public. >> i still had hope. you know, the thing was, is i was so much in debt, at this point, that it's like... "it has to be. "it has to come through." >> but it never comes. by september 23, 2005, investigators finnigan and bertrand have gathered enough evidence to arrest joseph medawar. in may, 2006, medawar cuts

a deal with prosecutors and pleads guilty to two counts of tax evasion and mail fraud. in exchange, he is sentenced to one year in prison. alison heruth-waterbury also takes a deal and gets five years probation. in the end, more than 70 investors lose in excess of $5.5 million in the "d.h.s." scam. >> who doesn't want a piece of hollywood at just the cost of a dollar a share? medawar was extraordinarily, uh, good at what he did. he was a consummate con man. >> the downfall of joseph medawar sent shock waves throughout washington dc, where he first pitched the "d.h.s." project. critics of congressman dana rohrabacher have charged that he helped medawar gain access to the president. it's a charge he denies. >> i mean, that's-that's ridiculous. ha-ha-ha! no, i never got him in to see president bush. >> well, as often happens in politics, when you pay $5,000 or $10,000 at a political fundraising event, you can oftentimes have your photograph

taken with-with the president, and, uh, mr. medawar did that. >> following medawar's guilty plea, the congressman gives back the $23,000 joseph medawar paid him for the "baja" script. >> i'm sorry that people were hurt. and i, uh, that's why i gave back any money that he gave to me. i didn't want to, uh, profit from their misfortune. >> joseph medawar declined to speak with "american greed." as part of his punishment, medawar is ordered to pay $3.4 million in restitution to his victims. today, medawar has served his time. but investors like ramon alvarado and murray spencer are still waiting. >> there is the, uh, the second mortgage that every month that i-i-- that i pay it and, you know, what-what do i tell the lender? i'm not responsible for my debt, so can you forgive me? we're just, uh, day by day, month to month, you know,

um, moving forward. >> investor murray spencer's situation is even more dire. >> yeah, and i raised 13 kids in the house. like i said, i've been here for 25 years-- >> but just over two years after she took out a $57,000 equity loan to invest in medawar's project, she lost her house. >> i-i really needed the money. uh, and then instead, i loses my home because i can't afford-- i can't afford to pay $2,500 a month. i have no place for christmas or thanksgiving. this is the first year that we will not be having a thanksgiving or a christmas here. >> as spencer takes a final look at all she's lost, she has only one thing to say to joseph medawar about the money he stole from her. >> well, where is it? we still have-- i still haven't gotten anything. i'm still waitin'.

breaking news, wall street eyeing a tuesday turnaround. this as the senate fails yet again to advance its more than $2 trillion stimulus package talks. ongoing this morning president trump stirring debate as he weighs the true costs of a prolonged virtual risk shutdown. trouble from above as u.s. airlines drafts plans for a suspension of all passenge