which is signing area be. so hope to see you all there. before writing this book, diane has been a writer for the new time since 1989, and before that she is right for barron's magazine, but wall street correspondent for "the philadelphia inquirer" and an investigative reporter for the trenton times in new jersey. in 2005 she was a finalist for pulitzer prize and won a george polk award, a prize for investigative reporting and harvard goldsmith prize for her series exposing insurance and investment ripoffs of young military consumers. she's also a member of the new york times theme that was a pulitzer finalist for its coverage of the 2008 financial crisis. "the wizard of lies" is her fourth book. it may be her first movie. hbo and robert deniro has commissioned a script. it is being written right now

and it is to at the end of the month. so keep your fingers crossed for that one. [applause] >> and now let's welcome diana henriques. [applause] >> one thing that is really wonderful about this book is that if you really are very unfamiliar with wall street, with the market, with hedge funds, with bernie madoff, it is a book that really anybody can understand. however, if you're somebody who is a really sophisticated investor or hedge fund manager, you'll enjoy the book, too. you won't feel that it talks down to you at all. so today what we're going to do is talk about bernie madoff, we was, what he did. but we don't want to leave anybody behind, we will start with a little bit on who is bernie madoff, what he did, and i think importantly why he did it. what he says in the book is that

he really did intend to be a great financial advisor and that he intended to get great returns for his clients. and just, things get going wrong, going wrong and he dug himself in such a they couldn't get out. so i'd like to get your take on that. >> that is a classic ponzi scheme rationale. in fact it's usually true. unit, a ponzi scheme is more typically an opportunistic crime, someone who does get backed into a corner and lies to himself. that's the first big lie the ponzi scheme has to sell is doing so. and i think because they are almost always are men, i don't know why, but you can count on two hands the number of female ponzi schemers. so i'm using my pronoun advisedly. i don't know if madoffs is telling the truth about that. i do believe that the ponzi

scheme that he constructed begin much sooner than he claims it did. but his story, that's the noted with reliable source in history, but his source is that some of its large clients got nervous act of 1987 market crash and started to make withdrawals of funds that they have promised they will continue to reinvest, and that pressed him and pressed him and pressed him back into a corner. and in 1992, he finally started feeling a little money that's coming from hedge funds to cover withdrawals from long-term clients, thinking that the market would recover, his strategy would work again and would be able to work his way out of this goal. by 1998, the whole was billions of dollars deep. and he said he knew he would never get out and he spent the

next decade expecting the ax to fall at any moment. and, indeed, as i described in "the wizard of lies" it almost did several times. is estimated at more cliffhangers and the perils of pauline. i'm showing my age there, but he had had so many near-death experiences in fact that i'm convinced that at least for most of 2008 when the markets begin that process but his climb, he thought he might make it through this storm, too, because he had already survived so many. but he didn't. those were remarkable times, and the sad thing about burning madoffs fraud was that his investors thought it was highly liquid. so all these hedge fund investors treat it like their money market funds. this was their liquid assets. and when everyone in the market started to get so nervous in the fall of 2008 and demanded their

money back from every tom, dick and harry's hedge fund, what with the going to get the money to pay those guys back? a lot of their investments were not liquid. they were locked up in chinese cement companies or a long-term real estate developments, but they had to cover these withdrawals. well, we will take our money from bernie. so intriguingly enough, people start pulling money out of bernie because they trusted him to be liquid. he was there rainy day fund. they didn't start pulling money out of bernie because they suspected something was going wrong. instead, they thought that he was a trustworthy place to take this money out of. money poured out at an astonishing rate. by one estimate from the trustee who was liquidating the madoffs estate in bankruptcy, $13 billion poured out of madoffs slush fund in 2008.

half of that in the last 90 days of the fraud. so he was circling the drain very rapidly, and told me that he me right after thanksgiving of 2008 that he probably wasn't going to make it through the storm. indeed, what he tells me, footnoted again, least reliable source in history, is that he had decided to let it fall apart. he was just tired of tap dance, tired of the constant pursuit of new cash, that he just decided to let it fall apart rather than to try to keep it going one more time. he claims that people were still offering him money in those latter days, still trying to give him money to invest, and he could've kept going but he decided to quit. now, since i think madoff has a pathological fear of admitting

failure of the in thing, he won't even admit is ponzi scheme fail. no, no, no. he wasn't fired, he quit, sort of that kind of mentality. that when he was arrested, arrested after his son to whom he had confessed, turned him into law enforcement. what they found was a man who was privately, quite secretly, managing more money than goldman sachs, more money than jpmorgan, much more money than george soros. this was a man who was allegedly managing almost $65 billion. so imagine that he was your money manager and you went to bed on december 10, 2008, thinking your retirement fund was, well, a million and have come to two, 79, 10 million? basically have to see for your retirement, and by nightfall on december 11, it was all gone.

that was the power of the story to me. that, that moment of instant transformation. it's like what happens in a fairytale. you know, the cinderella coach becomes a pumpkin again just like that. so there was that sort of almost mystical quality what happened in the madoff scandal. i knew early afternoon on december 11 that madoff had been arrested but it was a name i recognized from my years of covering wall street. if this had not happened he would've been a minor footnote in history in the formation of the modern over-the-counter markets, the nasdaq market. and i saw the headline, called the source, a regulatory source and said how big are we talking about here? he said huge, and hung up. [laughter] so i grabbed a story.

by nightfall we knew he had confessed and been turned in by his sons. and at that point it moved beyond financial fraud, to me, a great enough story, and became something almost shakespearean at that point. this was such a profound betrayal of trust by him, and then he was indeed betrayed by the sons he confessed to. i felt there was something universal about it. any measure it is the largest ponzi scheme in history, whether you count the $65 billion in paper wealth that people thought they had the day before his arrest, or the $20 billion in out of pocket tax loss the amount of money people have given madoff and never gotten back in terms of dividends or withdrawal, it is the largest in history. it is also the first global ponzi scheme. the victims include a teachers

pension fund in korea, a catholic school in saint croix, victims all over the world were pulled into this ponzi scheme. so it was historic by every measure, and i think has timeless lessons for us. as you can tell i'm obsessed by the story, and think it's one of the most interesting criminal cases and one of the most into human dramas i've ever encountered. it's often said of ponzi scheme and people invest in them that they played a role in their faith, that there agree, they should know better that they didn't exercise their due diligence. but a lot of the investors with madoff were really financially sophisticated people who felt that they were exercising due diligence. so i'd like to talk about the role of trust in our financial decisions. >> i get this a lot with you

know, someone in the audience will stand up and say oh, you know, the victims were greedy. if they hadn't been greedy they never would have gotten caught. well, one of madoff's brilliant innovation in the ponzi scheme was that he did not appeal to people's greed. it's true, ponzi scheme is often do. the classic ponzi scheme is 25% the week, you know, the 100% on your money in six months. that's a classic ponzi scheme, and you're right, you would have to be crazy to fall for something like that or he would have to be greedy or ill-informed. but madoff wasn't making that pitch. madoff for most of the period of the largest amount of money he took in, was underperformed the fidelity magellan fund. let me say that another way. his victims would have made more money by investing in the magellan fund than they made investing with bernie madoff. so why did they invest with madoff? they were not agree.

they were frightened. the market had become increasingly volatile, increasingly complicated. everyone is trying to run their own 401(k), their own pension plan in their spare time while the make money to put in it. and madoff offered safety and consistency, not high returns. so that's another twist of the knife. his victims were people who thought they were being more conservative than anybody else. who thought they were taking less risk than anybody else. they were willing to give up the money they might've made in the magellan fund in order to be safe with bernie madoff. so it is not true that ponzi schemes always that devise the greedy. madoff understood that when times are volatile and investors are frightened or desperate, you can victimize the scared. that's what worries me right

now, frankly is that in this very low interest rate environment, savers who are trying to save for retirement on a half percentage point are going to be scared about what to do with their money, how to make money, and they are going to be vulnerable to the next bernie madoff who figures out that if they don't offer you the sun, moon and stars, just 2% a year, that's all, you fall for it. so the notion that the ponzi scheme are is always big outsized personality, not true, not true of bernie madoff. a concept that ponzi schemes are always trying to pull in the greedy with skyhigh returns, not true, not true with bernie madoff. so what madoff teaches us is a lot of what we thought we knew about ponzi schemes isn't true. and that's why we need to learn about this ponzi scheme, because

i think crooks read books, two. this ponzi scheme went on for an astonishingly long time, and if i were an entrepreneurial crook and a wanted to know how to do it, i might take some pages from bernie madoffs story. so i think it's important that we know that story. >> when you read a book you will be struck. i'm sure as i was, at the incredible amount of hard work and creativity that went into sustaining this thing. bernie madoff had a very loyal deputy, a guy who's a high school graduate hired right out of high school and became under bernie's tutelage religious computer wizard. and the two of them set up this incredible amount of trickery, and i just want to read a passage to show you what i'm talking about. at this point in the book there were two stories in the media. one was in a publication for hedge fund managers. so sort of obscure and one was in aaron's magazine where diana used to work.

that book russian madoff at a lot of what he is doing doesn't make sense, a lot of the things he is saying that he is doing in the options market, for example, there's not enough money in that market, there's not have shares in the market, it's not possible that what he's saying is true because at that point need of those got a whole lot of press, but bernie knew about them and was concerned. and he called one of his biggest investors, a group that he really depended on for a lot, a lot, a lot of money, many millions of dollars and had a guy come over and said are you worried, let me show you how i do what i do. so his name is tucker, the guy who comes over. when tucker arrived with his due diligence visit, madoff was ready, thanks to frank's creative efforts. decides the phony trade confirmations and account statements that it can generate more than a decade, he set up a bogus trading platform that made it appear as if actual trades were being conducted with european counterparties. although the reciprocal tree was

actually in employed on another computer terminal hidden in a different room. he had apparent truth at all the stocks he claimed the purchase were safely held in madoff's account at wall street's central clearinghouse, the depository trust and clearing corporation officially called the dtc see. this was the acid test, a computer simulation of a live feed from the dtcc picket taking care to duplicate exactly the clearinghouse logo, the page format, the printer font and type sizes and the paper quality as actual dtcc reports. of course, those counterfeit dtcc records would always verify that the required number of shares with her in madoff's account, safe and sound. so how could you not fall for that? it's terrifying. >> it seemed to me that all that

effort is put into legitimate trading would have produced some money. the creativity was really quite astounding. when people say folks should have known, should have known, i'll give them that the statement looked a little crude, customer statements. not these. these reports were right up-to-the-minute, exactly what it meant like doctor would've expected to see, but madoff kept old letter head stationary from his earlier addresses, and an old selectric typewriter so that if he had to create an authentic looking document to satisfy a regulatory query or an accountant squared, he could do so. he could get the old letter head, type it out without old bouncing ball. remember those? and stick it in the file and answer whatever question they don't have to come down the pipe.

his first big breakthrough was in 1992 when one of madoff's earliest conduits of cash come to account so i called the african track of the store, you could not make characters like this up from fiction or they tell you were just -- these two characters had been funneling money to madoff for use, and then they got caught by the sec in 1992. this is one of madoff's first big crises. and i suppose i had $440 million that the sec told them hand it back to investors. well, madoff so the money form another account, gave the money back to these investors. they all probably want to invest with madoff again. now, these were the only people who could have gotten out of this ponzi scheme with all their profits and walked we see the, but the sec made of madoff give the money back. all the ernie's, all the

prophets, everything, if they just walked away. but they didn't. they wanted to come back and invest with madoff. but these two accounts only have six accounts with madoff. total. through those six accounts, 3500 people roughly were invested. well, now bernie has 3500 people who want to invest. 3500 accounts, what does he do? he buys a new ibm computer, preet bharara uses a very simple mailmerge software program to create a program that can allocate a given set of trades across all of those accounts based on how much money they had, and generate thousands of the count and statements that madoff now needed to produce. that was when he really automated his ponzi scheme. this is the man who have automate the stock markets we have automate the ponzi scheme as well.

>> is often said a good realism for financial systems if it sounds too good to be true, it's probably true. but this goes way beyond that and you have a different take on the. >> i know. every writer has lines they wished written to someone else did. this is one of those. i he moder thais to say, a madoff ponzi scheme. if it sounds too good to be true, you are dealing with an amateur. think about it. a professional knows to make it sound just good enough to tempt, but not make it sound too good to be true. madoff was a pro. he never made it sound too good to be true. a smart ponzi scheme or won't. so if you think you can defend yourself from a ponzi scheme or by staying alert to anything that sounds too good to be true, i've got news for you, that guy

is an amateur. is going to get caught long before he gets to you. it's the pros will make it sound just good enough to sound attractive your just good enough to interest you, but not so good that your red flags are going to start waiting and your alarm bells will start going off. so that's another one of those questions i think we need to learn about the modern ponzi scheme. >> and even you were taken in by bernie madoff, not financially. >> not financially. i did. just to give you a sense of how persuasive he was. i interviewed madoff in prison. i was the first journalist to be able to go interview him in prison in august 2010, and a deal that his lawyer insisted on was that the interview was embargoed for this book. he didn't want it thrown out into the media. there was a media firestorm

engulfing is down at that point. he didn't want wider -- lighter fluid poured on the fire. i will talk to you but you can use until this book comes out. i agreed, that i said when i first met him, it's a two-way street. unit, i will embargoed this material for this book, but you can then go give this material to other people. you can go to other interviews. oh, of course not, of course the. i've waited 18 months to give this interview. the burning i should be in writing, by e-mail, subsequent don't worry, diana, this is a direct quote, i won't let any other indicators ahead of your book. of course, he was lying. he was lying. on my second visit with him in february of 2011 he was talking by phone to a report from new york magazine. i found out about a. i have very good sources, and i confronted him. i said what are you doing? we had a deal.

he told me why he was doing it and maybe i misunderstood our arrangement. i didn't misunderstand anything. and that's why my second interview with bernie madoff showed up on the front page of the new york times the next day. i told him the deals all. it was embargoed for the book when you are serving the embargo but you're not so the deal is off. and very agitated about that, but as i was racing from the present to find a computer somewhere and filed a story for the next day's paper, it occurred to me that i have actually trusted bernie madoff. [laughter] not to talk to any other author. even though he was behind bars as a swindler when he made that promise to me. by me, can you imagine how persuasive he must've been when people still thought he was a genius? you know, it gave me kind of insight into how convincing he

was, that i don't, i've almost kind of glad it happened to me because you can understand something intellectually. intellectually. you can talk to people, and i've talked to dozens and dozens and dozens of madoff victims, and they can tell you their experience. they can tell you how convincingly he talked to their widowed mother and assured her that her money would be safe. and it's an intellectual understanding. yeah, i got him he was a persuasive guy. but what happened you and you sat there and oh, great, bernie is not going to talk to anybody else. and you realize why on earth did i trust him? why on earth did i think he would keep that promise? then you really understand the emotional magic that a first class of ponzi scheme or has. because that is the nonnegotiable job requirement for a ponzi scheme or. you must be able to make people trust you.

if you can't do that you've got to go into another line of crime. embezzlement, bribery, something else. you can't be a ponzi scheme or if you cannot make people trust you. and this guy is so good, he can make me trust him a little bit when he was already behind bars. so that's how good he was. >> along those same lines, the -- the honest men and women here today, what do we learn from the? what we do to make ourselves less vulnerable to the next madoff? >> in the "the wizard of lies" you will need a couple of come to hear about a couple of stories of people who had a chance to invest with madoff and didn't. they were spared, and i want to die one of those stories. there was a retired businessman and if i told you what real did cheney launched you would immediately recognize it, and he

had angled for six-month to get an appointment with bernie madoff to get them to manage his money because he about him. yet friends at the country club that invested with bernie. he gets the point, goes into madoff's office with his account. the businessman's account, and they sit there and talks all that about it. they get to the nub. what is your fee, bernie. there's no fee, but i have $5 million minimum, $5 million minimum. i think burning made up the minimum be sure based on who's sitting across the table. but in this case it was $5 million. and the guy said, well, you know, i never give a first time money manager more than $250,000 to start with. then later if you do well i will put in more, but that's my limit, $250,000. and madoff said well, you can put in two and a half by now but it's got to be 5 million by the end of the year. the guy was tempted.

he really wanted to invest in it, but he has had this rule, a good, smart rule and it has worked for him for decades, and he stuck to it or so he said sorry, stood up, shook as with bernie, chit chatted a little, walked out, never realizing he had just dodged the bullet. because he didn't walk away because he suspected bernie was a crook. similarly, a charity on long island had a chance to invest with bernie madoff, and they wanted to. they had donors who invested with madoff and a new they could do so much more good if the money could grow at a nice steady pace that bernie offered. but they had a rule. they never invested with a money manager who didn't hold the assets in an independent custodial bank, some independent third party, a bank or trust company that held the stocks and

bonds of third party custodians, they are called on wall street. so they said well, we only invest with money managers to use a third party custodian, and bernie doesn't. couldn't they make an exception just this one time? no, we won't. so they, too, didn't invest, walk away not knowing they dodged a bullet. neither one of them suspected time to read -- madoff was a crude. they both thought he was a genius. they both trusted him, but they had rules that were developed to keep them safe from excessive risk, and as tempted as they were by this wall street wizard who waved those rules, they stuck to them and were spared. so that's what you can do, you can sit down, figure out what your level of risk tolerance is,

figure out what seems to like a good, smart way to manage your money, and they are the basic commitments. don't put all your eggs in one basket, only invest with someone who used a third party custodian, or stick with tightly regulated mutual funds and bank cds that you understand them, that you know regulars are watching like a hawk. so those are some basic rules but you can have those rules at many of madoff's victims have those rules. the trick is, don't wave them for the people that you come to trust and admire and thank our geniuses. we all have wizards in our lives, the people who seem so bright, so successful and so good at what they do that you trust them with anything. you trust anything they said. they are the tiger woods of golf, the wayne gretzky of hockey. they are the george soros, the peter lynch of the magellan fund. these geniuses who are larger than life. of course, you trust them.

well, trust them but do not waste your rule for them. because that is what will keep you out of trouble. sticking to your rules, even when some glorious wizard is tempting you to wave them. >> is going back for second out of curiosity, the guy that you mentioned, the retail chain store or account is not identified in the book. wouldn't he be awfully proud to say i could not be tricked by bernie madoff? >> that's exactly the line i fed him. that's the sales pitch i used and it didn't work. >> is he just very private? >> yes. i mean, that's what i said to. wouldn't you want to know that people, to know that -- but he said, he didn't walk way because he was so smart. he walked away because he had this rule that he still thought bernie was a genius. he didn't think burning was a crook, and if he hadn't

discovered what it was a crook i think he would've let me use his name. but he didn't. >> let's talk about the madoff family, particularly ruth, his wife, was really vilified in every facet of her life from her hairdresser who wouldn't do her hair and more, she couldn't get a table at her favorite restaurants anymore. his sons i think got a bit of a pass because they turned it in, although their lives are really affected. but you do seem to believe that they were not in on this. talk about the. >> i do, and that's one of those legal questions i get is what did the family know. did was no? did mark or andrew madoffs sons know. i'm, we're sitting here more than three years after his arrest. the madoff's bankruptcy trustee has reviewed, i think this number is right, 28 million documents that were drawn from the madoff's firm's records, the

basement india, and the storage area where they left their older records. not one bit of evidence has surfaced that implicates ruth, mark or andrew. not one of the five people awaiting trial on criminal charges in the case have implicated ruth, mark or andrew. not one of the five people who have pleaded guilty have implicated ruth, marker into. i think at some point i have to say to the people who say oh, they must have known, prove it. because i don't think you can. i couldn't. i could not find anything that implicated them, and i found a number of suggested bits of evidence that go in the opposite direction, that suggests that they did not know. for example, madoff had a near-death cash crisis in 2005.

it was on the back of the book jacket from the episode, in 2000 by. he was facing $105 billion in cash million dollars in retention request to get $13 million in his flush fund. if he wrote those checks, they would bounce and the game would be. it would be over. $13 million is all he had. he scrambled, he borrowed money threes legitimate firm, a move the money part over to london and back into the slush funds we could use it to cover expenses. but from that experience, november 2005, until the following spring, his ponzi scheme is living hand to mouth. it is scrambling to get enough money to cover these regular retention demands without blowing up. during that period of time, neither ruth, his sons nor his brother offered their use of

company cash in one, at all. they continue to borrow money from the firm, they continue to use the firm's money to make entrepreneurial investments and venture capital investments. well, i'm sorry. if they are your accomplices and you're down to your last million bucks, you're going to say family, hold back, right? you're going to cesar, you can't take that money out. they did not take all their money out of their account, as some of the employees did. they just continue to use their madoff piggy bank as they always had. so that doesn't suggest to me that they knew that the ponzi scheme was a passionate was in dreadful peril that it was in. let's look at ruth's situation. whether or not madoff was unfaithful to her with the particular people who claim he was unfaithful to her, she

believed that he was unfaithful to her. what kind of lunatic, cheat on a woman who can pick up the phone and call the fbi? and cut a pretty good deal for herself, even if she was his accomplice. so that didn't make sense. third thing, from the beginning, from the day of madoff's arrest until marks of death by suicide on the second anniversary of his father's arrest, both he and his brother were represented by a single defense lawyer, a criminal lawyer. any lawyers in the room? you all immediately twig, didn't you? if two people are facing criminal investigation, they can't use the same criminal lawyer. why? it's clear. it might be that the very best thing for defendant a to do would be to roll over on defendant b, to try to get into. if same i cannot represent both of them under those circumstances. so the savvy defense bar in new

york new as the months went by and the same lawyer continue to represent mark and and/or, that and entered were not facing criminal investigation. with was concerned -- confirmed as an innocent spouse by the irs when she reached a settlement with the government to forfeit all but two and half-million dollars of the $80 million that she had in her own name. mark and andrew, as i say, continue to use the family firm and were often in dispute with their father, which if they had this knowledge they certainly would have won more often than he did. so i added all together. i think, you have to keep an open mind and decide whether i have persuaded you, but i was persuaded that ruth, mark or andrew did not know about the ponzi scheme until madoff

confessed to them. he believed that by confessing, by not playing, not running off to someplace beyond u.s. jurisdiction, that he would shield his family from the kind of vilification and typically that was hurled at them. it was one of the most astonishing things i had ever seen, but he was completely blindsided by the amount of anger and hate that fell on them anyway. and, frankly, so was i picked it is extremely atypical for the family members of a white-collar criminal of any sort to fall under that kind of attack. think about it, if you think back to michael milken. anybody remember mrs. michael milken? think back to ken lay and jeffrey skilling. anybody remember their children being chased through the streets by photographers and pots --

paparazzi? no. the gotti family notwithstanding, which seeks the spotlight themselves, that's because it is so unusual. so it was not unreasonable for madoff to expect that ruth, mark or andrew would be left alone if he stood up, confessed his crime and took the heat. he was absolutely wrong, and what they experienced is, was a remarkable trial by fire. if you accept that they were innocent and then read what happens to them, i think you'll find it hard not to feel some compassion for at least those members of the madoff family spirit like you think that was? was at the sheer number of victims? >> i thought about that. why was it that we as a society step so far out of our normal reaction. and i think it was a time. i think it was the anger, the

sense of public betrayal that everyone felt in the fall of 2008. there were a lot of faceless villains that fall. remember, you know, lehman brothers have to. name one person from lehman brothers. aig had blown up with derivative debt. well, name one headline from aig. outside the wall street world, most american citizens couldn't. those of faceless corporations that had somehow brought us to this brink of financial meltdown. and then we have got bernie, a face, a family, someone to be the target of all of this free floating rage and anger, this sense of being betrayed. because that's what he did. he betrayed people who trusted him. well, that's what wall street it. it betrayed people who trusted it, but it is and it.

he was a him and ate her and ate them. and i think it was the mood of the country that made them so much a target of public rage rather than anything unique about them. >> ruth stood by her man for a long time and when the book and she still is standing by burning, and that has changed or can you talk a bit about that? >> yes, it has changed and i can talk about because that's able to enter the root in article about her life since then. she realized that her loyalty to bernie was costing her her family. now, why did she stay with him? the one time for madoff lost his composure in my first interview with him in prison in august was when i asked him whether he regretted that ruth had stayed,

what he which she had made a different decision. and he started to weep as he tried to answer that question. he clearly feels very deeply for ruth, and she has loved him from first sight at age 13. she met him when she was 13 and he was this bronzed 16 euros lifeguard. he walked her home from the party, and walked her through the next 55 years of their lives. she married him at 18. she adored him. she thought he was a genius. she worshiped him, and he needed her worships in a very concrete way. she told me that she just, after 50 years, could not walk out on him at the most horrible moment of his life.

it's hard, a little hard for me to understand, but i've been married 43 years. i can tell that there's some people out here who have been married more than that, and she put it to me. she said what if it was a child? what if one of your children had committed some terrible crime, would you walk out on them? would you cut them off and never talk to them again? what would you do? very hard decision, and it was a hard decision for her. made even harder by the fact that she really didn't have anyplace to go. think about it. her sons were not talking to a. they walked out of that apartment, and because she had not walked out with them, they had cut her off. her friends, well, they were all madoff victims. even if any of them were inclined to try to take her in, their lawyers would've never let them. no one could even speak up in her defense in public without being vilified. so she really had nowhere to go.

if she walked out on him she was essentially homeless. and she felt compassion for him. so she stayed your finally -- so she stayed. finally, in the early fall of 2010, she realized it would be impossible to reconcile, as much as she tried to reconcile with mark and andrew, they refused to see her if she continued to visit bernie, and call him a talk with him by phone. they spoke by phone quite regularly. she did not visit and that often in prison because it was a long, long trip from florida where she was staying. so she went to him and told him, i can't visit you anymore, or it will cost me her family. i have to choose. i have to stop coming here and you have to help you stop.

she attempted to pull away that fall, and he kept calling, changed her phone number, he kept trying to call, and they should learn about her sons, mark's suicide. the last time she spoke to bernie madoff was the day she called him in prison to tell for their son was dead. she is not spoken to him since. so she is truly a strange in an absolute way. she has begun to reconcile with her son, andrew, as she had hoped she would. but that was, that was a very difficult decision, and i am loath to be critical of her decision, with outstanding in her shoes at the time. think of how much pressure she was under, how completely dispossessed she was. i don't know if any of you followed the publicity about the

madoff auctions when u.s. marshals service auction off their possessions to raise money for madoff's victims. some of the possessions should have been auctioned off. chittick 10 and a half care diamond ring to of course, the homes the use of those. the votes, obviously. the u.s. marshals service auction off eight pairs of her pantyhose. her used yoga clothes, all of the moisturizers and shampoo from her bathroom covered. i can prove it because it's in the inventory. that the u.s. marshall posted online. she was that utterly dispossessed. old pocketbooks, used shoes and boots, all of it, scraped out of her house, put on display at the brooklyn navy yard and auctioned off. so i haven't been through something like that. i haven't experienced what she experienced. so i'm a little blows to

question her decision. she has been a somewhat, not peppered person exactly, although certainly they had great wealth. they did not live at many levels like some hedge managers with him to do. certainly very wealthy but a little naïve, although innocent about the world, and utterly unprepared for what happened to her in the aftermath of her husband's arrest. so, you know, i'm inclined to say i'm not sure what i would have done in her shoes. i just thank god i wasn't in her shoes. >> there is one should have, could have put a stop to bernie madoff and that is the security and exchange commission. in the book, diana details several times when sec did investigate madoff a little bit, and two of them would go and investigate and then they would stop and then they would really filed their reports or it wouldn't get shared with other officers and if so what else would investigate a little bit. so they can sort of close a

bunch of times but nobody really knew what the others were doing. so then after the whole thing unraveled, of course they started taking it very seriously. then there's one point in the book where some sec inspectors visit madoff in prison, and they want to know how did he is due them for so long. and so this is a really telling part of the book. the attorneys talk about the phony account statements that he generated for years and years that diana has talked about, and when they called them phony account statements, madoff objects and said they weren't really phony account statements, the lawyers, or the inspectors are sort of incredulous. there is a pause and then madoff says, i could see how you might see them as false. [laughter] that when i read that a ruling made me think about the phony war heroes who by the badges online and they go to the parade and they do it for decades and

decades and decades, and after a while they believe their own press but i wonder if there was some of that with bernie madoff. do you think he really believed he was this genius that the world thought he was? >> i do. i really do. as i said earlier, the first lie of ponzi scheme has to tell is to himself. ally they can somehow get away with it or that he will somehow work his way out of it. ally that somehow it isn't that bad. so yes, i think he was as adept as he was as defeating other people but it was so odd, this was the sec inspector general who visited him in prison and jail out of when he was held in new york. and he was outraged at the notion wouldn't this guy said well, did you file false documents with the sec? and he said no, i said the sec the same document i sent my customers. [laughter] and inspector general said, but weren't those false documents?

and that's when he uttered that one, after a long pause, i can see how you would think they might be false, yes. so he defended himself. my mom was a psychiatric nurse and she could tell me that the mind will not see what it cannot bear to see. that people will defend themselves against knowledge that they cannot bear to acknowledge. maybe there's something about in madoff's insistence that he really was an honest successful money manager for many years. the government says oh, no, for most of those years you were a crook. he really was fighting on his record. well, no, he wasn't. i think he can't really bear to say who he really is. and until he does i don't know that anything like the kind of remorse that we might expect to see in a man who has caused such

devastation. besides his son's suicide, to other investors committed suicide in the aftermath of their madoff losses. a retired british military men who went into a park and blew his brains out, and the french money manager who blasted the veins -- slashed his face in his office because he lost all his clients money. i mean, aside from the financial wreckage, charities that had to close their doors and people who are living on social security because they have nothing left, there was the human wreckage. and yet he still would argue with me in e-mails that we exchanged that, you know, victims are going to get enough out of the bankruptcy process to make all this ride again, as if dollars and cents could ever make it right again. so, you know, i would press him on the. i don't just sit and listen when i'm dealing with madoff. i don't waste time trying to argue with him by to press back on the side of reality and say,

wait a minute, you know, there's no way you can make these people hold. even if the trustee is able to get 100 cents on the dollar, people had to sell the family home be expected to lead to their kids, can't get it back. the kids had to drop out of college because they didn't pay to -- didn't pay tuition, you can't get this broken mess back again. well, i can see how you would say that. >> i would like to open up to your question. there are microphones on either side. whoever makes it their first. go ahead. >> him and. [inaudible] consulting relationship with the sec. >> it was always an informal relationship. he was a noted figure in the

securities trading industry, not limited to retail investors, because so far as we knew he didn't have any retail customers. he was a behind the scenes guy, and infrastructure guy. so the sec consulted him and his brother, frequently, about rulemaking that would affect wall street trading. he was in the vanguard of pushing toward more automation of trading, 24 hour trading, globalized trading, things have all come to pass that madoff wasn't advocate of quite early. so he would serve on advisory committees, roundtable discussions. you know, he would be part of the delegation that the industry would send to the sec to argue about some rule changes or another. he never had an official consulting relationship with them. >> how important was the notion of affinity fraud?

i'm from minnesota, and at least in minnesota a large part of the jewish community was involved, not so much because had direct contact with madoff, but because they trusted their friends who had distrust and madoff. >> that's a wonderful question, and there's no doubt, affinity fraud as many of you may know is simply the process of bringing upon some affinity that you have with your victim, whether it is ethnicity or country club mentorship, or religious faith, that you play on that affinity to develop trust, which you then exploit through fraud. was this an affinity fraud? certainly at the beginning in its early roots it was. madoff's father-in-law, who was a source of some of the early investors to invest with madoff, at a time when madoff insisted

he was legitimate, and might have been. he knew people at his country club. it was a jewish country club. so those people got to know bernie. burney served on board of, you know, a university, jewish philanthropy. he became known in that community. so yes, initially it was an affinity fraud, certainly. he was playing on the trials that he gathered simply by being a member of that group, a respected, generous philanthropic member of that group. but by its end, by indeed the last decade of its life, it had left affinity fraud far behind. the sovereign wealth fund of abu dhabi lost $440 million. so investors in the persian gulf who never dream that this jewish

kid from queens was right running their money, or did no, and thought of them only as a senior executive of nasdaq, were investing with madoff. so it far outstripped its affinity roots but certainly it started. >> could you discuss the folks who withdrew phony profits and their rationalization that they really should keep that money? even though it was a ponzi scheme by definition and came from other people pockets? >> the tragic thing about a ponzi scheme, and that's such a good question, because it gets right at the heart of -- the kind of heartbreak that makes ponzi scheme the most diabolical financial fraud. it doesn't just hit the victims against the bill. it pits one set of victims against another set of victims. and there can be no winner.

but what the law says, not a lot has said that the way you waive equity in these cases is on a cash and cash out basis. that the people who have already withdrawn the cash they gave to madoff don't get anymore, until the people who didn't get any cash out of their account had been made whole, too. and then if there's anything left, we can share and share alike. so the efforts of the liquidation right now are to deal with the so-called net losers, that people who gave madoff more than ever got back, trying to make them whole. the net winners surely the most perverted term ever, because they are not winners by any definition that we would understand, they were just as tragically betrayed. they lost money they thought they had, that under the law

they received all the cash they have given madoff, and in many cases even more. they receive money that madoff stole from other people and used to cover their withdrawals which they thought were legitimate earnings on their investments. there's no way to make this whole. if you rob peter to pay paul, how do you undo that? you take a back from paul to get it to peter. paul isn't going to be happy about that. he's going to believe that that was his money, and i'm sympathetic to that, but peter is going to say no, it wasn't your money, it was mine. so that's the kind of legal heartbreak that is stretching out now for years into the future as this angle, this knot is unwound. you can see what i get a little upset with madoff when he claims that money can fix all this. no way.

>> one minute left. one more. >> with respect to mrs. madoff, it's called unconditional love, and i'm sure you have shown the same thing, and she didn't end up exactly destitute, right? two-and-a-half million. but the question i really want to ask was, had bernie managed to manage this until the day with the dow back at 13 and the banks bailed out, would he have dodged another one? >> i think he would. i think he would. just in ruth defense there, she settled with the government under a forger agreement that allowed her to keep two-and-a-half million dollars. she is still not reached a settlement with the bankruptcy trustee. so how much i'll bet she will be allowed to keep when she's reached the summit with the bankruptcy court, we don't know you. and she doesn't know either. but yes, i do think if madoff had been able to weather the storm he would still be going strong. i really do believe it.

i think he was already dialing his returns down. by june of 2008 he was paying only 4%. he would be paying 1.5% now maybe. maybe 75 basis points. he would be paying very little but it would be more than you could get in a money market fund and you would be happy to have it, wouldn't you? so yeah, i think if he would've been able to weather that's what he would still be going strong. >> i like to close with the final word from diana's book. that is the most enduring lesson of the madoff scanner, a world full of lies, the most dangerous ones are those we tell ourselves. so let's thank diana henriques. [applause] higo to signing area b.