captioning funded by cbs and ford-- built for the road ahead. >> stahl: even though there's a total embargo in this country against any trade with iran, iran still gets high-tech materials and components for a variety of weapons from right here in the u.s.a. this man set up a trading company in philadelphia. you are charged with trying to buy a centrifuge that could be used to make biological weapons like anthrax. >> yes. >> hey, how you doing? >> pelley: i'm doing well. how are you doing, sir? good to see you.

is davos the most important meeting on earth? well, the top of the alps is a long way to come for the rich and the powerful, but you'll run into billionaire george soros; eric schmidt, the guy who runs google; nobel prize winners, captains of industries, kings, and even a queen. >> a lot of the work is done just sitting in the cafeteria in the congress hall and just seeing people pass by and discussing things. >> pelley: the queen hangs out in the cafeteria? >> i enjoy hanging out in the cafeteria. i'm going to do it this afternoon, actually. it's fun. >> safer: arlan galbraith, who called himself the "pigeon king," convinced hundreds of american and canadian farmers there was good money to be made raising the birds for food. the pigeon king assured investors that pigeons would replace chickens in every pot in america and the world. aaron and joline humbert lost $300,000, most of it borrowed money.

>> and everybody we talked to said this guy was... he was on the up-and-up. nobody had a bad word to say about him. >> i'm steve kroft. >> i'm lesley stahl. >> i'm bob simon. >> i'm morley safer. >> i'm anderson cooper. >> i'm scott pelley. those stories and andy rooney tonight on "60 minutes." what's around the corner is one of life's great questions. and while it can never be fully answered, it helps to have a financial partner like northern trust. by gaining a keen understanding of your financial needs, we're able to tailor a plan using a full suite... of sophisticated investment strategies and solutions. so whatever's around the corner can be faced with confidence. ♪ northern trust. look ahead with us at northerntrust.com.

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>> stahl: the islamic republic of iran announced this week that it has already started enriching uranium at its nuclear facility

at natanz, giving the obama administration ammunition to pressure russia and china into imposing tough new sanctions against iran. but, as we found out, it's no easy task enforcing the sanctions that already exist in this country. iran is getting high-tech materials and components for a variety of weapons from right here in the u.s.a., and we have a total embargo-- blanket sanctions against any trade with iran. our law enforcement agencies have become more aggressive in hunting down and catching the smugglers engaged in this illicit trade. yet it is an ongoing cat and mouse game. one reason it's been so hard to shut this down is that iran often turns to under-the-radar middlemen who run small trading companies around the world. some are based right in american cities. are you a procurement agent for iran? >> mohammad vaghari: no, that's

ridiculous, no. >> stahl: but, of course, that's sort of the implication of the case against you. >> vaghari: i'm nothing to do with the iranian government or things like that at all. >> stahl: mohammad vaghari-- "mitch" to his friends-- an iranian who's lived in the u.s. for 15 years, is facing up to 85 years in prison. he and his lawyers are preparing for his trial next month on charges that he conspired to send u.s. technology to iran through a trading company he set up in his basement apartment in philadelphia. you are charged with trying to buy a centrifuge that could be used to make biological weapons like anthrax. >> vaghari: i don't know about that. i'm not a biological expert to tell you... >> stahl: that's in the affidavit, and it's part of the charges against you. >> vaghari: yes, that's what they say. >> stahl: he says his client for the centrifuge was a science lab at a university in dubai; but he

says he never bought it, he only asked for its price. >> vaghari: it was too expensive. you know, we couldn't afford such a thing. >> stahl: this is apparently why the f.b.i. came to you was over this centrifuge, because the salesperson who you spoke to got suspicious. he says he asked you all kinds of questions. he asked you for a shipping address that you wouldn't give him. >> vaghari: i told them, we are a middleman. i just want to know how much is this? >> stahl: but this middleman fit a pattern-- a u.s.-based iranian with a small export company trying to send technology to dubai, which is a popular port for sending goods on to iran. the f.b.i. then learned that vaghari was asked to buy a hydrophone that could be used to listen to submarines, and laptops. you did end up sending three items to dubai. how sophisticated were the items? >> vaghari: very common college lab equipment. >> stahl: did they go to iran? >> vaghari: never, no.

>> stahl: you sure of that? >> vaghari: as far as i know, yes. the stuff was intended for dubai, and ended up in dubai and stayed in dubai-- that's what i think. >> stahl: but in a search of his apartment, the f.b.i. found emails asking him to make inquiries for the pasteur institute and tarbiat modares university. both are based in tehran and, according to intelligence out of europe, both are trying to buy lab equipment in the west that could be used to produce biological weapons. vaghari will argue in court that the equipment was for iranian professors who work in dubai. so you think the whole premise of the u.s. case is faulty. >> vaghari: doesn't make sense. >> stahl: david kris is the head of the national security division at the justice department. he says most middlemen aren't in it for politics. >> david kris: they're people who i think are primarily motivated by profit. >> stahl: profit-- they want the

money. >> kris: they want to make money. and they're adaptable and intelligent, and we have to adapt to keep pace with them. >> stahl: the vaghari case-- he seems like such a low-level guy. he operated out of his basement, he had no money. why would the iranians go to him? >> kris: the iranians will exploit an opportunity, if they see one. and whether the guy is, you know, sort of some kind of fancy pants international arms dealer, with a mink coat and a private jet, or whether he's some guy operating out of a basement somewhere in some kind of classic boiler room style operation, it doesn't really matter to them, as long as they get the technology that they are seeking at the other end of it. >> stahl: kris leads a multi- agency effort to hunt down the smugglers. a lot of the investigative work is done by ice-- u.s. immigration and customs enforcement. clark settles, a special agent with ice, says the wake-up call came in 2005, when u.s. soldiers in iraq stumbled upon an unexploded roadside bomb. and they looked inside... >> clark settles: yes. >> stahl: ... and there was an american chip inside the i.e.d.

>> clark: yes. and what i can say is that... that they're finding that on a regular basis, that there's u.s. components inside of i.e.d.s in iraq and afghanistan. >> stahl: the government learned that the u.s. manufacturer had sent the chips to dubai. they were sent on to iran, and then given to insurgents in iraq. settles also showed me u.s. items smugglers were caught buying for iran that could be used in their nuclear program-- ballistic missile parts, tiny radar components, and these sensitive devices crucial to build a nuclear bomb. this? >> settles: pressure transducers. >> stahl: pressure transducers? >> settles: yes. it's an integral part of enriching uranium. >> stahl: iran may have succeeded in obtaining these. look at this photo of president ahmadinejad in iran's nuclear facility in natanz. and right behind him is an american transducer looking exactly like this thing. >> settles: yes.

the iranians were trying to acquire these transducers. >> stahl: one reason it's so hard to enforce the sanctions is that many items iran wants are sold for non-military uses, like this little widget, a triggered spark gap. >> settles: the triggered spark gap can be utilized in a lithotripter, which is a machine... a medical device that breaks up kidney stones. and it's also used to detonate a nuclear weapon. >> stahl: so, this is the typical dual-use item? >> settles: a very scary dual- use item. >> stahl: now, after you catch someone, have you been able to flip them? >> settles: absolutely. >> stahl: and have you been able, in this way, to sabotage some of the things you send over? in other words, send over faulty stuff that'll break down? >> settles: i can't comment on anything like that. ( laughs ) >> stahl: the justice department has indicted over 100 alleged smugglers working for iran in the past three years, but many remain out of reach. >> kris: there are people in

iran, or in certain non- extradition countries where we may have difficulty getting to them. on the other hand, we've had cases where we have charges against somebody, and years later, they travel, and maybe they think we've forgotten about them. but we don't forget. >> stahl: he's talking about people like majid kakavand, an iranian electrical engineer from tehran. >> majid kakavand: i'm not criminal. i haven't done anything. i am innocent. >> stahl: kakavand was tracked down a year ago as he landed in paris on vacation. >> kakavand: i was arrested by the police in the airport. they told, "okay, there is an arrest warrant against you issued by the united states." >> stahl: the french sent him to prison, pending his extradition to the u.s., where he faces charges that he tricked several american companies into shipping tens of thousands of electrical components destined for iran, but via malaysia. he and his business partners sent a blizzard of email orders to companies they found on the

internet. we found a company that responded in huntsville, alabama. now, we're here because you ended up selling one of your devices... >> lynn leeper: yes. >> stahl: ...to iran. >> leeper: by accident, certainly. >> stahl: lynn leeper is the c.e.o. of a.z. technology, which makes aerospace testing equipment. she sold kakavand this spectro- reflectometer, a device with various uses, including, the government says, enhancing the capability of long-range missiles. she says kakavand's trading company lied to her in their emails. >> leeper: we asked, you know, who the end user was, which is one of the questions on the... >> stahl: the end user? >> leeper: right. >> stahl: yeah. oh, did they tell... >> leeper: where is it going? >> stahl: did they tell you it was going to iran? >> leeper: they said it was going to malaysian telecom. >> stahl: did that make any sense? >> leeper: yeah. actually, it's a reasonable request. >> stahl: so she sold it for $95,000, and off it went to kuala lumpur. we know, actually, from the indictment of mr. kakavand that

he had arranged for your product to be flown via iran air right into tehran. do you know even now who the actual recipient of it was? >> leeper: in the indictments, there were two companies listed. one of them is... does deal with electro-optical equipment. >> stahl: and also weapons of mass destruction. >> leeper: of course. >> stahl: that company is a subsidiary of iran electronics industries, a contractor that makes weapons and communication systems for the iranian military. seems like an open-and-shut case against kakavand, but it isn't. >> diane francois: nowhere else in the world this is considered as a crime. nowhere else except in the united states. >> stahl: diane francois is kakavand's lawyer in paris, where he's fighting his extradition to the u.s. she explains that, in europe, there are no sanctions against trading with iran, except when it comes to arms and nuclear

sales. >> francois: the united states is somehow asking foreign countries to recognize their embargo, their national defense interest, while it is not at all the one of other sovereign countries. >> stahl: do the europeans, and the french particularly, have no moral issues selling electronics or anything that could conceivably be used in weapons to iran? >> francois: look, that is, first, a political question. and i disagree with the question itself. to the best of my knowledge, trading with iran on many commodities has absolutely nothing to do with the nuclear program of iran. >> stahl: your client wasn't buying dresses, he wasn't buying tables, he was buying electronics. and he was sending them to iran. >> francois: he was buying a lot of electrical components, and this is still not forbidden by any legislation other than your embargo. >> stahl: we're talking about

tens of thousands of different items here. >> francois: well, i mean, you can buy 50,000 plugs at 50 cents each; it doesn't make you a great criminal. >> stahl: she says nothing he bought meets the definition of "arms" that are restricted for sale under french law. but the justice department argues that kakavand was doing business in the u.s., not france, and that he lied to get the goods. a court in paris is due to rule on kakavand's fate this week. >> kakavand: it seems i am a victim of the existing policies between iran and the united states and the other countries. >> stahl: you have gone after some big fish. but then, they get caught in various countries, and those countries let them go, in country after country-- hong kong, thailand, poland. >> kris: it's always frustrating if you think you've found a bad guy and you can't lay hands on him. sometimes you win, sometimes you lose, and you just keep going.

>> stahl: iran has publicly condemned the u.s. and france for kakavand's arrest. if he is extradited, it'll be a landmark victory for enforcing the sanctions abroad. but there are any many more smugglers out there. do you have the feeling, as we've heard, that you can shut someone down, and five new people take their place? >> kris: i have a feeling that there are a lot of different people out there who are trying to do this, but i think we are making a difference, even if we're not stopping every transaction that would otherwise occur. >> stahl: one frustrated agent told us, "we're only catching the dumb ones." >> kris: ( laughs ) well, the dumber you are, the more likely we are to catch you. but i'd like to think we've caught some smart people, too. >> cbs money watch update sponsored by:. >> mitchell: good evening. toy day-- toyota has been giving incentives to lure

back buyers including new warranties, free maintenance and cash. anthem blue cross of california will delay a much criticized rate hike of up to 39%. and movie-goers loved "valentine's day" at the box office. >> i'm russ mitchell. cbs news.

>> pelley: hard to tell which way the economy's heading. unemployment eased a bit, but now the dow's off several hundred points. if you'd like to meet the people who are supposed to repair the state of the world, or give a piece of your mind to the bankers who helped get us into this mess, we can tell you where to find a lot of them, all in one place. it is a tiny town folded into the swiss alps called davos, a village where you could bump into bill clinton, bill gates, the head of google, and the queen of jordan all waiting in line in a coffee shop. this year marks the 40th anniversary of what may be the most important meeting on earth, the world economic forum.

a lot of reporters cover the forum, but few get inside. last month, we were given the kind of access that's usually reserved for kings and captains of industry. the world economy is traveling a dark and troubled stretch. but if there's light at the end of the tunnel, you might see it first in davos. this is the scene of the world's summit meeting-- five days each january when 2,500 capitalists, globalists, and futurists discuss the fate of earth's other seven billion inhabitants. within minutes, you'll run into billionaire financier george soros, nobel peace prize winner elie wiesel, computer tycoon michael dell, and her majesty queen rania al abdullah of jordan. i was down in the lobby of the hotel last night, and i noticed that you were talking to president clinton, and while you two were talking, bill gates walked by.

i mean, its that kind of place. >> queen rania al abdullah: well, it is, and i find that a lot of work gets done in corridors, in the lobbies of the hotels, and in the elevators. you just bump into people. we're all stuck together in this place, and a lot can get done when you see people from all walks of life. >> pelley: why is it important? >> rania: because you have a high concentration of some of the best minds in business, technology, politics, all together in one destination, far away from everything else. >> pelley: at 5,000 feet, davos is europe's highest town, and arguably its best ski resort. but the 800-year-old village has only 13,000 residents, one road in and out, and no airport. it's a tight fit as skiers make way for the high security capital of capitalism. what is this, your super bowl? >> martin wolf: yes, yes, absolutely. it's the place where everybody

that i ever want to meet in over a whole year is all gathered together. >> pelley: martin wolf is a columnist for "the financial times of london" who delights in watching the high and mighty squeezed into davos. there aren't enough tables in restaurants, there aren't enough hotel rooms. >> wolf: oh, that's part of the thrill. it is the only place where these really powerful people are made to be very inconvenienced, just about the only place in the world that really rich, really powerful men-- mostly men, a few women-- can actually behave like normal people. >> pelley: we were here a few days before the forum started, and it looked like they were setting up for a rock concert. what goes into this? >> wolf: just the program-- all the lunches and dinners and hotels, travel programs, security, which is obviously a nightmare. i mean, this is... they brought together everyone in the world that the terrorists would want to kill. it is an enormous organizational project.

>> pelley: they suffer the indignities to attend the seminars of the world economic forum-- more than 150 expert talks-- on things including financial risk regulation, viruses, u.s.-china relations, and the global economic outlook, plus rural poverty and even life on other planets. at the last minute, the forum this year pushed the world's greatest disaster to the top of the list. >> bill clinton: hey, how you doing? >> pelley: i'm doing well. how are you doing, sir? good to see you. we ran into bill clinton, who flew 10,000 miles roundtrip just to spend a day pitching his haiti relief campaign. what is your message to the forum? >> clinton: every person at this forum should ask themselves what they can do and whether they-- particularly the business leaders-- will they join the business people we've already put together in building a future? and we're going to try to help do it. >> pelley: is it worth it to come all this way to be at this meeting? >> clinton: absolutely. well, it is if some of them come across. i think so. this is where a lot of the

people are with the expertise, the capacity, the desire, and the money to make a difference here. >> pelley: good luck, mr. president. >> clinton: thank you, scott. i'm glad to see you. >> pelley: good to see you. >> clinton: bye-bye, guys >> pelley: he's here because this is where the money is. the business of davos is business. what do billionaires talk about behind closed doors? >> martin sorrell: i wouldn't know; i'm not a billionaire. >> pelley: maybe not a billionaire, but sir martin sorrell did assemble the world's largest advertising agency, w.p.p., with 140,000 employees. why is this worth it to you? >> sorrell: to be brutally frank about it, we have a large number of our clients here and a large number of people who are not our clients, so from-- to use that terrible phrase-- from a networking point of view, it is a little like, if i can put it like this, shooting fish in a barrel. >> pelley: and exotic fish at that. davos is invitation only. corporate memberships cost from $30,000 to $500,000.

and then, it's 18 grand each for the coveted white badges that grant entry and are worn like jewelry. you know, i've noticed that there's something that i like to call "the davos glance." when you meet someone, they do not look you in the eye, they look you in the chest. >> sorrell: well, no. they look you in the eye first, then they look down at your chest. the other thing, they just look over your shoulder for the next one. >> pelley: to see who else is coming in the room. >> sorrell: exactly. >> pelley: the "a-listers" in the room included 28 heads of state and about a thousand c.e.o.s, all lining up to see one man... a little-known german business professor who started the forum back in 1971. professor klaus schwab greets presidents and rock stars, but, as we tried to catch up with him, schwab told us that titles don't matter at his forum. >> professor klaus schwab: you have to send your ego home, and you re-find it when you come back.

>> pelley: but not here. >> schwab: not here, not here. >> pelley: after 40 years, schwab is still head of the non- profit foundation that stages the forum. your office is behind the xerox machine and the coffee maker? >> schwab: we are very tight >> pelley: his forum works like nothing else, in part, because it isn't formal or official. it turns out, people who can't be seen together in public can meet here. in 1989, north and south korea spoke for the first time at davos. when the berlin wall fell, german unity started at davos. and in 1992, mandela and de klerk began the conversation that ended apartheid. queen rania of jordan told us that warring factions in the middle east meet here when no world power can push them together. an arab and an israeli could run into each other in the hallway in this hotel. >> rania: absolutely, absolutely, and not feel they

have to pander to, you know, the media or to be politically correct, but they can actually deal with the core issues at hand. and, god knows, we need all the help we can get with the middle east peace process, because, at the moment, its still a deadly stalemate and people are beginning to lose hope. >> pelley: her majesty knows strategic territory when she sees it. she's been coming to davos for six years. you're a bit of a pro when it comes to working davos. tell me how that happens >> rania: a lot of the work is done just sitting in the cafeteria in the congress hall, just seeing people pass by and discussing things. >> pelley: the queen hangs out in the cafeteria? >> rania: i enjoy hanging out in the cafeteria. i'm going to do it this afternoon, actually. it's fun. >> pelley: and sure enough, that's where we found her, promoting her project-- to build

classrooms for the 72 million kids in the world who have no school. the woman on the right is melinda gates, the richest woman on earth. imagine what that conversation is like. klaus schwab told us that davos is where melinda's husband, bill gates, first met the world health organization and got the idea to give away billions for immunizations. >> schwab: they became aware of the need to act, particularly in this field. scott, i have to rush down to... korean president. >> pelley: the korean president? busy, busy. >> schwab: i have to introduce him, so... >> pelley: off you go. >> schwab: see you later. >> pelley: see you later. >> schwab: thank you. >> pelley: how did schwab pull this together? >> sorrell: well, i think he had the vision. i mean, like everything in life, you know, he had a strong vision. >> pelley: but he didn't exactly pull this together with the force of his charisma. >> sorrell: i think that's a little bit unfair. ( laughter ) >> pelley: you know what i mean. >> sorrell: if he'd been a larger-than-life character or personality, which is the sort of thing you are getting at, maybe he wouldn't have been able to do this.

>> pelley: it turns out, there are two davoses-- one you see and one you don't. after hours and behind the windows, there are hundreds of private parties where deals are done. we got a look behind the door at a dinner hosted by the executive recruiting firm heidrick and struggles. davos makes a point of inviting new companies with bright ideas. and this table paired investors with alan barton, who has a new way to make building materials out of old tires. when you leave here, what are you going to have that you didn't have before? >> alan barton: plenty more contacts. people you can work with, people you can call, people who have been through some of the same challenges and might have solved the problems that you're trying to solve. >> pelley: one of the biggest connections that klaus schwab ever made was when he first invited a little company with a silly name. eric schmidt is chief executive of google. >> eric schmidt: davos is the one place where all of the pieces of the tech industry

assemble-- all the telecommunications, all the hardware, all the software. and remember, we all need each other. we never meet anywhere else in the world. >> pelley: when google was in its infancy, was davos important to its growth? >> schmidt: davos matters to companies, at a certain scale. as a small company, you get your product-- you have a local market, no problem. there's a point at which you need to be able to reach globally. there's a point at which you need to be able to talk to all the other companies. at davos you can do that, and that was very helpful at the time for us. >> pelley: it's an accelerant, if you will, when you come here to the global stage. >> schmidt: yes, it's an accelerant. absolutely. >> pelley: what is the coolest thing that's happened to you in all your trips to davos? >> schmidt: probably the audi challenge. ( laughter ) >> pelley: one of the few diversions set up for the week is a race track. it's all very serious business, but there's one thing about being in the room with some of the leading experts in the world-- it can be pretty dull. so some of the c.e.o.s come out here to the audi test track to

drive insanely on the ice. the audi people say the c.e.o.s can clear their minds. whoa, there goes a cone. but this year, no one wanted to be seen having fun, given the spin out of the world economy. the talk in this closed-door meeting was about clamping down on the world's banks. bank regulation was a major theme that wouldn't have drawn much of a crowd a couple of years back. two years ago, there were economists here at davos who predicted the great economic crisis that we found ourselves in. but it doesn't seem like anybody was listening, then. >> schwab: it's a little bit like in church. the person who gives the sermon on sunday you cannot keep responsible for what the church- goers do on monday. >> pelley: klaus schwab's sermon on the mount is meant to bring social conscience to the pursuit of money. his disciples come to the mountaintop year after year,

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>> safer: the ancient wisdom that there's a sucker born every minute has been especially pertinent given the financial disasters of the past few years. so, it's time for a short and painless test-- are you sometimes just too trusting? do you invest in things you don't really understand? are you also a bit greedy? then, you too could be suffering from pigeon fever. pigeons, just so you know, are what con men call their victims.

after a year of revelations about bernard madoff, who cheated investors out of billions, you might think americans have wised up. fat chance. prosecutors and regulators tell us that, even in this age of skepticism, ponzi schemes like madoff's are thriving. one regulator even calls it "ponzi-monium." why are there so many pigeons around? we asked a few people who should know. as a student of con games and deception, were you at all surprised by the bernie madoff scam? >> ricky jay: would you be surprised if i told you that i predicted it? >> safer: for starters, we approached ricky jay, america's foremost card sharp-- actor, sleight of hand artist, a man with an encyclopedic knowledge of con men, past and present. he told us of a talk he gave seven years before madoff's fall... >> jay: beware of someone well established in the industry... >> safer: ...a lecture on financial fraud to a gathering

of police officers in 2001. >> jay: i would also beware of someone who will rely heavily on an affiliation with an investor group, be it religious, ethnic, or geographic. >> safer: he was describing madoff to a "t." >> jay: i think these elements will make the market ripe for any sort of pyramid or ponzi scam. >> safer: and that is pure bernard madoff. >> jay: it's pure bernie madoff. but can i tell you another element of the con? that i actually made this page on photoshop last night and put it into this bulletin. ( laughter ) and i did that to prove a point, and the point is... >> safer: you got me. >> jay: ...you set it up by saying that i was a student of cons and that i'm knowledgeable in that area. and so, you allowed my supposed expertise to make you believe this is true. this magazine is true. i really have lectured to this group of police against confidence crime. everything is true, except for this page, which i slipped in last night. >> safer: so what's the moral?

trust no one? >> jay: we wouldn't want to live in a world where we couldn't be conned because, in effect, we would then be living in a world where we mistrusted or refused to trust anyone. so this is the price we pay. >> safer: and pay we have. in the wake of the madoff scandal, ponzi perp walks have become a marathon: texas financier allen stanford, accused of a $7 billion ponzi scheme; minnesota businessman tom petters, convicted recently of a $3 billion scam; and park avenue lawyer marc dreier, mastermind of a mere $400 million ponzi scheme that landed him first on "60 minutes," and then in federal prison. >> marc dreier: i thought if someone would ever interview me on a program such as yours, it'd be for something good i've done, not something humiliating i've done. >> safer: despite the downfall

of the dreiers and the madoffs, ponzi operators large and small are busier than ever, knowing we're all capable of greed, misplaced trust, and something else. >> stephen greenspan: i think it's anxiety. it's anxiety that you're losing out, that other people are doing better than you are. >> safer: stephen greenspan is a university of colorado professor who writes and lectures on gullibility, warning audiences that not reading the fine print or buying something on a tip from your brother-in-law are bad ideas, and that older people are particularly vulnerable to a friendly pitch from a con man. in most of the great moments of gullibility in history, the perpetrator seems to target a particular group, correct? >> greenspan: yes. there have been mormon ponzi schemes targeting mormons, or fundamentalist christians. madoff mostly was aimed at jews, because he was a prominent jewish philanthropist. so, yes, there is this affiliation aspect of it, because we tend to trust our own

kind. >> here, in 1919, is charles ponzi, self-styled financial wizard, loafing at his boston mansion with his lovely wife and proud and adoring mother. >> safer: mr. ponzi himself promised fellow italian immigrants he could make them rich trading in postal reply coupons, sort of the prepaid phone cards of the day. ponzi went to prison and died a pauper. >> charles ponzi: i went out looking for trouble; i found it. >> safer: but his name lives on for the fraud he made famous. >> jay: the basic concept is robbing peter to pay paul. you have a fund of new money coming in, and you use the new money to pay the old investors. but at a certain point, that has to stop. >> safer: gullibility is at the very core of this, correct? >> jay: absolutely. i mean, history is filled with examples. >> safer: mr. jay's library is replete with documents about cons, scams and hoaxes of all kinds. amazing animals.

>> jay: the cynocephalus was often featured on circus lots. and then, eventually, people realized that the cynocephalus was a baboon wearing lederhosen. >> safer: celebrated con men including count victor lustig. >> jay: this is an original wanted poster of the count. one of the things that he did in france was that he was able to sell the eiffel tower for scrap metal. and he was able to do it twice, which is sort of wonderful. ( laughter ) >> safer: mr. jay reports that, over the years, people really have tried to sell the brooklyn bridge, as well as nelson's column in trafalgar square in london. and in another cautionary tale, still unfolding, pigeons were both the investors and the investment. arlan galbraith-- who called himself the "pigeon king"-- convinced hundreds of american and canadian farmers there was good money to be made raising the birds for food. >> aaron humbert: and everybody we talked to said this guy was, he was on the up and up. nobody had a bad word to say about him anywhere that we could

find. >> safer: so aaron and joline humbert, ohio farmers, signed up. >> arlan galbraith: i've had such tremendous demand for the live birds. >> safer: the pigeon king assured investors that pigeons would replace chickens in every pot in america, and the world. he'd sell you breeding stock and buy back the offspring. soon, barns across the midwest and canada were filled to the rafters with birds and high hopes. >> aaron humbert: he was building his herd, building the flock. >> joline humbert: he had to have so many hundreds of thousands of birds a week to get... to supply his production. >> safer: but to some, including the attorney general of iowa, it sounded like a ponzi scheme. iowa and three other states barred the pigeon king from doing business. and shortly after the humberts bought in, pigeon king international declared bankruptcy. the humberts lost $300,000, most of it borrowed money. >> joline humbert: we've contacted everybody in the

states we could think of and, you know, from elected officials to f.b.i. to our local prosecutors. and everybody says, "yeah, obviously, there's something wrong here. it was a scam. but to prove it is going to be very difficult." >> safer: galbraith declined our request for an interview. canadian police now say he was running a ponzi scheme. do you blame yourselves at all? >> joline humbert: to a point. we just didn't find the red flags popping up, so we tried it, and then we lost... a lot. >> aaron humbert: might as well went to vegas and put it all on red. >> joline humbert: ( laughs ) we would have had a lot more fun. >> safer: at least in vegas, you know the odds always favor the house. elsewhere, even the most sophisticated among us can be had. for instance-- our gullibility expert, stephen greenspan, who, after writing a book on the subject, discovered he'd lost $400,000 of his retirement money

to, who else? bernie madoff. was it embarrassing for you? >> greenspan: two days after i had the first book copy in my hand, i found that out. well, it was painful, obviously. >> safer: and the fact was, greenspan had never even heard of madoff. the hedge fund managing his retirement money had simply reinvested the $400,000 with madoff. >> greenspan: i don't even think i read the prospectus. i trusted the people i was turning my money over to, and i've always done that, and it's usually worked well, except in this one case. >> safer: what did your wife say to you when you confessed that you lost part of your nest egg? >> greenspan: "i told you so." because i had tried to talk her into it, and she said, "i don't think so." ( laughs ) >> safer: what made her suspicious? >> greenspan: maybe it was the word "hedge fund." >> safer: which brings us to wall street and the financial meltdown of 2008. poking through the wreckage, many experts believe the root cause was a perfect storm, a

monsoon of gullibility colliding with a tidal wave of greed. >> janet tavakoli: this was a massive ponzi scheme. and it's the biggest crime against the american economy in our lifetimes; in fact, ever. >> safer: janet tavakoli is an analyst specializing in derivatives, the exotic financial instruments at the heart of the meltdown. she argues that the bad mortgage loans that fueled the crisis were repackaged by investment banks, sliced into increasingly complex derivatives, and resold to other investors, even though the underlying mortgages were often virtually worthless. >> tavakoli: you had various traders buying each others' products to artificially keep the prices up so that the bubble didn't collapse. >> safer: not only that, but the mortgage derivatives being traded were so mind-numbingly complicated, nobody understood them fully.

certainly not the pigeons-- the buyers at banks, mutual funds, pension funds and insurance companies who wound up holding a bag full of worthless paper. but these guys are smart guys. they're all graduates of the finest business school, correct? >> tavakoli: yes. if they were gullible... they're sophisticated investors, so they can't really go back to the investment banks that sold them this product and say, "we've been had." because they held themselves out to be experts in these kinds of securities. >> safer: all of which proves that, whether you're on wall street or main street, brain power is no defense against con men. in fact, smart guys may be the biggest suckers of all. >> jay: as someone who does sleight of hand for a living, to me, the ideal audience would be scientists or nobel prize winners who are incredibly smart in their one area, and often-- often, not always-- have an ego with them which says "i am really smart, so i can't be fooled." no one is easier to fool.

so, morley, i'm going to play you one hand of blackjack with certain propositions that make it too good to be true. >> safer: and so, determined not to be conned by him again, i sat down for a friendly card game with mr. jay. >> jay: you win all ties... >> safer: the rules were all stacked in my favor. i got 20. he showed a nine, meaning, i thought, it was impossible for him to win. >> jay: god, the only thing that could beat you with would be if i had a 12 or something. which i do. see, i have a 12 of clubs. so i have 21 to your 20. >> safer: but there's no such thing as a 12 of clubs, right? wrong. not only did mr. jay manipulate the cards somehow to get the ones he wanted, he was also dealing from a deck used in certain rummy games, that includes 11s, 12s, and 13s. this pigeon had been had again. >> jay: and the other real element of a con is that i told

you this was too good to be true. anyone should stand clear of something that's too good to be true. >> safer: because it never is. >> jay: it never is. >> welcome to the cbs sports update presented by lipitor. >> here in the final round of the at&t pebble beach national pro-am dustin johnson successfully defended his title from a year ago burning the 72nd hole making a birdie to defeat deval and holmes by one. big upsets in basketball. rutgers wins a thriller over georgetown. for more sports log on to cbssports.com. this is jim nance from pebble beach. ,,,,,,,,

>> pelley: tonight, andy on his super weekend. >> rooney: i imagine you were all disappointed because you couldn't watch "60 minutes" last sunday. i wasn't, because the broadcast was preempted by the super bowl in miami, and i've been going to the super bowl for 40 years now. depending on where you sat in the stadium, a ticket cost between $800 and $1,000. there were lots of souvenirs at the game. they don't want you to forget it, and i got a few of those for myself. all you really want is the names and numbers of the players, but they give you booklets with pages and pages of stuff about south florida that was put together months before anyone even knew who was going to be in the super bowl. the commissioner of football had a press conference, and i sat there with 200 other reporters listening to what he had to say

just to make my trip legitimate. i walked around the ft. lauderdale convention center, and then i went over to the beach. you go to the beach when you're in florida. i wasn't allowed to take a camera into the stadium with me, but cbs was broadcasting the game and they took a shot of me. i'm the one there in the hat. i sat next to my friend steve cohen, a producer on the cbs early show. we didn't have the best seats in the house, and i couldn't wait to get back to the hotel room and watch the game on tape to see what really happened. ordinarily, the roundtrip fare from new york to ft. lauderdale is $270, but delta had a special on last weekend-- $929.70. i stayed in a good hotel in ft. lauderdale-- $260 a night-- and they had a four-night minimum, too. the total cost of my trip was $1,968.46.

the super bowl isn't for kids. i had a great time, though, and it was worth every nickel of it, because by doing this lame piece about the game, i can put it on my expense account. there were a few incidentals of course-- newspapers, tips and cab rides-- so why don't i just call it, "one super bowl, $2,000." >> pelley: i'm scott pelley. we'll be back next week with >> pelley: i'm scott pelley. we'll be back next week with another edi'm so sorry.minutes.] my ride is here. yeah, i got to go. ♪ [ engine revving ] ♪ he said he was a professional student. no. of life. [ laughing ] i'm so sorry. single lane ahead. i'll be in that lane. [ male announcer ] the chevy malibu. a consumer's digest best buy with a 100,000-mile powertrain warranty. you can depend on it so people can depend on you.

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