The Madoff Scam: Meet The Liquidator

Wall Street in shreds, the watch dogs fast asleep, bonus-stuffed executives laughing all the way out of the busted banks - it's been some year. Oh, and we left out the Ponzi scheme of Ponzi schemes: Bernard Madoff's untidy little business that bilked thousands of people out of billions of dollars.

While the mastermind is doing 150 years in prison, the big question is: "Where did all the money go?"

Irving Picard, the court appointed trustee - the liquidator - is searching for the billions that disappeared, and trying to recover as much as possible from Madoff's remaining assets.

It is a daunting and thankless task, for while he is suing whoever he can on behalf of the victims, he's also suing many of the victims - those who he says benefited and should have known they were investing in a house of cards.

Mr. Picard and his chief counsel David Sheehan have been largely silent about the details of the recovery, until now.

"Last November, just before the whole thing collapsed, Bernard Madoff sent out statements to his clients. How much were they told they were worth?" correspondent Morley Safer asked.

"About 64.8 billion dollars," Irving Picard replied.

Asked if the statement were total lies, David Sheehan said, "Yes, absolutely."

The $64.8 billion that investors thought they had was just an illusion, designed by Madoff to keep investors investing.

Last December, the roof fell in.

Mr. Madoff has no say in the matter. If the victims want any money back, they'll have to go through Mr. Picard, the decider, and his bloodhound, Mr. Sheehan.

Asked how much real money went into the whole scheme, Sheehan told Safer, "I'd say about $36 billion. And about 18 of it went out before the collapse. And 18 of it is just missing. And that $18 billion is what we're trying to get back."

So for the past nine months, Picard and his team have been on a global treasure hunt. The first step: liquidating Madoff's boats, his art, even his season tickets to the New York Mets, plus Bernie's various homes, all sold or about to be sold with a U.S. Marshal as real estate pitchman.

"They didn't exactly hide their wealth, did they?" Safer asked.

"They did have the house in Palm Beach. They had a place in Montauk. They had to have, you know, an apartment here on Park Avenue in the city - all of which are the accoutrements of great wealth. But it wasn't an extraordinary lifestyle," Sheehan said.

According to the government, those homes, boats, art and more are worth over $50 million.

That's just a drop in an oversized bucket, nothing close to what investors lost. So Picard and his team continue to follow the money.

They started at Madoff's New York offices, now an impressive landscape of emptiness.

And close by, perhaps a work of art that sums up the entire story: "It was called the 'Soft Screw.' And it was about four, I guess four to six feet high. And it was sitting right here," Picard explained, describing a screw-like sculpture that used to be displayed in Madoff's office.

And sitting on top of the world was Madoff himself. "He was much like the Wizard of Oz, just hiding behind this wall. And no one could quite penetrate it but they sort of really liked the results," Sheehan said.

"As far as you've been able to find out, was he ever legitimate?" Safer asked.

"No, it was never legitimate," Sheehan said. "And I think Bernie, if he told the truth - which he's not capable of - he would then say, 'Yes. I started out as a crook, and I ended up as a crook.'"

And a crook who looked after his family: Picard's team unearthed records showing Madoff's sons Mark and Andrew, who ran a legitimate trading operation, and Madoff's brother Peter, the chief compliance officer, took $80 million in compensation over the past seven years.

Plus, millions more in personal expenses were charged to the company, including private jet rentals, ski vacations and country club dues. Even Ruth, Madoff's wife, had a company credit card, and charged millions too, on everything from shopping sprees in Paris to movie rentals, all courtesy of Bernard L. Madoff Investment Securities.

"They used the bank account at B.L.M.I.S. like a personal piggy bank," Sheehan said.

"Of all the people that should have known, his brother and his sons who worked under the same roof with him, should have known," Safer noted.

"One would think so," Picard said.

Asked if the brother and sons did know, Sheehan said, "My belief is, yes, they knew. And the reason I believe that is they were officers of this, of these companies, and directors in certain instances as well, and also compliance officers in a very highly regulated environment. So, I think clearly they would have to have known what was going on given their own personal transactions, the longevity of what was happening, and the responsibilities as officers of the company."

Madoff's sons and brother also had accounts with Bernie, and their returns were simply spectacular. "There's sort of an extraordinary event with Peter, his brother. After 1995, we only see him putting $14 in and he took out over $16 million. We have to take a hard look at that," Sheehan explained.

And there's Mark and Andrew Madoff, who Picard says withdrew over $35 million from accounts that were opened with little or no original investment.

"If they turn out to be untouchable criminally, do you intend to bankrupt them civilly?" Safer asked Picard.

"Whether or not they have a criminal problem, we will pursue them as far as we can pursue them. And if that leads to bankrupting them, then that's what will happen," he replied.

Picard and Sheehan told 60 Minutes they plan to file suit this week against Madoff's sons Mark and Andrew, his brother Peter, and niece Shana, accusing them of negligence and breach of fiduciary duty in their roles at the company.

He will be seeking the return of $198 million that was paid out, loaned or transferred to them.

"When his brother took out money, or his sons took out money, they took customer money," Sheehan argued.

"Can you lay claim to the sons' real estate, for example?" Safer asked.

"I believe that we can. The money that went to buy these house under the law is called fraudulent transfers," Picard explained.

Maybe. But the Madoff sons are claiming they're still owed nearly $90 million by their father's bankrupt company.

Mark Madoff and the other family members declined 60 Minutes' request for an interview.

But in a statement, The Madoff sons say Picard's allegations are "baseless" and that they had "no prior knowledge of Bernard Madoff's crimes."

Martin Flumenbaum of Paul, Weiss, Rifkind, Wharton & Garrison, an attorney representing Mark and Andrew Madoff, stated:

"We strongly disagree with the Trustee's allegations, which are entirely baseless. Mark and Andrew Madoff had no prior knowledge of Bernard Madoff's crimes and contacted the U.S. Department of Justice and the SEC immediately after their father told them he had defrauded his investment advisory clients."

"Mark and Andrew Madoff were not officers of Bernard L. Madoff Investment Securities, LLC. They were employees with no ownership interest in and no access to overall financial information about BLMIS. They ran an operation that executed approximately 60 million trades per year for U.S. brokers, and their compensation was tied to the legitimate proprietary trading and market-making businesses they spent 20 years building."

"As they have from the beginning, Mark and Andrew continue to cooperate fully with the authorities in their ongoing investigations."

And that includes Ruth Madoff. Though she has already agreed to forfeit about $80 million in assets, Picard has sued to keep her on a very short leash.

"At the moment, any time she spends over $100, she has to check in with you, correct?" Safer asked.

"She reports it to us at the end of the month," Picard said, adding that she is now living very modestly.

"The most significant amount of money that Ruth is currently spending is on lawyers," Sheehan said,

"There is an assumption in this case, that there is this stash out there, whether in Swiss banks or under the mattress. Are you assuming there is?" Safer asked.

"Yes, we are," Sheehan replied.

Asked what kind of money we're talking about, Picard said, "We'd assume it's millions and millions of dollars."

Millions and millions isn't nearly enough to cover the billions stolen by Bernie Madoff.

But here's where the story takes an odd twist: most of the money for victims will not come from the Madoff family, but from the victims themselves.

"Most people assume that everyone lost money who dealt with Madoff. Not true?" Safer asked.

"We've found that there have been quite a few people who have gotten out more than they put in," Picard said.

In fact, about half of Madoff's thousands of victims are what Picard calls "net winners " - people who took out more money than they ever invested with Madoff.

"We can tell that, if Morley put in $100 and he got out $200, he got $100 of somebody else's money," Sheehan explained.

"So, the guy who's been happily taking $25,000 a year out over, say, 10 years, he's not gonna get a dime outta this?" Safer asked.

"No," Sheehan replied.

"Not if he took out more than he put in," Picard added.

"Well, say he put in an initial $100,000?" Safer asked.

"Then he's already got more than he put in. He's been overpaid,"

Asked if he is going to try to get the difference, Picard said, "Perhaps."

And he's is entitled by law to get that difference back. It goes by the nicely nasty name of a "clawback."

If any investor took out more than they put in over the past six years, Picard can legally demand it back to help victims who didn't take money out.

For now, Picard says Madoff's small-time winners are not his priority. He is focusing on the big winners, who claim to be innocent victims.

"Some of the big players, I believe, actually knew exactly what was going on. And participated in it," Sheehan said.

Picard and Sheehan have sued several prominent Madoff investors, saying they "knew or should have known" of the fraud, like billionaire investor and philanthropist Jeffry Picower.

"He got a statement that said his return was 950 percent," Sheehan said. "Now, this isn't some unsophisticated rube buying these stocks and dealing in this. This is a very, very sophisticated guy. He gets a statement like that that's off the charts. He doesn't know anything about that?"

"So is he a prime suspect?" Safer asked.

"Sure. I think, not only in terms of the monies that he took out, but the records with regard to the relationship, the manipulation and backdating of trades, he had to know, or someone knew it was false," Sheehan said.

The suit claims Picower took out more than $5 billion in profits since 1995. Picard is also suing another billionaire, investor Stanley Chais, who withdrew over a billion dollars in profits.

Both Chais and Picower maintain their innocence and would not comment. But in court papers, Picower characterizes the suit as "unsupported by facts or logic."

Sheehan says he thinks they knew all along and simply couldn't resist the easy money. "I think, as everyone, you know, was participating in this, and just feeding at this trough of greed, at the end of it, what they were looking for was it to continue. They were hoping it was never going to end."

So far, the trustee and his counsel have filed 13 lawsuits seeking the return of nearly $15 billion from the biggest Madoff investors. In addition, 233 clawback notices have gone out to Madoff friends and family who may have profited from the scheme.

Thousands of smaller investors who were living off what they believed were legitimate profits now fear that on top of their lost nest-egg they may end up owing even more.

Sheehan is sympathetic, but: "At the end of the day, they were in a Ponzi scheme, unfortunately for them. So, all they get, at best, is what they put in. And to claim that they should be getting something other than that is to suggest that some other resource should exist, I'm talking about the taxpayers coming in and funding this."

So far, Picard has found nearly $1.5 billion for the victims' fund, and he's hoping to get several billion dollars more. But even then victims will collect only a tiny fraction of what they lost.

"We don't know how much is there," Sheehan explained. "But it's gonna be, not necessarily pennies on the dollar, but it's only, you know, a little bit more than that. We're not going to be able to repay everyone, not anything close to what they lost."

Produced by Deirdre Naphin and Katy Textor