Wall Street Crimes | 60 Minutes Full Episodes

Dennis Lavine's Insider Trading and Imprisonment

• Dennis Lavine served time in the Lewisburg Penitentiary for insider trading conducted while he was employed at Drexel Burnham Lambert. 0s
• During his time at Drexel Burnham Lambert, Lavine utilized a private phone line to facilitate illegal trades, describing the experience as an addictive rush that made him feel invulnerable. 25s
• In 1985, Lavine executed a trade involving Nabisco stock that resulted in a profit of nearly $3 million after making only two phone calls. 42s
• Over a five-year period, Lavine accumulated $12.6 million, which he deposited into a secret bank account in the Bahamas. 1m5s
• Lavine admitted that he believed he could outsmart the system and never expected to be caught for his illegal activities. 1m35s

Legal Consequences and Post-Prison Consulting

• On May 12, 1986, Lavine was apprehended and subsequently pleaded guilty to charges of securities fraud, tax evasion, and perjury. 1m55s
• As part of his legal proceedings, Lavine cooperated with the government and provided information against Ivan Boesky. 2m6s
• After serving a 15-month sentence, Lavine was released from prison in 1988 and began operating a financial consulting firm while lecturing on the lessons learned from his past mistakes. 2m15s
• Lavine publicly stated that he would not engage in illegal or unethical behavior again, advising others to avoid actions they would not want to see reported on the front page of the Wall Street Journal. 2m30s

The Panama Loan Fraud Scheme

• Approximately 18 months after his release from prison, Lavine was hired as a financial adviser by Randy Yokum and Tom Breell to assist with a luxury housing development project in Laguna Niguel, California. 3m15s
• Yokum and Breell paid Lavine $10,000 in upfront fees to secure financing for the project, which was projected to yield a $14 million profit. 3m30s
• Lavine was responsible for performing due diligence on potential lenders and introduced the businessmen to two companies in Panama: Morgan Gundy and Pang Global. 3m45s
• Pang Global agreed to provide a $32 million loan to Yokum and Breell, contingent upon the payment of approximately $150,000 in upfront fees. 4m0s
• After Lavine assured them that he had successfully negotiated the deal, Yokum and Breell paid the required fees. 4m15s

Lack of Due Diligence in Financial Referrals

• Dennis Lavine recommended companies such as Pan Global and Morgan Gundy to clients for funding, claiming he believed they were substantial based on a client's verification that a previous deal had been successful 0s.
• Despite recommending these companies, Lavine conducted no independent investigation into their legitimacy 12s.
• Pan Global and Morgan Gundy have never sold stock in Panama, and both entities have been under investigation by the FBI 20s.
• Investigations revealed that while many companies paid upfront fees to Pan Global, none received funding in return, and both the U.S. Embassy in Panama and the Commerce Department had issued warnings against the firm 30s.

Questionable Business Associates and Criminal Ties

• After the Pan Global deal failed, Lavine introduced clients to a Florida-based lender, which required a $25,000 fee for the introduction and a $300,000 upfront payment for a $23 million loan 42s.
• Because the clients, Yokam and Bretell, lacked the funds for the Florida deal after losing $150,000 in the Panama venture, Lavine introduced them to Bob Amira, a Las Vegas businessman 52s.
• Lavine described Amira as an associate from his time at Drexel, but he performed no due diligence or background check on him 1m2s.
• Bob Amira was a convicted thief with ties to the New York Mafia, having been involved in a credit scheme that defrauded Atlantic City casinos of over $700,000 1m15s.
• Lavine defended his introduction of Amira by stating he relied on Amira's claims regarding his lending capabilities and real estate expertise 1m25s.
• Lavine subsequently introduced the clients to Jim Msaro to assist with the Florida lender, describing him as a friend and former business associate from his time at Drexel 1m35s.
• Lavine and Jim Msaro had previously spent approximately nine months together at the Lewisburg Penitentiary 1m45s.
• Lavine did not recall informing his clients that he and Msaro met in prison or that Msaro had a conviction for business fraud 1m50s.
• When questioned about whether clients had a right to know about Msaro's criminal history, Lavine suggested he would be a hypocrite for disclosing it, noting that his own background was known to the clients 2m0s.

The Ernscliffe Trust Fraud

• Ernscliffe Trust was a Florida-based company led by Robert Wilson, who was described by Dennis Lavine as a high-level figure in the lending business 0s.
• Lee Liebarger, associated with the operation, was characterized as a "heavy hitter" 12s.
• Clients relied entirely on the judgment of Dennis Lavine to vet business partners, operating under the assumption that anyone introduced by him was trustworthy 18s.
• Lavine claimed he vetted the operation by checking references provided by other clients, though he admitted he did not perform a formal background check on Liebarger 35s.
• Background investigations revealed that Liebarger was a convicted thief who had defrauded at least four people of over $120,000 in the early 1980s and was arrested in December for an upfront fee scam in New Orleans 1m0s.
• Lavine stated he was unaware of outstanding legal judgments against Wilson or that Wilson had a history of failing to fund deals he had promised to finance 1m15s.
• Investigations indicated that Ernscliffe Trust collected at least $2.5 million in advance fees without ever paying any money to clients 1m35s.
• Ernscliffe Trust possessed no assets, utilized phony banking and credit references, and lacked the necessary licenses or registration to operate as a securities dealer in Florida or elsewhere in the United States 1m40s.
• In March 1991, the Florida Comptroller’s Office shut down Ernscliffe Trust, alleging the company defrauded consumers by charging upfront fees for loans that were never issued 2m5s.
• Clients Bretell and Yokum reported receiving no funding from Robert Wilson, with losses exceeding $200,000 2m10s.

Evidence of Deception and Professional Misconduct

• A review of over 800 pages of documents provided by Lavine yielded no evidence that he performed due diligence on the companies or individuals he introduced to clients 2m45s.
• Documents showed that Lavine had used white-out to conceal the name of a company he had previously advised 3m5s.
• A president of a company previously advised by Lavine reported paying $20,000 in upfront fees to be introduced to Panang Global and Ernscliffe Trust, but withdrew from the deals due to suspicions and was unable to recover the fees from Lavine 3m10s.
• Lavine denied accusations that he was a con man 3m35s.

Daniel Taibbo's Treasuries Market Scam

• Daniel Taibbo denies allegations that he is a con artist, maintaining that he has not done anything wrong despite accusations that he orchestrated a massive fraud in the treasuries market. 0s
• The brokerage industry often conducts multi-million dollar deals over phones, faxes, and computer terminals between parties who never meet in person, a practice that relies on the cardinal rule of knowing one's customer. 22s
• Daniel Taibbo is accused of running what may be the largest "free-riding" scam in the history of the treasuries market. 35s
• The environment of bond trading is characterized by high speed, chaotic communication, and cryptic language, which makes the industry largely inaccessible to those outside of the professional "club." 52s
• According to the Securities and Exchange Commission, Daniel Taibbo leveraged his knowledge of bond trading to lure approximately 25 Wall Street firms into multi-million dollar deals. 1m8s
• Daniel Taibbo traded a total of $165 million with Goldman Sachs and over $250 million with three smaller brokerage houses. 1m15s
• Tom Piro and McKay White of the Compliance Data Center estimate that Daniel Taibbo put approximately $1 billion at risk on Wall Street. 1m22s

Mechanics of the Free-Riding Scheme

• Daniel Taibbo gained access to brokerage firms by calling the direct numbers of trading desks and posing as a significant market player. 1m45s
• Robert Mcdana of Merrill Lynch’s corporate credit department was among the first to identify and report Daniel Taibbo after Taibbo attempted to execute a $500 million treasury deal. 1m52s
• A "free ride" involves trading securities without providing upfront capital, relying on the market moving in the trader's favor within a single day to close the transaction and keep the profit. 2m15s
• If the market moves in the trader's favor, the trader keeps the difference in price; however, if the trade goes poorly, the brokerage house is left to absorb the losses. 2m35s
• The government estimates that Daniel Taibbo earned approximately $200,000 over a 17-month period through these activities. 2m52s
• Brokerage houses were susceptible to the scam because Daniel Taibbo possessed a sophisticated understanding of Wall Street terminology and procedures, leading professionals to believe they were conducting business with a legitimate trader from a major bank. 3m15s

Operational Tactics and Repo Market Exploitation

• Daniel Taibbo, a trader who operated from his basement, engaged in multi-million dollar business transactions with major financial firms despite being a stranger to them 0s.
• In the financial industry, professional respect and the willingness of firms to conduct business are primarily driven by a trader's production numbers and the potential for profit 5s.
• Taibbo utilized the repo market to conduct his trades, which involved purchasing securities and borrowing the necessary funds to cover those purchases by using the securities themselves as collateral 1m15s.
• The repo market is a leveraged environment where firms like Goldman Sachs, Salomon Brothers, and Harry Bob Bank participate using their own capital and collateral 1m35s.
• Taibbo demonstrated that borrowing $9 million on the repo market could cost as little as $799 in fees 2m15s.
• Tom Piro alleges that Taibbo facilitated these trades by forging financial statements to falsely inflate his net worth to approximately $25 to $30 million, thereby convincing firms that he had sufficient capital to cover potential market losses 2m35s.
• Taibbo conducted his high-value financial dealings using a modest home office setup that included computers, a satellite connection, a telephone, a modem, and a typewriter 3m15s.

Use of Aliases and Fabricated Identities

• Court documents indicate that Taibbo frequently used aliases, such as Jack Renfro, Paul Palmer, and Richard Gant, and established fake companies to conduct his business 4m5s.
• In February 1992, an individual identifying as Jack Renfro contacted Dean Witter in New York, falsely claiming to be a trader from the firm's Chevy Chase, Maryland office 4m25s.
• An individual identified as Taibbo executed a $5 million trade for long bonds at 1026 through the brokerage firm Dean Witter by posing as a client named Jack Renfro 0s.
• Suspicion arose at Dean Witter when a trader attempted to contact Jack Renfro at the Chevy Chase office and was informed that no one by that name worked there 25s.
• Taibbo attempted to explain the discrepancy by claiming he was a newcomer to the Chevy Chase office and had not yet been added to the firm's system 36s.
• When Dean Witter ceased trading with Jack Renfro, a man identifying himself as Richard Gant called the firm via speakerphone to advocate for the trade 48s.
• Bob Ferrari, the head of the department at Dean Witter, refused to honor the trade, informing the caller that the branch manager had no knowledge of Jack Renfro and accusing the caller of misrepresentation 1m12s.
• Although Taibbo denied using multiple voices or accents to conduct trades, an analysis of audio recordings comparing the voices of Richard Gant, Jack Renfro, and Taibbo concluded that they were almost certainly the same person 1m45s.
• Following the voice analysis, Taibbo admitted to posing as both Richard Gant and Jack Renfro, claiming he did so at the instruction of Richard Gant 2m12s.
• Taibbo utilized additional aliases, including a partner named Paul Palmer, whom he claimed used the title "Sir" as an honorific despite not being knighted 2m25s.
• Regarding a company named Stein and Stein, Taibbo claimed to have formed a partnership with a man named Samuel Stein, though he later stated that Stein and his other associates were located in Africa 2m55s.

Collapse of the Taibbo Fraud

• Daniel Taibbo failed to provide contact information for Sir Paul Palmer, two individuals named Steines, or any alleged business associates to investigators or the Nigerian Securities and Exchange Commission 0s.
• The Nigerian Securities and Exchange Commission stated that the companies associated with Taibbo do not exist and that their names are fake 0s.
• Four days after claiming to be a knowledgeable and honest investor, Daniel Taibbo was charged with 17 counts of securities fraud and held in jail 15s.

Jonathan Leed's Stock Manipulation

• Jonathan Leed, a 16-year-old high school junior from Cedar Grove, New Jersey, was accused by federal authorities of running a stock manipulation scheme that generated hundreds of thousands of dollars in illegal profits 32s.
• Leed is recognized as the youngest person and the first minor to be accused of securities fraud 32s.
• The alleged scheme involved purchasing stocks, promoting them aggressively on the internet, and selling them once the price increased 32s.
• Leed began trading stocks from his bedroom computer at age 13 with his parents' permission 55s.
• At age 13, Leed participated in a CNBC-sponsored contest where his team hypothetically turned $10,000 into $240,000 1m25s.
• Leed’s parents, Connie and Greg Leed, provided him with a few thousand dollars from cashed-in bonds to begin trading with real money 1m35s.
• Leed focused on the volatile penny stock market, which he found more interesting and fun than trading larger companies 2m6s.
• Leed once invested approximately $200,000 in a single stock 2m25s.
• To research potential investments, Leed reviewed SEC filings, press releases, and occasionally visited company locations in person, such as a bagel chain 2m35s.

Pump and Dump Strategy and SEC Investigation

• Jonathan Leed developed an investment strategy focused on identifying extremely undervalued companies that he believed would increase in value if they gained broader public awareness 0s.
• Leed utilized internet chat rooms to promote his stock holdings, often posting hundreds of messages under various aliases to generate interest 25s.
• In one instance involving a company called Firetector, Leed purchased shares at $2.45 each and subsequently posted online predictions that the stock would reach $20, eventually selling his shares at $3.38 for a $19,000 profit 50s.
• The Securities and Exchange Commission (SEC) began monitoring Leed’s trading activities in 1998 and eventually accused him of securities fraud 1m15s.
• SEC Chairman Arthur Lev described Leed’s actions as a "pump and dump" scheme, which involves buying a stock, lying to inflate its price, and then selling it at a profit 1m30s.
• Federal investigators contend that Leed’s intent was to manipulate stock prices through hype he did not personally believe, with the sole purpose of personal financial gain rather than assisting other investors 1m50s.
• While Leed admitted to manipulating stocks, he maintained that his actions were not wrong because he claimed his recommendations were based on accurate financial data and legitimate analysis rather than fabricated facts 2m15s.
• Kevin Marino, Leed’s attorney, argued that his client’s actions may have been characterized by overenthusiasm or a lack of understanding regarding security laws, comparing Leed's hyperbolic claims to common marketing slogans 2m40s.

Legal Defense and Settlement of Leed's Case

• Jonathan Leed faced allegations of manipulating stock prices by touting specific stocks and selling them after their prices increased 0s.
• Legal counsel for Leed argued that his actions were indistinguishable from standard practices performed daily on Wall Street 0s.
• The Securities and Exchange Commission (SEC) distinguishes Leed's actions from those of professional Wall Street analysts, noting that analysts are prohibited from personally profiting from their own predictions 15s.
• Financial publication Barons suggested that Leed followed standard brokerage house procedures by issuing bullish buy recommendations, though he lacked the legal status of a chartered financial analyst 25s.
• Leed’s attorney characterized the SEC's focus on his client as intellectually dishonest and cruel, given that similar conduct is common in the financial industry 42s.
• Leed included disclaimers in his online postings, advising readers to conduct their own research 55s.
• Yahoo Finance, the platform where Leed posted his messages, advises against making investment decisions based on information found in chat rooms 55s.
• While some argue that investors who rely on chat room information deserve to lose their money, others maintain that Leed’s hundreds of postings constituted a deliberate effort to deceive investors 1m10s.
• The SEC chairman expressed conviction that Leed knowingly ignored the law and cheated investors, though Leed claimed he was unaware of any specific investors he had defrauded 1m35s.
• The SEC reported that it received no complaints from investors regarding Leed until after the case became public, at which point approximately two dozen complaints were filed 2m6s.
• To avoid a court trial, Leed negotiated a settlement with the SEC, agreeing to surrender $285,000 earned from 11 trades without admitting any wrongdoing 2m20s.
• Leed retained approximately $500,000 of the roughly $800,000 he earned, a result his lawyer described as a business decision 2m20s.
• Leed’s family expressed pride in his intelligence and work ethic, noting that he earned the money through his own efforts 2m55s.
• Despite legal fees, taxes, and the SEC settlement, Leed retained a significant portion of his earnings, which included purchasing a $42,000 Mercedes SUV for his family 3m25s.

Return to Trading and the Madoff Fraud

• After negotiating a settlement with the Securities and Exchange Commission (SEC), an investor named Leed took a break from the market but expressed his intention to return, despite having promised the SEC he would no longer hype stocks online 5s.
• Leed returned to the stock market in early June, investing a few thousand dollars in a small video game manufacturer after claiming he had performed well with theoretical investments 35s.
• Arthur Levitt stepped down as chairman of the SEC in February 35s.
• Bernard Madoff was arrested and charged with an alleged $50 billion fraud, which is considered the largest financial fraud in history 55s.
• Federal prosecutors have not yet issued indictments as they continue to investigate the details of the Madoff case and identify those involved 1m5s.

Harry Markopolos's Investigation of Madoff

• Harry Markopolos, a financial analyst and fraud investigator from Boston, identified Madoff's scheme before anyone else 1m20s.
• Markopolos submitted material regarding the fraud to the SEC on five separate occasions: May 2000, October 2001, October/November/December 2005, June 2007, and April 2008 1m55s.
• Markopolos expressed regret over the outcome of the case, describing himself as a "$50 billion failure" because his warnings did not prevent the disaster for the victims 2m5s.
• The investigation into Madoff began a decade prior when Markopolos's boss asked him to reverse engineer Madoff's trading strategy to duplicate the results of what was described as a large, unregistered hedge fund 2m25s.
• Markopolos stated that it took him five minutes to suspect fraud and approximately four hours of mathematical modeling to prove it 3m5s.
• The primary indicator of fraud identified by Markopolos was Madoff's performance line, which showed consistent growth with very few down months, a feat Markopolos compared to a baseball player batting .960 for a year 3m25s.

SEC Failures and Red Flags

• Harry Markopolos suspected that Bernie Madoff was either utilizing illegal insider information to generate profits or operating a massive Ponzi scheme 0s.
• In May 2000, Markopolos reported his suspicions regarding Madoff to the Boston office of the Securities and Exchange Commission (SEC) 14s.
• Markopolos was motivated by a desire to remove a dishonest competitor from the industry and initially hoped for a financial reward if the case involved insider trading 20s.
• While Markopolos’s initial 2000 report was theoretical, his certainty grew over time, reaching nearly 100% by 2005 after identifying 29 distinct red flags 42s.
• Mathematical analysis led Markopolos to conclude that Madoff’s claimed trading strategy would have required purchasing more options on the Chicago Options Exchange than actually existed 1m2s.
• Markopolos contacted major equity derivatives firms and found that none of them had a trading relationship with Madoff, leading to the conclusion that Madoff’s fund had not executed trades since at least 1993 1m15s.
• The trustee liquidating Madoff’s assets confirmed that the investment fund never actually made any trades 1m35s.
• Hundreds of people suspected the Madoff operation was fraudulent, including major Wall Street firms that chose not to invest with him 1m45s.
• Markopolos explicitly informed the SEC that some of the world's largest financial services firms suspected Madoff of fraud, but the SEC failed to contact these firms to verify the claims 2m6s.
• Markopolos attributed the silence of major Wall Street executives to a culture where firms avoid criticizing one another, noting that self-regulation in the industry is ineffective 2m30s.
• In January 2006, the SEC’s New York office opened a file on Markopolos’s allegations but closed the case 11 months later without a formal investigation, claiming there was no evidence of fraud 2m45s.
• Markopolos characterized SEC staff as largely untrained in finance and overly focused on reviewing paperwork for minor misdemeanors rather than identifying major financial felonies 3m5s.
• The SEC declined to provide an on-the-record response regarding the allegations made by Markopolos 3m35s.

Impact on Victims and Affinity Scam Tactics

• Bernie Madoff maintained close personal and professional ties to the Securities and Exchange Commission (SEC), even noting that his niece married a former SEC employee. 0s
• During a 2007 meeting at the Philoctetes Center, Madoff publicly praised the regulatory environment, claiming it was virtually impossible for rule violations to go undetected for any significant period. 15s
• The Philoctetes Center suffered significant financial losses because its primary benefactor, the Betty and Norman Levy Foundation, had invested its funds with Madoff. 35s
• Madoff’s client list spanned 162 pages and included a diverse range of victims, from Hollywood figures to a carpenters' pension fund in Syracuse, New York. 45s
• Individual investors, such as Shelley Ledllo, faced severe personal consequences, including the loss of housing and the need to rely on Medicaid-assisted living facilities. 55s
• Len and Marge Forest, who had invested with Madoff for 30 years, lost an eight-figure family fortune shortly before Len Forest’s 80th birthday, leaving them with approximately 60 days of living expenses. 1m10s
• Len Forest expressed deep personal guilt for recommending Madoff to close family and friends who subsequently lost their money. 1m25s
• Investors were often discouraged from asking questions because they believed they were part of an exclusive group earning 12% annual returns. 1m35s
• Harry Markopolos characterized Madoff’s operation as an "affinity scam," noting that Madoff targeted the Jewish community in the United States to build his initial base. 1m45s
• To sustain the Ponzi scheme, Madoff expanded his reach beyond New York to Palm Beach, Florida, and Greenwich, Connecticut, recruiting wealthy clients through country clubs and professional networks. 2m0s

Role of Feeder Funds in the Madoff Ponzi Scheme

• Madoff utilized "feeder funds," such as the Fairfield Greenwich Group, which funneled billions of dollars of client money to him in exchange for substantial annual fees. 2m15s
• Feeder funds were responsible for vetting hedge fund managers to ensure they were not operating fraudulent schemes, yet they failed to detect Madoff's activities. 2m25s
• Attorney David Boies represents investors from the Fairfield Greenwich Group who lost nearly $7 billion, describing the feeder funds as the mechanism that transformed the operation into an international Ponzi scheme. 2m40s
• Fairfield Greenwich is facing a lawsuit for gross negligence, with allegations that the firm failed to conduct thorough investigations or monitor the activities of Bernie Madoff as promised in its marketing materials 0s.
• Critics argue that Fairfield Greenwich did not perform promised services such as portfolio stress testing, risk management, or asset verification, and instead simply transferred investor funds to Bernie Madoff for two decades 3s.
• It is alleged that Fairfield Greenwich partners failed to perform due diligence and instead utilized investor money to fund luxurious lifestyles 13s.
• Walter Noel, a founding partner of Fairfield Greenwich, declined to comment and has reportedly been staying at a compound on the private island of Mustique 21s.
• In a statement, Fairfield Greenwich asserted that it was a victim of Bernie Madoff, claiming it relied on his reputation and the fact that the SEC had conducted multiple reviews of his operations 28s.

Final Collapse and Regulatory Criticism

• Harry Markopolos was ultimately proven correct regarding his suspicions about Bernie Madoff 41s.
• Bernie Madoff’s imprisonment was not the result of actions taken by Harry Markopolos or the SEC, but rather occurred because his fraudulent scheme collapsed under its own weight during a poor economy 44s.
• Bernie Madoff turned himself in before any authorities initiated a serious investigation into his activities 52s.
• The SEC is criticized for its tendency to investigate only after crimes have been committed, focusing on counting victims and identifying perpetrators after the damage is already done 56s.