On June 18, 1991, a balmy late spring day on the North Shore of New York's Long Island, stockbroker Pamela Martens sat on the patio of an exclusive local country club, meeting with a client for the first time.

Martens would be taking over management of the customer's municipal-bond portfolio, but was alarmed when she heard how the man had invested the rest of his nest egg.

"He told me that the bulk of his money was with Bernie Madoff, and that Madoff guarantees a 13 percent a year return," Martens recalls. "I said, 'first of all, that's impossible, and second of all, that's illegal'."