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CNBC EXCLUSIVE: CNBC TRANSCRIPT: CNBC'S LARRY KUDLOW INTERVIEWS KEN LANGONE, HOME DEPOT CO-FOUNDER, TODAY ON "CNBC REPORTS"

WHEN: TODAY, WEDNESDAY, JANUARY 21ST

WHERE: "CNBC Reports"

Following is the unofficial transcript of a CNBC EXCLUSIVE interview with Ken Langone, Home Depot Co-Founder, on "CNBC Reports."

All references must be sourced to "CNBC Reports."

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KUDLOW: HELLO. YOU MET WITH MADOFF, RIGHT? YOU MET WITH MADOFF. DID HE INVITE YOU?

LANGONE: I HAD BEEN TOLD BY THREE OR FOUR DIFFERENT PEOPLE THAT HE WAS STARTING A NEW FUND. IT TURNED OUT AT THAT TIME, MY PARTNER, STEVE, AND MY SON, BRUCE, WE WERE LOOKING FOR OTHER INVESTMENT OPPORTUNITIES. SO WE AGREED TO GO SEE HIM. I GOT TO TELL YOU, I WOULDN'T WANT TO PLAY POKER WITH THIS GUY. HE WOULD CLEAN MY CLOCK LIKE YOU WOULDN'T BELIEVE. HE WAS IN TROUBLE. THAT WAS THE 24th OF NOVEMBER.

KUDLOW: HOW DID YOU KNOW THAT? AT THE TIME YOU MET HIM, YOU SAY HE WAS IN TROUBLE?

LANGONE: ONLY RETROSPECTIVELY I KNOW IT BECAUSE OBVIOUSLY ON THE 11th OF DECEMBER, HE THROWS HIMSELF UNDER THE BUS. THIS WAS BUILDING UP BUT YOU WOULDN'T THINK THIS GUY HAD A PROBLEM IN THE WORLD.

KUDLOW: HE WASN'T DESPERATE, HE WASN'T ON HIS KNEES.

LANGONE: NO, NO, NO, HE WAS GRACIOUS. HE SHOWED US HIS ART HE TOOK US FOR A WALK AROUND THE FAMOUS 17th FLOOR. HE COULD NOT HAVE BEEN, AS I SAID, MORE GRACIOUS. HE WAS COOL.

KUDLOW: WAS HE ALONE IN THE MEETING?

LANGONE: YES.

KUDLOW: HE HAD NO ASSISTANCE?

LANGONE: NO, NO.

KUDLOW: WHAT MADE YOU WALK AWAY FROM THE FUND? DID YOUR ANTENNA GO UP OR SOMETHING?

LANGONE: WE WERE VISITING WITH HIM FOR A LITTLE BIT. WE GOT STARTED TALKING ABOUT THE OPPORTUNITY HE WAS PRESENTING. HE SAID SOMETHING THAT I FOUND REPULSIVE. HE SAID TO ME -- MIND YOU, I HAD BEEN RECOMMENDED TO HIM BY THREE OR FOUR PEOPLE THAT HAD MONEY THERE. HE SAID TO ME, AND BY THE WAY.

KUDLOW: NEW YORK PEOPLE, PALM BEACH PEOPLE?

LANGONE: NEW YORK, PALM BEACH. THIS GUY GOT AROUND. THIS GUY HAD A HELL OF A NAME.

KUDLOW: YOU WERE INTERESTED BECAUSE YOU HEARD ABOUT IT?

LANGONE: I WASN'T SO MUCH INTERESTED AS I WAS CURIOUS. OKAY?

LANGONE: SO HE SAYS TO US, BY THE WAY, THIS FUND THAT I'M STARTING IS GOING TO DO BETTER THAN MY EXISTING INVESTORS. LARRY, THAT TURNED ME OFF. DO UNTO OTHERS, AS YOU WOULD HAVE OTHERS DO UNTO YOU. MY PARTNER, STEVE HOLZMAN, WHO WAS MORE TECHNICALLY INTERESTED, STARTED ASKING HIM QUESTIONS ABOUT, WHAT THE HELL, IS IT SPLIT CONVERSION OR WHATEVER THE HELL IT IS?

KUDLOW: I LOVE THIS. THE SPLIT STRIKE CONVERSION STRATEGY, SOMETIMES CALLED THE BULL SPREAD, WE WILL GET TO THAT.

LANGONE: AND HE PRESENTED HIMSELF, WELL, I CAN'T TALK ABOUT THIS. SO WE LEFT. WE WENT DOWN IN THE LOBBY OF THE LIPSTICK BUILDING. I SAID, STEVE, THAT GUY DOES NOTHING FOR ME. HE SAID, WHAT DO YOU MEAN? I AM BOTHERED BY THE FACT HE IS TELLING US THAT WE ARE GOING TO GET A BETTER DEAL THAN HIS EXISTING INVESTORS.

KUDLOW: YOU THINK SOMEBODY WOULD COME AFTER YOU AND GET A BETTER DEAL THAN YOU?

LANGONE: NO, I THOUGHT HOW I WOULD FEEL IF I WAS ALREADY IN AND HE WAS DOING THIS WITH ME.

KUDLOW: YOU FELT HE WAS A DUPLICITOUS GUY?

LANGONE: I FELT LIKE; WHY NOT GO BACK TO YOUR EXISTING PEOPLE AND SAY, HEY, YOU WANT THIS DEAL THAT'S BETTER THAN THE ONE YOU GOT OR PUT YOUR MONEY IN THIS OR WHATEVER. STEVE SAID, I THINK YOU ARE OVERREACTING. THEN, THE FOLLOWING FRIDAY, WHICH WAS THE DAY AFTER THANKSGIVING, STEVE CALLED ME AND SAID, KEN, I'VE BEEN THINKING ABOUT IT, YOU KNOW WHAT, I FEEL THE SAME DAY YOU DO. I SAID FINE, CALL HIM MONDAY AND TELL HIM WE ARE GOING TO PASS. THAT WAS IT.

KUDLOW: I WANT TO ASK YOU ABOUT THIS PITCH BOOK, FIRST OF ALL, THIS BUSINESS ABOUT 11% RETURN, YEAR IN AND YEAR OUT. DID THAT RAISE YOUR DOUBTS ABOUT HIM? DID YOU THINK MUCH ABOUT THAT?

LANGONE: NO. WE HADN'T EVEN GOTTEN THERE. WE WOULD HAVE HAD TO DO A LOT MORE WORK BEFORE WE WOULD HAVE PULLED THE TRIGGER. JUST THAT VERY FIRST REMARK, WHERE HE SAID, AND YOU'LL DO BETTER, THIS DEAL WILL DO BETTER. HE ONLY WANTED FIVE GUYS. IT WAS A SMALL THING. IT WAS ONLY 500 MILLION. IT WAS PRESENTED ON THE BASIS THIS IS AN UNUSUAL OPPORTUNITY, GOT THE LITTLE ANGEL ON MY SHOULDER THAT KEEPS WATCHING ME.

KUDLOW: SURE. AT THAT TIME, THE IDEA THAT MADOFF WOULD BE THE GREATEST FRAUD IN THE HISTORY OF TIME, THAT REALLY WASN'T ON YOUR HEAD? YOU JUST DIDN'T LIKE THE SMELL OF THIS NEW DEAL?

LANGONE: NOT IN THE LEAST.THIS GUY WAS COOL.AS I SAID, LARRY, I WOULDN'T WANT TO BE SITTING IN A POKER TABLE WITH HIM. HE WOULD CLEAN MY CLOCK.

KUDLOW: THE SPLIT STRIKE CONVERSION STRATEGY, I WILL RUN THROUGH THIS QUICK.YOU HAVE FOUR PARTS, STOCKS POSITION, THE S&P 100. THEN, HE WAS LONG S&P 100 INDEX PUT OPTIONS. HE WAS SHORT S&P 100 INDEX CALL OPTIONS AND THEN HE HAD SOME LOOSE CASH IN TREASURY BILLS. YOU HAVE BEEN A FABULOUSLY SUCCESSFUL INVESTOR DOWN THROUGH THE YEARS. WHAT MAKES THIS SO GREAT AND SO INFALLIBLE? I CAN LOOK AT THIS AND SAY, HE COULD GET HIS CLOCK CLEANED?

LANGONE: AFTER THE FACT. AFTER HE HAD ADMITTED TO HIS CRIME. MIND YOU AFTER SARBANES-OXLEY BECAME A LAW TOO. THE WORLD THOUGHT THAT SARBANES-OXLEY WAS GOING TO MAKE THIS THING WORK. IT DIDN'T HAPPEN. BUT I SAW ONE OF HIS MONTHLY STATEMENTS AND I COULDN'T MAKE SENSE OF IT.

KUDLOW: AFTER THE VISIT?

LANGONE: AFTER THE VISIT. I WON'T TELL YOU HOW I SAW IT, BUT I SAW IT AND I COULDN'T MAKE SENSE OF IT. I DIDN'T KNOW WHETHER YOU WERE LONG STOCKS, SHORT STOCKS, WHETHER YOU HAD CALLS, WHETHER YOU HAD PUTS, WHETHER YOU HAD TREASURY BILLS, WHETHER YOU WERE SHORT TREASURY BILLS. IT WAS THE MOST CONVOLUTED THING I HAVE EVER SEEN.

KUDLOW: A LOT OF EXPERTS HAVE SAID THAT THE EXISTING MARKET COULD NEVER HAVE TAKEN A FUND OF THAT SIZE RUNNING THIS OPTIONS STRATEGY?

LANGONE: YOU ARE RIGHT.

KUDLOW: NO WAY. WHAT DO YOU MAKE OF THE RECENT REPORTS THAT HE JUST MADE THE NUMBERS UP? THAT HIS TRADING AND ACCOUNTING SYSTEM WAS A PENCIL WITH THE ERASER?

LANGONE: HE MADE EVERYTHING UP.

KUDLOW: DO YOU THINK HE WAS EVER LEGITIMATE? DO YOU THINK THERE WAS EVER A LEGITIMATE FUND OPERATION BY MADOFF?

LANGONE: THAT'S A HARD ONE TO ANSWER. I DO THINK, LARRY, THAT WHAT EXACERBATED HIS PROBLEM, IF HE HAD THAT BUSINESS UPSTAIRS WHERE HE WAS BUYING OVERFLOW, WHEN YOU WENT TO DECIMALS, WHEN YOU WERE DOWN TO PENNIES, THERE WAS NO OPPORTUNITY FOR THE SPREAD IN THE MIDDLE. IF YOU WERE TRADING IN 16THs OR 8THs, IF YOU GIVE A PENNY ON EACH SIDE, IN THE CASE OF AN EIGHTH, AND STILL HAVE 10 AND A HALF CENTS LEFT. OR IF YOU ARE TRADING IN 16THS FOUR AND A QUARTER CENTS LEFT. BUT IF YOU ARE TRADING PENNY TO PENNY WHERE IT'S 16, 32 BID AND 16, 33 OFFERED, THERE IS NO ROOM. IT CAN'T BE DONE.

KUDLOW: CAN'T BE DONE.

LANGONE: I WOULD THINK THAT THE RESTRUCTURING OF THE MARKET REGARDING HOW WE DID BUSINESS FROM FRACTIONS, I THINK THAT MIGHT HAVE HAD SOMETHING TO DO WITH IT. THAT'S ONLY A GUESS. I DON'T KNOW.

KUDLOW: WHEN YOU WERE IN THE MEETING WITH HIM, YOU SAID A COUPLE TIMES, YOU WOULDN'T WANT TO PLAY POKER WITH THIS GUY, THAT HE WAS A PRETTY COOL CUSTOMER. I MEAN, WHAT WAS YOUR FEELING AND INSTINCT? YOU DIDN'T LIKE THE SOUND HE WAS GOING TO OFFER YOU A NEW DEAL AND THEREBY PERHAPS SCREW HIS PRIOR INVESTORS? YOU ARE SITTING ACROSS FROM HIM LOOKING HIM STRAIGHT IN THE EYE.

LANGONE: I AM RIGHT NEXT TO HIM. MY PARTNER IS ACROSS THE TABLE -- WHAT DID I SEE? A VERY PLEASANT FACE. EXTREMELY PLEASANT FACE, HAIR WELL-PLACED.

I'M SENSITIVE TO HAIR NOT HAVING ANY.

KUDLOW: OKAY.

LANGONE: GRACIOUS. COURTEOUS. WANTED TO SHOW US HIS ART.

KUDLOW: NOT A PHONY?

LANGONE: NO, NO.

KUDLOW: NOT A GUY THAT WOULD COMMIT THE GREATEST FINANCIAL FRAUD IN HISTORY?

LANGONE: NO.THE THING THAT PUSHED MY BUTTON WAS THE FEELING, HOW HE SAID IT, THAT I WAS GOING TO GET A BETTER DEAL THAN THE PEOPLE THAT HAD BEEN WITH HIM FOR 40 YEARS.

KUDLOW: YOU HAD A SIXTH SENSE?

LANGONE: WELL, YOU DON'T DO BUSINESS THAT WAY.

KUDLOW: SO, AT THAT MOMENT AND WHEN YOU LEFT, YOU AND YOUR PARTNER, STEVE HOLZMAN DECIDED NOT TO INVEST, YOU HAD NOTHING TO DO TO AUTHORITIES WITH AT THAT POINT? YOU WEREN'T SUSPICIOUS OF A MASSIVE FRAUD?

LANGONE: NOT AT ALL.

KUDLOW: HE CONNED A LOT OF PEOPLE THIS WAY.

LANGONE: BUT HE HAD ALL THE TOOLS.HE WAS VERY PLEASANT.HE WAS VERY PRESENTABLE. HE WAS GRACIOUS. HE WAS COURTLY. HE WAS ALL THE THINGS THAT WOULD DISARM A PERSON IN TERMS OF HIS PERSONALITY, HIS PERSONA. I THINK HE DID A PRETTY GOOD JOB WITH IT.

KUDLOW: AND HE WAS ALONE, JUST HIM?

LANGONE: NOBODY ELSE WAS THERE.

KUDLOW: INTERESTING. YOU THINK -- LAST QUESTION. DO YOU THINK HE COULD HAVE PULLED THIS OFF ALONE? THERE IS A LOT OF SPECULATION ABOUT HIS SONS. A LOT OF SPECULATION ABOUT HIS WIFE AND OTHER FAMILY MEMBERS. AGAIN, TODAY, IN THE WALL STREET JOURNAL, THIS GUY, PASQUALI, WHO DID ALL THE EXCUSES, COULD HE HAVE DONE THIS ALONE OR ARE WE GOING TO LEARN THAT HE HAS MAJOR ACCOMPLICES.

LANGONE: WELL I WILL ANSWER THAT QUESTION WITH THE UNDERSTANDING THAT I AM NOT SAYING SPECIFICALLY WHO I THOUGHT. IT WOULD SEEM FOR THE MASSIVENESS OF THIS, JUST THE SHEER SIZE OF IT, TO BE HARD FOR ONE GUY TO PULL IT OFF, THE MONTHLY STATEMENTS GOING OUT, THE STRUCTURE OF THE STATEMENTS. PSYCHOLOGICALLY, HE PUT HIS CLIENTS IN A POSITION THAT HE WAS DOING THEM A FAVOR BY ALLOWING THEM TO INVEST WITH HIM. IT WAS A MASTER FULL STROKE OF PSYCHOLOGICAL STRUCTURE. SO PEOPLE WERE SAYING, I'M NOT GOING TO ASK BERNIE ANY QUESTIONS BECAUSE BERNIE THROWS PEOPLE OUT. I DON'T WANT TO GET THROWN OUT.

KUDLOW: CLEVER MARKETING.

LANGONE: ONE STORY. A FELLOW CALLED HIM, I HEARD THIS LATER ON. A FELLOW CALLED HIM, SAID I HAVE GOT $4 MILLION, I'VE HEARD ABOUT YOU I'D LIKE TO INVEST. HE SAYS TO THE GUY, I CAN'T ACCOMMODATE YOU. HE CALLS BACK AND SAID, HOW ABOUT IF I GIVE YOU $2 MILLION? HE SAID, I CAN'T ACCOMMODATE YOU. COUPLE WEEKS LATER HE CALLS THE GUY BACK AND SAYS, SOMEBODY JUST DIED, THE ESTATE IS GOING TO TAKE THE MONEY OUT. IF YOU WANT IT, I HAVE ROOM FOR YOU. THAT'S AS GOOD AS IT GETS.





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