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Chasing Madoff. Interview with Harry Markopolos, CFE, CFA

Fraud magazine May/June 2009 cover

From the May/June issue of Fraud Magazine, the magazine for the Association of Certified Fraud Examiners, comes this interview with Harry Markopolos, who spotted in 1999 that Madoff was running a Ponzi scheme.

What events led you to investigate Madoff’s business?

In late 1999, I was a portfolio manager for a multibillion-dollar equity derivatives asset management firm in Boston’s financial district. Frank Casey, a marketing senior vice president for the firm, returned from New York with marketing materials for a high-performing, derivatives-based hedge fund managed by Bernard Madoff. In early 2000, the firm’s partners asked me to reverse-engineer the strategy so that we could offer this successful product to our firm’s customers.

After I modeled the strategy, I determined that the returns could only be coming from illegal front-running of the Madoff broker/dealer arm’s client orders or from fictional returns that were the result of a Ponzi scheme. I went to the firm’s partners and jokingly asked if they really wanted to get into that business. They hastily replied, “No way, if that’s what he’s doing then we don’t want to compete in that space.”

He then describes the numerous tip-offs that Madoff was running a scam. He submitted his findings to the SEC in 2000, 2001, 2005, 2007, and 2008 to no avail. Inquiring minds want to know why the SEC was seemingly comatose about this for years on end when the evidence was convincing. How could such a thing happen?

SEC staffer stopped from asking Madoff the right questions

Her supervisors told her to stop her Madoff inquiry and work on mutual fund investigations instead. Her supervisor was Branch Chief Mark Donohue, who answered to Eric Swanson, director of the department, according to Post reports. Eric Swanson is the one who later married Madoff’s niece.

Gosh, I know what you’re thinking. But I’m sure this must have just been some kind of misunderstanding at the SEC. Because if corruption and influence peddling was happening at such a high level then the entire regulatory apparatus of the US would then be suspect wouldn’t it? But that only happens in Other Countries and couldn’t happen here, right?

Why do you think Madoff suddenly turned himself in on Dec. 11, 2008?

The dramatic fall in the worldwide financial markets of October and November 2008 led to panic, resulting in massive investor redemptions from hedge fund of funds. These fund of funds operators felt that Madoff was their best-performing, most-liquid hedge fund manager so they redeemed him first, which led to him not being able to meet all of those redemption requests.

Madoff had taken money from every corner of the globe and he had taken it from some very unsavory characters. That’s why he didn’t flee; he had nowhere to run and nowhere to hide; so he did the logical thing – he turned himself in.

Gosh, that seems to hint at money-laundering, doesn’t it? Well, more than a hint, really.

You’ve said that all the members of your team feared for their lives during your investigation. Did you have any specific threats that made you fear for yours?

The “off-shore” feeder funds were only one step removed from organized crime. If organized crime knew that Madoff was stealing their money, he would have been killed. Therefore, if Madoff had ever found out that he had a team tracking him through Europe and North America and that he risked getting exposed, it was a good bet that he would have had several billion reasons to want us silenced. To compartmentalize the damage, I was the only one who went to the SEC. The SEC never knew I had a team in the field helping me.

Sue, who is also a CFE, says maybe organized crime was in it from the beginning, as early investors in a Ponzi scheme always get the highest return.

  • http://www.iviewit.tv Eliot Bernstein

    MADOFF + STANFORD + DREIER + SATYAM + FISERV + ALBERT HU + The 1031 Tax Group LLC – Edward H. Okun = PROSKAUER ROSE & FOLEY & LARDNER
    Foley & Lardner partner Patricia J. (Trish) Lane represented FISERV, sue Foley, read on.
    Investors who have been burned in these scams should start to seek redress from the lawyers who were involved with these scams. I personally have been trying to notify regulators and authorities of a ONE TRILLION DOLLAR scam that is putting states like New York and Florida at huge risk, as well as, companies like Intel, Lockheed, SGI and IBM. The states and companies involved in the fraud fail to acknowledge the risk exposing shareholders and citizens to impending liabilities. Investigators, courts and federal agents ignoring the crimes and evidence, including a car-bombing attempt on my life. I know how Harry Markopolos felt trying to expose Madoff in a world without regulation.
    Did I hear Proskauer Rose is involved in Madoff (involved many clients too) and acted as Allen Stanford’s attorney. Investors who lost money in these scams should start looking at the law firm Proskauer’s assets for recovery. First, Proskauer partner Gregg Mashberg claims Madoff is a financial 9/11 for their clients, if they directed you to Madoff sue them. Then, Proskauer partner Thomas Sjoblom former enforcement dude for SEC and Allen Stanford attorney, declares PARTY IS OVER to Stanford employees and advises them to PRAY, this two days before SEC hearings. Then at hearings, he lies with Holt to SEC saying she only prepared with him but fails to mention Miami meeting at airport hanger. Then Sjoblom resigns after SEC begins investigation and sends note to SEC disaffirming all statements made by him and Proskauer, his butt on fire. If you were burned in Stanford sue Proskauer.
    Proskauer Rose and Foley & Lardner are also in a TRILLION dollar FEDERAL LAWSUIT legally related to a WHISTLEBLOWER CASE also in FEDERAL COURT. Marc S. Dreier, brought in through Raymond A. Joao of Meltzer Lippe after putting 90+ patents of mine in his own name, is also a defendant in the Federal Case.
    The Trillion Dollar suit according to Judge Shira Scheindlin is one of PATENT THEFT, MURDER & A CAR BOMBING. For graphics on the car bombing visit http://www.iviewit.tv.
    The Federal Court cases
    United States Court of Appeals for the Second Circuit Docket 08-4873-cv – Bernstein, et al. v Appellate Division First Department Disciplinary Committee, et al. – TRILLION DOLLAR LAWSUIT
    Cases @ US District Court – Southern District NY
    (07cv09599) Anderson v The State of New York, et al. – WHISTLEBLOWER LAWSUIT
    (07cv11196) Bernstein, et al. v Appellate Division First Department Disciplinary Committee, et al.
    (07cv11612) Esposito v The State of New York, et al.,
    (08cv00526) Capogrosso v New York State Commission on Judicial Conduct, et al.,
    (08cv02391) McKeown v The State of New York, et al.,
    (08cv02852) Galison v The State of New York, et al.,
    (08cv03305) Carvel v The State of New York, et al., and,
    (08cv4053) Gizella Weisshaus v The State of New York, et al.
    (08cv4438) Suzanne McCormick v The State of New York, et al.
    ( ) John L. Petrec-Tolino v. The State of New York

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