For eight years, Harry Markopolos tried to warn the Security and Exchange Commission about Bernard Madoff’s epic scheme to dupe thousands of investors out of billions of dollars. He prepared written documents for regulators as early as May 2000, revealing how Madoff’s investment returns couldn’t possibly be legitimate. And year after year, Markopolos says, the evidence he gathered grew more compelling.
But no one would listen.
Markopolos, an investment broker turned certified fraud examiner, says SEC officials never followed up on the case he was building against Madoff. He says regulators even ignored his “witness list” of people who could substantiate his claims of fraud against Madoff, a respected broker and former chairman of the Nasdaq Stock Market.
In December 2008, after swindling investors out of more than $65 billion, Madoff surrendered to authorities and confessed to orchestrating one of the world’s biggest fraud cases ever. He was convicted and sentenced to 150 years in prison.
Markopolos, who testified on Capitol Hill last year about his tireless efforts to alert the SEC, says Madoff’s scheme wouldn’t have devastated so many lives if the agency had made an effort to investigate his claims.
AARP Bulletin Today Senior Editor Carole Fleck talked with Markopolos about his journey to expose Madoff , which he wrote about in a book just released, No One Would Listen: A True Financial Thriller.
Q. You write that your boss at a Boston-based investment firm urged you to replicate Madoff’s investment strategy to produce similar returns, and that’s how you figured out he was swindling investors. How long did it take you to discover that?
A. When I saw the return stream, I knew it was a fraud in five minutes. [My boss and colleagues] thought it was real. They said it was sour grapes, I was jealous. But I wasn’t. I knew my math. His performance line went up at a 45-degree angle; that only exists in geometry class. It was clearly impossible. Having my boss question my math ability got underneath my skin.
Q. What was your first thought when you realized Madoff was involved in a Ponzi scheme? Did you know immediately that you’d report him?
A. I thought, this is so unbelievable, is it really true? I went to the CEO of a major financial modeling firm who worked across the street from us. He has the best financial mind. He checked my math and said this is definitely a fraud. That’s when I knew I had to turn him in to the SEC. I never told my bosses. I thought I might get fired if I kept pursuing this. But I knew I had to stop him from going forward.
Q. How many times had you gone to the SEC, and over how many years, to report your suspicions about Madoff?
A. Countless times over 8 1/2 years—meetings, written submissions, e-mails, phone calls. [What I provided] went from six red flags to 30 red flags, and any one of them was enough to stop Madoff.
The SEC lawyers were ill-trained and running the show. They never believed me, not from day one. They didn’t understand the math. They weren’t competent. This was the biggest fraud case in history and I solved the case for them. I gift-wrapped it and handed it to them on a silver platter and they still didn’t take it. They destroyed thousands of lives. They should’ve gotten Madoff in May 2000 when [the fraud] was under $10 billion.