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He Chased Madoff When No One Would Listen

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.

Q. Did you ever think you’d be caught up in something like this?

A. You don’t think you’ll be entering the twilight zone. You don’t think this is going to happen to you. You couldn’t make this up if you were a fiction writer, yet it was real. My team—Frank Casey, coworker who marketed hedge fund products; Neil Chelo, coworker and derivatives portfolio manager; and Michael Ocrant, managing editor of Managed Accounts Reports Hedge, an industry publication—and I were in the field tracking Madoff across two continents [gathering evidence]. It didn’t seem dangerous until I was in it for two years, then it got extremely dangerous.

Q. You wrote that you feared Madoff or his mobster clients would come after you for being a whistleblower, and that you were prepared to kill Madoff in self-defense if need be.

A. It was apparent that some of the investors were tax cheats in their home nations, [some] were in organized crime. He was stealing from the Russian mob and from drug cartels. If those people found out he was stealing from them, they would kill him. We were lucky we weren’t killed by Madoff, who had a lot to protect. We took too many risks along the way but you couldn’t undo what you’d already done. It was safer to go forward.

It kept me sleeping well-armed at night. I was checking for bombs underneath my vehicle every time before I got in it. The local police department told me to take precautions. I was fitted for a bullet-proof vest but didn’t take it.

Q. What other kinds of cases are you working on now as a fraud investigator?

A. I’ll do Medicare fraud cases for free. I have a problem with people who harm patients or kill them. It’s worse than financial fraud. If you steal in health care, you’re stealing people’s lives. I have ongoing cases with the CMS [Centers for Medicare & Medicaid Services].

You see all kinds of things—upcoding, where a doctor is billing for complex pneumonia instead of regular pneumonia; [falsifications in which] physicians are walking the hospital corridors waving to patients in their rooms but submitting bills for examinations and treatment; doctors billing Medicare for goods and services they got for free. It’s outright fraud and we can’t afford that.

Q. Back to Madoff, how has your life changed since he was arrested and convicted?

A. It’s different. I’m recognized and the last thing a fraud investigator wants is to be recognized. It’s caused complexities for my business but now when I take a case to the government, they actually take it seriously.

And I got to write a great book that reads like it came out of a spy thriller. The book is a page-turner but you know you’re reading about a train wreck. It’s flying off the shelves and that shocked me because it’s a tragic tale. But it’s uplifting because four guys went forward and took great risk to acquire this evidence. But you know how it’s going to end.

Q. I understand that major motion picture studios have contacted you about basing a screenplay on your book. Who would you want to play you?

A. Nick Cage. He’s a nerd with a hard edge.

Carole Fleck is a senior editor at the AARP Bulletin.