One investor rumbled the fraud of the century

Downfall: whistleblower Harry Markopolos spent 10 years trying to 
bring fraudster Bernie Madoff to book

Downfall: whistleblower Harry Markopolos spent 10 years trying to bring fraudster Bernie Madoff to book

It had been a long day for Harry Markopolos, the man who outed Wall Street titan Bernard Madoff as a crook. The whistleblower whose warnings were ignored for a decade was tired of talking.

We met in Puck Fair, a pub in downtown Manhattan. “I’m from Boston,” said Markopolos, settling into a booth. “We can’t operate unless our blood alcohol is over a certain level.”

He is a maths nerd and former army reservist, and I was expecting him to order some sort of craft beer. He ordered an Alabama Slammer — whiskey, amaretto, sloe gin and orange juice. It came with a cherry on top. Markopolos is full of surprises.

His new book, No One Would Listen, opens with Madoff in jail and facing questions from David Kotz, an investigator for the Securities and Exchange Commission (SEC), Wall Street’s watchdog. Markopolos was the first man to alert the SEC to Madoff’s $65 billion (£43 billion) Ponzi scheme, but it repeatedly ignored him.

Madoff, dressed in an orange prison jumpsuit, bristled when Kotz asked him about Markopolos. He was “just jealous”, said Madoff. “This guy is getting all this press, all this attention. He thinks that he’s some kind of seer. But believe me, it’s all overblown. You know what? He’s really a joke in the industry.” The joke is on Madoff now.

A business bestseller, No One Would Listen reads like a thriller, full of purple prose. It is how Markopolos talks: “They didn’t challenge the golden goose, even though he turned out to be a hyena,” he told me.

But the chief draw is the author’s dogged pursuit of a crook he has never met. Markopolos spent 10 years trying to bring down Madoff. He first saw the man’s numbers while working for Rampart, a Boston investment manager, and said he knew immediately that Madoff was up to no good.

Initially all anyone wanted him to do was copy Madoff’s success. When he couldn’t see how it was done he was intellectually frustrated, then angered by his colleagues’ demands.

The more he looked, the more he became convinced this was a criminal enterprise. And the harder he looked at who was benefiting, the more scared he became.

At one point Markopolos started carrying a gun, fearing Madoff or some of his shady investors might come after him and his family. It is at this point that the book, and Markopolos, becomes bizarre. “If he had threatened me, I would have gone to New York and killed him,” he said.

Markopolos can come across as paranoid, but as he points to the book’s map showing where Madoff’s money was going it’s easy to see why he felt nervous. With his American business at saturation point, Madoff had his eyes on Russia and Asia. Markopolos believes money from drugs and gangs washed through Madoff accounts. “Prison is the safest place for him,” he said. “He is in jail to protect him from his investors.”

Not that safe: it emerged on Friday that Madoff had been beaten up at the North Carolina prison where he is serving a 150-year sentence.

Markopolos has no time for those who argue that Madoff’s honest investors should have realised that their returns were too good to be true.

“Those people didn’t know. They’re not financial people. Madoff preyed on them. He was evil. He would go to funerals, put his arm round the widow and promise to take care of her. He’s a pathological liar, incapable of telling the truth,” he said.

Markopolos saves his sharpest criticism for the people he said failed those victims — the regulators on both sides of the Atlantic. If the SEC had reacted to his initial complaints, Markopolos calculates victims could have saved $50 billion of the $65 billion fraud. Staffed by young lawyers building their CVs, the SEC knows nothing about the industry it regulates, he said. The system is like “chickens chasing foxes”.

“These guys are really bad,” he said. The signs were clearly there, he added, and not all of them took a maths whizz to spot. Purportedly, the accounts came from different banks: “The first four or five letters on some of his fake accounts were all the same. What’s the chances of that happening?” he said.

Madoff boasted of his SEC connections but Markopolos said the regulators were “too dumb to be crooked; the FBI told me that”. British regulators were even worse, he said. Madoff claimed to do much of his business through London, operating 52 funds in the UK.

Markopolos said that the Financial Services Authority (FSA), Britain’s top financial watchdog, was a “total joke. They make the SEC look competent,” he said. “I knew better than to even bother contacting the FSA with my concerns. Regulation in the UK is so poor, London is considered offshore.”

As in America, the UK financial services industry managed to curb any regulation it didn’t like and the result has been disaster, he said.

“Who owns the British banks now? You do. Has there been any accountability? No,” said Markopolos. “Both here and in the UK political parties represent corporate interests, not the people’s interests.”

The SEC is improving, he said, but still no regulators or other government officials have been fired and there has been no serious attempt to address the flaws in the system. Investors, for the most part, are still unprotected and the people who allowed what he calls “the Ponzification of America” are still in charge.

“A reasonable person would assume that these people have brains: that assumption doesn’t hold water. You have to wonder how some of these people get dressed in the morning,” he said. “They couldn’t connect the dots before September 11 and they couldn’t connect the dots before Madoff.”

His heavy criticism has led to speculation that Markopolos might want some regulatory or government post. Asked recently if he would like to head the SEC, Markopolos said: “If they wanted me to be chairman of the SEC, I would do it. I know where the skeletons are buried on Wall Street. I know how to dig them up and I know how to attract and recruit talented finance professionals and incentivise them.”

It doesn’t appear, though, that anyone is really asking him, and the idea has attracted heavy fire.

John Coffee, a Columbia University law professor and securities fraud expert, told The Wall Street Journal: “He is what the commission needs only if the commission needs an emotionally unstable idiot savant. You cannot be serious. He was right but that does not mean he will be right again.”

Markopolos said: “Washington has ruined better men than me.” And he has plenty to be getting on with. There’s the book to promote, talk of a film, he is a hit on the lecture circuit, he will be in London next month and he has a day job.

He and the team that cracked Madoff now head an independent financial fraud investigation firm. He is currently investigating frauds in America’s giant healthcare and pharmaceuticals industry. “Those guys make Madoff look small time,” he said.

No One Would Listen, by Harry Markopolos, published by Wiley at £18.99, is available post-free for £17.09 from Books First on 0845 271 2135


I WAS watching my five-year-old twin boys trying to master karate. I noticed there were several voice mails on my cell phone. The first was from a good friend, Dave Henry, chief investment officer of DKH Investments in Boston. “Harry,” his message said, “Madoff is in federal custody for running a Ponzi scheme. He’s under arrest in New York. Call me.” My heart started racing.

The second message was also from a close friend, Andre Mehta, a consultant to pension plans and endowments. I could hear the excitement in Andre’s voice: “You were right. The news is hitting. Madoff’s under arrest. It looks like he was running a huge Ponzi scheme. It’s all over Bloomberg. Call me and I’ll read it to you. Congratulations.”

I was staggered. For several years I had been living under a death sentence, terrified that my pursuit of Madoff would put my family and me in jeopardy. Billions of dollars were at stake, and apparently some of that money belonged to the Russian mafia and the drug cartels — people who would kill to protect their investments. And I knew all about a Boston whistleblower who had been beaten nearly to death with a brick for complaining about a million-dollar marketing scam. I wouldn’t start my car without first checking under the chassis and in the wheel wells. At night, I walked away from shadows and I slept with a loaded gun nearby. Suddenly, instantly and unexpectedly, it was over. Finally, it was over. They’d gotten Madoff. I raised my fist high in the air and screamed to myself, “Yes”. My family was safe. Then I collapsed over a wooden railing. I had to grab hold of it to prevent myself from falling. I could barely breathe.

Bernie Madoff had confessed to his two sons that his investment firm was a fraud. There were no investments; there never had been. It looked like many thousands of people had lost billions of dollars. It was exactly as I had warned the government of the United States approximately $55 billion earlier. I grabbed my kids and raced home.