Harry Markopolos

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Harry Markopolos
Born (1956-10-22) October 22, 1956 (age 56)
Erie, Pennsylvania
Residence Whitman, Massachusetts
Alma mater Loyola College in Maryland (B.A; 1981)
Boston College (M.Fin.; 1997)
Occupation Financial investigator
Known for Whistleblower in Bernie Madoff securities fraud scandal
Children 3

Harry M. Markopolos (born October 22, 1956) is a former securities industry executive, and an independent forensic accounting and financial fraud investigator.

Markopolos discovered evidence over nine years that Bernard Madoff's wealth management business was actually a massive Ponzi scheme. Beginning in 2000, Markopolos alerted the U.S. Securities and Exchange Commission (SEC) of this formally more than once, but the SEC did not take any action. Madoff was finally uncovered as a fraud in December 2008, when his sons contacted the Federal Bureau of Investigation. After admitting to operating the largest Ponzi scheme in history, Madoff was sentenced in 2009 to 150 years in prison.[1][2] In 2010, Markopolos's book on uncovering the Madoff fraud was published, titled No One Would Listen: A True Financial Thriller.[3]

Markopolos has been scathing in his criticism of the SEC for both failing to discover the Madoff fraud despite repeated tips, and for failing to investigate properly the larger companies it supervised. He described the private moments he had with victims of the Madoff fraud as: "Heartfelt, gut-wrenching things. People trying to commit suicide or losing loved ones who’ve died of heartbreak."[4]

Contents

Education and career [edit]

Markopolos graduated from Cathedral Preparatory School in Erie, Pennsylvania, in 1974.[5] He received an undergraduate degree in Business Administration from Loyola College in Maryland in 1981, and a Master of Science in Finance from Boston College in 1997.[6]

Markopolos began his career on Wall Street in 1987 as a broker with Makefield Securities, a small Erie-based company owned partly by his father. During 1988, he obtained a job with Darien Capital Management in Darien, Connecticut as an assistant portfolio manager.[citation needed] From 1991-2004, he worked at Boston-based options trading company Rampart Investment Management, ultimately becoming its chief investment officer.

He is a Chartered Financial Analyst (CFA), and a Certified Fraud Examiner (CFE).[7] Markopolos is a past president of Boston Security Analysts Society Inc.[8] On February 11, 2009, the Boston Security Analysts Society honored him with a silver whistle in recognition of his efforts to expose Madoff.[9]

He now works as a forensic accounting analyst for attorneys who sue companies under the False Claims Act and other laws, emphasizing tips that result in continuing investigations into medical billing, Internal Revenue Service, and U.S. Department of Defense frauds, in which a "whistleblower" would be compensated.[10][11][12]

Investigation of Madoff [edit]

Bernard Madoff

During 1999, Markopolos found that one of Rampart's frequent trading partners, Access International, was dealing with a hedge fund manager who consistently delivered net returns of 1–2 percent a month. Frank Casey, one of Rampart's principals, met with Access CEO Thierry de la Villehuchet, and found the manager was Bernie Madoff, who was operating a wealth management business in which his clients essentially gave him carte blanche to use the money however he wanted. Casey and Rampart's managing partner, Dave Fraley, asked Markopolos to try to design a product similar to Madoff's split-strike conversion in hopes of getting Access to diversify away from Madoff.[citation needed]

When Markopolos obtained a copy of Madoff's revenue stream, he suspected problems almost immediately. To his mind, Madoff's strategy seemed so bad that it couldn't possibly make money. Additionally, his return stream increased with only a few downticks—- a nearly perfect graphic 45-degree angle. Markopolos knew that markets were too volatile even in the best of conditions for this to be possible. He believed there were only two ways to explain the figures—- either Madoff was running a Ponzi scheme (by paying established clients with newer clients' money) or front running (buying stock for his own account based on knowledge about his clients' orders). Either way, Markopolos believed there was no legal way for Madoff to deliver his purported returns. Markopolos later said that he knew within five minutes that Madoff's numbers didn't add up. It took him another four hours to prove that they could have only been obtained by fraud.[13][14]

Despite this, Markopolos' bosses at Rampart asked Markopolos to deconstruct Madoff's strategy to see if he could replicate it. Again and again, he could not simulate Madoff's returns, using information he had gathered about Madoff's trades in stocks and options. For instance, he discovered that for Madoff's strategy to work, he would have had to buy more options on the Chicago Board Options Exchange than actually existed.[13] He also couldn't find any evidence the market was responding to any Madoff trades, even though by his estimate Madoff was managing as much as $6 billion—- much more money than any known hedge fund even then. In Markopolos' mind, this suggested that Madoff wasn't even trading.[citation needed]

With the help of several colleagues at Rampart, Markopolos continued to probe into the Madoff operation. What they found concerned him enough that he filed a formal complaint with the Boston office of the SEC during the spring of 2000. However, the SEC took no action. Markopolos sent a more detailed submission to the SEC a year later. He even offered to go to Madoff's headquarters undercover, obtain the trading tickets and compare them with the Options Price Reporting Authority tape. This submission also passed without action.[citation needed]

Soon after his second submission, Markopolos traveled to Europe with Villehuchet to help get investors for an alternative product to Madoff that he'd developed for Rampart. On this visit, Markopolos found that 14 funds were invested with Madoff—- and each manager believed his fund was the only one from which Madoff was taking new money. Markopolos believed from the beginning that Madoff was managing a Ponzi scheme, given his voracious appetite for cash. However, he had been willing to accept the possibility that it was actually front-running (as some of his colleagues believed), because on paper it did not make any sense for Madoff to risk his reputation by essentially stealing billions of dollars that he really didn't need. His conversations with the European managers, though, revealed a classic "robbing Peter to pay Paul" scenario. Villehuchet committed suicide soon after Madoff's scheme was revealed, having lost $1.5 billion.[citation needed]

Even after leaving Rampart, Markopolos persevered, driven by the intellectual challenge of solving the problem, and the ongoing encouragement from a Boston SEC staffer, Ed Manion. He also did so at considerable risk to his own safety; he'd found during his European visit that a large number of funds invested with Madoff operated offshore—making it a near-certainty that the Russian Mafia and Latin-American drug cartels had money with him.[citation needed]

The culmination of Markopolos' analysis was a 21-page memo sent during November 2005 to SEC regulators, entitled "The World's Largest Hedge Fund is a Fraud." It outlined his suspicions in more detail and invited officials to check his theories. Markopolos outlined 30 red flags that proved Madoff's returns could not possibly be legitimate. His analysis was based on more than 14 years of Madoff return numbers. During that time, Madoff reported only four losing months—- an implausible scenario that Markopolos said could only be achieved by fraud.[10][15][16] In the document Markopolos states:

Bernie Madoff is running the world's largest unregistered hedge fund. He's organized this business as [a] "hedge fund of funds privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed.

On June 3, 2009 Markopolos told a conference at Boston College, his graduate-school alma mater, that he believes Madoff personally kept less than 1 percent of the $65 billion reported stolen, and will probably lose what remains of his portion to money launderers. Markopolos estimates that $35 billion to $55 billion of the money Madoff claimed to have stolen never really existed, but were simply fictional profits he reported. Markopolos believes that his customers lost $10 billion to $35 billion, most of which went to early investors. "Madoff will wind up in a special prison designed as much to keep the crook’s victims out as Madoff in. He’s a guy who can’t afford not to be in prison,” he said.[17]

Congressional testimony [edit]

On February 4, 2009, he testified before the United States Congress' House Financial Services Committee’s capital markets panel and on March 1, appeared on CBS's 60 Minutes.[13][18][19]

Markopolos criticized the SEC harshly for ignoring his warnings about Madoff. “Nothing was done. There was an abject failure by the regulatory agencies we entrust as our watchdog,” he explained in 65 pages of prepared testimony. He also said that his original 2000 complaint gave the SEC enough evidence to stop Madoff when he was supposedly managing as little as $3 billion.[14][18][20]

Describing Madoff as “one of the most powerful men on Wall Street,” Markopolos stated that there was “great danger” in investigating him: "My team and I surmised that if Mr. Madoff gained knowledge of our activities, he may feel threatened enough to seek to stifle us.”[18] He testified that he feared for his, as well as his family's safety, until after Madoff's arrest, when the SEC finally acknowledged that it had received "credible evidence" of Madoff's Ponzi scheme years before.[18] He explained that Madoff's "math never made sense," that his "return stream never resembled any known financial instrument or strategy," and that Madoff wasn't making the volumes of trades he claimed.[20]

According to Markopolos, the best warning about Madoff came during his initial analysis of 87 months (a little more than seven years) of Madoff trades. During that time, Madoff reported only three losing months. By comparison, the S&P 500 reported 28 losing months during this same period. He likened Madoff's purported returns to a baseball player batting .966 for the season "and no one suspecting a cheat."[20]

Markopolos had originally concealed his identity from SEC regulators during May 1999,[21] although he did meet face-to-face with SEC officials in Boston during 2000 and 2001.[14][22] After the SEC did not respond, Markopolos was fearful of taking his complaints to the industry's self-regulatory authority, the National Association of Securities Dealers (since succeeded by the Financial Industry Regulatory Authority (FINRA)). He not only feared the power Madoff's brother, Peter, had in that organization (he is a former Vice Chairman), but also feared that Madoff may have had associations with Russian and South American organized crime.[20][21] Markopolos believed the Federal Bureau of Investigation would reject his allegations without the SEC staff's endorsement.[21] He believed SEC analyst Ed Manion was one of only two who understood Madoff’s scheme and “the threat it posed to the public”. The only other SEC staffer who realized the scheme's implications was the SEC's Boston branch chief, Mike Garrity. Markopolos met with Garrity during 2005, and said that while Garrity realized almost immediately that Madoff was violating the law, he could not take any action because Madoff wasn't based in New England. Had Madoff been based in New England rather than the New York area, Markopolos said, Garrity "would have had an inspection team inside Madoff's operation the very next day."[20] “My experiences with other SEC officials proved to be a systemic disappointment and led me to conclude that the SEC securities lawyers, if only through their investigative ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed."[23]

He also added that during 2005 it was Meaghan Cheung, the branch chief of the SEC's New York office, to whom he gave his 21-page report alleging that Madoff was paying old investors with money from fresh recruits. “Ms. Cheung never expressed even the slightest interest in asking me questions,” Markopolos said. She was too concerned with Markopolos mentioning the possibility of a reward and the fact that he was a competitor of Madoff.[24] Cheung approved an internal memo during November 2007 to close an SEC investigation of Madoff without bringing any claim. Subsequently, she left the agency.[23] Markopolos also testified he gave details about the case during 2005 to John Wilke, a Wall Street Journal investigative reporter, but that it was never pursued.[25][26] Markopolos testified he (anonymously) sent a package of documents concerning Madoff to former New York Attorney General Eliot Spitzer, who had successfully prosecuted a number of securities fraud cases, but that Spitzer apparently did not act, either. Spitzer's family trust had invested in Madoff's business.[27]

"Government has coddled, accepted, and ignored white-collar crime for too long," he testified. "It is time the nation woke up and realized that it's not the armed robbers or drug dealers who cause the most economic harm, it's the white collar criminals living in the most expensive homes who have the most impressive resumes who harm us the most. They steal our pensions, bankrupt our companies, and destroy thousands of jobs, ruining countless lives." He testified to Rep. Gary Ackerman-D-NY that he has never been compensated for his efforts. "I did it for our flag, for patriotism."[28] Markopolos presented recommendations to improve the SEC's operations, which included mandatory department standards: good ethics, full transparency, full disclosure, and fair dealing for all. [29] The SEC must establish a unit to accept "whistleblower" tips, and move its activity closer to financial centers away from Washington, D.C.[12]

His testimony included a reference to another $1 billion Ponzi fraud, which he shared the next day with SEC Inspector General H. David Kotz, who gave the tips to SEC Chairman Mary Schapiro.[30][31] He also disclosed information regarding a dozen as-yet-unknown foreign Madoff feeder funds, “hiding in the weeds” in Europe, the victims of which likely included Russian mobsters and Latin American drug cartels, “dirty money” investors.[31] Markopolos remarked that European royal families had also lost assets.[23]

Because of concerns of improper conduct by Inspector General Kotz in the Madoff investigation, Inspector General David C. Williams of the U.S. Postal Service was brought in to conduct an independent, outside review of Kotz's alleged improper conduct.[32] The Williams Report questioned Kotz’s work on the Madoff investigation, because Kotz was a "very good friend" with Markopolos.[33][34] Although investigators were not able to determine when Kotz and Markopolos became friends, the Report concluded that it would have violated U.S. ethics rules if their relationship began before or during Kotz’s investigation of Madoff.[33][35]

In his interview with Steve Kroft of 60 Minutes, Markopolos said the biggest warning he'd noticed during his initial 1999 analysis of Madoff was that he reported losing months only four percent of the time. To Markopolos' mind, no one could possibly be that good given the volatility of the markets. "As we know, markets go up and down, and his only went up," he said. Markopolos noted that during his tenure at Rampart, he traded with some of the biggest derivatives companies in the world—- and they all believed Madoff's numbers weren't real. He admitted that he had some financial incentive to eliminate Madoff, as the two competed against each other from 2000 to 2004. However, he said, he felt compelled to pursue it because "when someone's competing on your playing field, who's a dirty player, you want him tossed off the field." He assailed the SEC once again for ignoring his warnings, saying that the only reason Madoff was caught was because he ultimately collapsed under the weight of his own lies.[13]

As a result of the Madoff scandal, the SEC's chairman Christopher Cox stated that an investigation will delve into "all staff contact and relationships with the Madoff family and firm, and their impact, if any, on decisions by staff regarding the firm."[36] A former SEC compliance officer, Eric Swanson, married Madoff's niece Shana Madoff, a Madoff company compliance attorney.[36]

Personal life [edit]

Markopolos is the oldest of three children of Georgia and Louis Markopolos. and is from a family of Greek-American[37] restaurateurs. His father and two uncles once owned 12 Arthur Treacher's Fish and Chips restaurants in Maryland and Delaware. His younger brother Louie once managed the trading office for a New Jersey brokerage company. His sister's name is Pam Markopolos.[38]

He and wife Faith, who also works in the financial industry for an investment company conducting due diligence of portfolio managers,[39] have three sons, two of whom are twins named Harry Louie and Louie Harry.[40]

Biography [edit]

Markopolos's account of the Madoff scandal, No One Would Listen: A True Financial Thriller, was published in 2010.[41]

References [edit]

  1. ^ Douglas, Craig M (December 16, 2008). "Madoff had early skeptic in Boston gumshoe". Boston Business Journal. Retrieved December 22, 2008. 
  2. ^ Wagner, Daniel; Pete Yost (December 21, 2008). "SEC has been slow to react to fraud claims". Associated Press. Retrieved December 22, 2008. 
  3. ^ "No One Would Listen: A True Financial Thriller" (hard-cover book). Hoboken, NJ: John Wiley & Sons. March 2010. Retrieved April 30, 2010.  ISBN 978-0-470-55373-2
  4. ^ Levin, Bess (April 13, 2010). "The Madoff Hunter". The New York Observer. Retrieved April 30, 2010. 
  5. ^ Erwin, Erica (December 20, 2008). "Erie man blew whistle on Madoff". Erie Times-News. Retrieved December 22, 2008. 
  6. ^ Lindsay, Jay. "Investor saw inside Madoff scam". Retrieved December 22, 2008. 
  7. ^ "Certified Fraud Examiner Markopolos is Madoff Whistleblower" (Press release). Association of Certified Fraud Examiners. December 18, 2008. Retrieved December 22, 2008. 
  8. ^ [1][dead link]
  9. ^ "Markopolos honored at Boston event". The Boston Globe. February 12, 2009. [dead link]
  10. ^ a b Kerber, Ross (January 8, 2009). "The whistleblower". The Boston Globe. 
  11. ^ [2][dead link]
  12. ^ a b Zuckerman, Gregory; Gauthier-Villars, David (February 3, 2009). "A Lonely Lament From a Whistle-Blower". Wall Street Journal. Retrieved February 3, 2009. 
  13. ^ a b c d "The Man Who Figured Out Madoff's Scheme". CBS News. February 27, 2009. 
  14. ^ a b c Markopolos, Harry (February 4, 2009). "Markopolos Written Testimony (February 4, 2009)". The Wall Street Journal. Retrieved February 4, 2009. 
  15. ^ Markopolos, Harry (November 7, 2005). "The World's Largest Hedge Fund is a Fraud" (PDF). The Wall Street Journal. Retrieved December 22, 2008. 
  16. ^ Fox, Justin (December 18, 2008). "Harry Markopolos really did have the goods on Bernie Madoff". Time. Retrieved December 22, 2008. 
  17. ^ "Business & Markets". Boston Herald. Retrieved February 9, 2013. 
  18. ^ a b c d "Madoff Whistleblower Assails SEC for Ignoring Him". The New York Times (New York Times Dealbook Blog). February 3, 2009. Retrieved February 3, 2009. 
  19. ^ "Man who warned about Bernard Madoff to testify". Boston Herald. February 3, 2009. Retrieved February 3, 2009. 
  20. ^ a b c d e Chew, Robert (February 4, 2009). "A Madoff Whistleblower Tells His Story". TIME. Retrieved February 4, 2009. 
  21. ^ a b c Henriques, Diana (February 3, 2009). "Madoff Witness Tells of Fear for Safety". New York Times. Retrieved February 3, 2009. 
  22. ^ Scannell, Kara (January 5, 2009). "Madoff Chasers Dug for Years, to No Avail". The Wall Street Journal (Wall Street Journal). Retrieved February 3, 2009. 
  23. ^ a b c "Madoff Tipster Markopolos Cites SEC’s ‘Ineptitude’ (Update3)". Bloomberg. February 4, 2009. Retrieved February 4, 2009.  by Jesse Westbrook, David Scheer and Mark Pittman.
  24. ^ Markopolos, H. (2010). No One Would Listen: A True Financial Thriller. Hoboken, NJ: John Wiley & Sons.
  25. ^ CSPAN. "As eager as Mr. Wilke was to investigate the Madoff story, it appears that the Wall Street Journal's editors never gave him approval to start investigating."
  26. ^ "Wall Street Journal missed Madoff fraud three years ago". Jewish Journal (Swindler's List blog). February 4, 2009. Retrieved February 4, 2009. 
  27. ^ "Madoff tipster Harry Markopolos assails SEC". Associated Press. February 4, 2009. Retrieved February 5, 2009. [dead link]
  28. ^ CSPAN http://www.c-spanarchives.org/library/includes/templates/library/flash_popup.php?pID=283836-1&clipStart=&clipStop= |url= missing title (help). 
  29. ^ dealing[dead link]
  30. ^ Younglai, Rachelle (February 5, 2009). "UPDATE 1-Madoff whistleblower gives fraud tips to SEC". Reuters. 
  31. ^ a b Henriques, Diana (February 4, 2009). "Madoff Witness Talks of Other Possible Ponzi Cases". New York Times. Retrieved February 4, 2009. 
  32. ^ Cite error: Invalid <ref> tag; no text was provided for refs named bloomberg1 (see the help page).
  33. ^ a b Schmidt, Robert (October 26, 2012). "Former SEC Watchdog Kotz Violated Ethics Rules, Review Finds". Bloomberg. Retrieved February 10, 2013.  More than one of |author= and |last= specified (help)
  34. ^ "David Kotz, Ex-SEC Inspector General, May Have Had Conflicts Of Interest". Huffington Post. October 5, 2012. Retrieved February 10, 2013. 
  35. ^ Sarah N. Lynch (November 15, 2012). "David Weber Lawsuit: Ex-SEC Investigator Accused Of Wanting To Carry A Gun At Work, Suing For $20 Million". Huffingtonpost.com. Retrieved February 10, 2013. 
  36. ^ a b Serchuk, David (December 20, 2008). "Love, Madoff And The SEC". Forbes. Retrieved December 24, 2008. 
  37. ^ "Archon News". Archons.org. Retrieved February 9, 2013. 
  38. ^ "No One Would Listen: A True Financial Thriller" (hard-cover book). Hoboken, NJ: John Wiley & Sons. March 2010. Retrieved April 30, 2010. ISBN 978-0-470-55373-2.
  39. ^ "No One Would Listen: A True Financial Thriller" (hard-cover book). Hoboken, NJ: John Wiley & Sons. March 2010. Retrieved April 30, 2010. ISBN 978-0-470-55373-2
  40. ^ Solomon, Deborah (February 28, 2010). "QUESTIONS FOR HARRY MARKOPOLOSMath is Hard". New York Times Magazine (New York Times Co.). Retrieved August 30, 2011. 
  41. ^ [3][dead link]

External links [edit]
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