New documentary chronicles Harry Markopolos' decade-long fight to bring Bernie Madoff to justice
Financial analyst turned certified fraud investigator Harry Markopolos takes little solace that Bernie Madoff will spend the rest of his life in jail for perpetrating the biggest financial fraud in history. Too much money ($50 billion) was lost and too many lives were destroyed. How could Madoff get away with his Ponzi scheme for so long without anyone knowing? That's easy: Markopolos knew, and for a decade told anyone who would listen, that Madoff was a fraud. But, to quote the title of his 2010 book, no one would listen.
Markopolos is the subject of a new documentary now in theatres, Chasing Madoff. It is billed as "Unfortunately, a true story." The film chronicles Markopolos' maddeningly unsuccessful efforts to alert the Securities and Exchange Commission and the press, all of whom ignored him or passed on the story.
His predicament recalls a famous line from the film All the President's Men, in which a skeptical Washington Post editor dismisses his own reporters' stories about the growing Watergate scandal. "I don't believe the story. It doesn't make sense."
And so it was with Bernie Madoff that those who should have known better did not, could not or turned a blind eye and deaf ear. "My cases tend to be multibillion dollar cases," Markopolos told Millionaire Corner. "These days, you get to that size, it has to be unbelievable. Every system of checks and balances has to fail."
In the case of Madoff, he said, he knew within five minutes he was a fraud. The year was 1999. Madoff, who, Markopolos said, enjoyed "an impeccable reputation" as the former chairman of NASDAQ, was generating phenomenal returns on a hedge fund he was running. Frank Casey, Markopolos’ boss at Rampart Investments, asked him to reverse engineer his returns to develop a comparable financial product.
"There were a lot of red flags," Markopolos said. Madoff was up 96.4 percent, which would be akin to a baseball player batting .964. The lines on the Madoff charts went up and up. "I knew that was impossible," Markopolos said. "Plus, Bernie would have needed to buy a certain type of option to protect his portfolio every month. There were only a billion dollars of those options in existence and when we first audited him he was at $7 billion. He was seven times larger than the amount of options in existence that he needed every month. That’s what's called a math proof."
Markopolos methodically and painstakingly amassed his evidence and brought the case "on a silver platter" first to the Boston office of the SEC and then to the New York office. He followed up at least five times over the course of a decade with his increasing suspicions about and evidence against Madoff. He was ignored.
"Keep in mind it was my first major case," he said. "This was not a good case with which to start a fraud investigation career. Now I'm well trained and I'm a certified examiner. I have extensive law enforcement contacts. Given my expertise and connections, today I would be believed."
Madoff said that some in the Boston SEC branch were receptive, but politics blocked any progress in the case. "There is a Yankees-Red Sox rivalry between the New York and Boston offices," Markopolos said. "New York was very suspicious of me and the case because Boston recommended it to them."
Markopolos next went to the press, but, incredibly to him, they were as unreceptive. The book and documentary, he said, “probably wouldn’t have been necessary if the press had understood the case.”
There were some takers. In 2001, investigative journalist Michael Okrent wrote “Madoff tops charts; skeptics ask how” in MAR/Hedge. There was another article published in Barrons. But, according to Markopolos, The Washington Post, The Wall Street Journal, The New York Times, and others did not follow-up. “There was no new news peg,” he said. “The seminal articles exposing the scandal had been printed, so what was new? No one picked up on it.”
Why? “It was too big,” Markopolis reasons. “Even now, it’s still unbelievable. We were saying that big banks were all in bed with Bernie Madoff. Who is the government going to believe? Keep in mind that this was before the 2008 financial collapse. The SEC is thinking that these are respected banks and wouldn’t be involved in something like this. There’s a saying: It’s not the size of the dog, it’s the size of the fight in the dog. The SEC didn’t have any fight in them. Now they do, but back then their attitude was to let capitalism rule. They thought the banks wouldn’t do anything stupid or dangerous because it’s against their best interests. Now, after 2008, everyone knows capitalism does need regulation. Greed will destroy capitalism any chance it gets.”
Why didn’t he just give up? “We knew this was the biggest fraud scheme ever and would negatively affect the reputation of the United States and do great harm to our financial markets,” he said. “When the stakes are that high, you’ve got to keep going. And too dumb to quit also comes to mind.” (laughs)
The documentary vividly captures Markopolos’ increasingly frenzied mindset during this period. In dramatic re-enactments, he checks under his car for bombs. He speaks about keeping a loaded gun handy should anyone break into his home looking for the files on his computer. “I was working a law enforcement case without the protection of a badge,” he said. “White collar fraud cases are not supposed to be dangerous. We’re dealing with an educated class of criminal. But they can become dangerous if they hire someone to come find you. You’ve got to take precautions. The FBI agent in charge told me I was very lucky (to be alive).”
In December 2008, Madoff turned himself in and pleaded guilty. There was no trial. It was an anticlimactic conclusion to a case that had consumed him all these years. “No one likes to lose a case of that magnitude,” Markopolis said. “We would have been happy if we had been able to stop him in May 2000 and (kept losses to under $10 billion). There was no need for him to get as large as he did, so we have a lot of regrets.”
But three is no regret about his impassioned testimony before the US Senate Banking Committee in 2009, which led to the resignation of several SEC officials. “I wanted to take that agency to its lowest point in its 75 year history so that it could rebuild and that did happen. Unfortunately countless lives were destroyed.”
He has nothing but praise for current SEC Chairman Mary Shapiro. “I think she’s turned that place around,” he said.
And now Markopolos' story is on the big screen. Following the publication of his book and an appearance on “60 Minutes,” Markopolos said he was deluged with 38 offers, mostly from documentary filmmakers. While he now sounds savvy enough to talk about Chasing Madoff’s “comparables” (Inside Job, A Civil Action, Erin Brokovich, The Whistleblower), he said he did his homework and opted to go the independent film route. “I bought a book about Hollywood accounting shenanigans,” he said. “My entire team read it, including my lawyer. When we read that book, we realized we couldn’t go with a studio. Hollywood may be the one industry that’s more corrupt than Wall Street.”
Will there be a sequel? "It's rare you make a documentary about a case that's not over," he said. "This is far from over. It has a few more years to run. Only nine have been arrested, but hundreds more are involved."