Harry Markopolos joins the Financial Sense Newshour to describe the gripping details surrounding his involvement toward uncovering the largest Ponzi scheme in financial history, how and why the SEC turned a blind eye to his efforts, along with his thoughts on the current state of affairs in finance and big banking.
Here we present a portion of this special interview airing for subscribers next week:
Jim: One of the biggest Ponzi schemes in financial history was exposed right in the middle of a financial crisis in 2008. Bernie Madoff: Head of one of the most prestigious firms on Wall Street, twice president of the NASD, and a fund manager to royalty and a who’s who not only in this country but around the globe. It took a financial crisis to expose Madoff’s Ponzi scheme. But before the Ponzi scheme and before the exposure, there was one individual that knew it was a fraud right from the beginning. In fact, he investigated it and laid a case to the SEC, laid a case to the media, laid a case to the financial industry—the whole time it was ignored. Joining me on the program today was the whistleblower in the Bernie Madoff case, Harry Markopolos, who’s also author of a book, “No One Would Listen: A True Financial Thriller.” Harry joins me now.
Harry: Hello Jim, how are you?
Jim: Harry, you know, one of the things that struck me in reading your book, in 1991 you and your chief investment officer Frank Casey and a couple others at your firm were looking at the Madoff returns and the one thing that stood out when you looked at a [Madoff] marketing brochure was the steady rate of returns on options; and I know options, you’re either making a fortune or losing a fortune, but it’s not possible to see this steady growth. Is that what really stood out when you looked at the brochure and said, “There’s something wrong here.”
Harry: Yes. Harry’s returns were going up at a 45 degree angle in a straight line and we don’t have straight lines in finance; and in options everything is a curve—there is nothing straight in an option. So, I knew it had to be fraudulent right off the bat in the first five minutes.
Jim: One of the largest feeder funds was the Ascot fund, and it was like a who’s who—they had wealthy, they had royalty, they even had some other Wall Street firms. Did nobody ever question that?
Harry: No. Here was a case where the emperor was wearing no clothes and everyone’s afraid to admit that. Everyone’s looking to the left and the right and they’re seeing smart, supposedly sophisticated investors and they’re thinking, “Wow. Those people to my left and right are certainly smarter than I am. Those are big firms. Those are important people. Certainly they must’ve checked. So why should I check? I’m just a nobody. I don’t have to do any due diligence. It must be safe because all these other smart folks are in there too."
Jim: What really struck me was towards the end when you found out that Madoff had turned himself in—it’s front news headlines, all over the financial channels, the major news stories—your first thought was being worried about the government. Explain that, because you told your wife, “Here’s a gun and if the door opens and I’m not in front walking through that door, you protect yourself.” And you’re trying to get your information faxed to a reporter at the Wall Street Journal, Greg Zuckerman. Lead us through what your thinking was at that time.
Harry: I knew that Madoff was going to prison and that he had a lot of risk on the table 'cause he had a lot of people that were going to want to kill him now, since the truth came out. He had taken the Colombia drug cartels money. He had been stealing billions from the Russian mob, and he had stolen from some of the most powerful people on the planet across the globe. So, he turns himself in because there’s no place to run or hide for him. The last thing he’s worried about is fleeing to another country. No one needs the safety of a prison more than he does. He needs the gates, the guards, the guns to survive. Me, though, I’m exposed because I have all these documents that are going to incriminate the Securities and Exchange Commission to no end. People are going to lose their reputation and their jobs. So, they are the power of the government. I don’t know if they want to have a search warrant executed on my house to seize my computers and make them conveniently disappear…
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