While working for Rampart Investment Management in 1999, Markopolos was told about a money manager whose consistent profits seemed too good to be true. When Markopolos looked at Madoff’s financial records, he saw that the returns rose steadily at a 45-degree angle, with none of the wide swings usually associated with big-time investors.
“It was like a baseball player batting .966 for an entire season,” Markopolos said in an interview to promote the documentary “Chasing Madoff,” which chronicles his nine-year quest to expose Madoff’s Ponzi scheme.
Markopolos alerted the Securities and Exchange Commission several times, but the agency failed to investigate. The swindle continued until Madoff confessed to his family and was arrested in December 2008. Madoff, now 73, pleaded guilty and was sentenced to 150 years in prison.
With his thinning brown hair and lanky build, the 54-year- old Markopolos looks more like a middle-aged accountant than a feared gumshoe. Markopolos, now an independent fraud investigator in Boston, wore a blue suit, a mustard-colored shirt and a brightly patterned tie as we spoke in New York last week.
Warner: Madoff is going to die in jail. Do you feel vindicated?
Markopolos: No, I feel regret that he wasn’t stopped earlier. We tried, but nobody would listen.
Warner: Madoff has apologized to his victims. Do you think he’s sincere?
Markopolos: I don’t trust any apology from a sociopath. It doesn’t make me feel any better about what happened, and it certainly doesn’t help the victims. He’s a man who caused so much misery and heartbreak.
Warner: Why were you ignored for so long?
Markopolos: Because the case was too big. Nobody would believe that the world’s biggest hedge fund was a fraud.
Warner: What about the SEC? Isn’t it their job to catch financial crooks?
Markopolos: The SEC had been captured by the industry it was supposed to regulate. Instead of protecting investors from Wall Street predators, it was protecting Wall Street predators from defrauded investors. The SEC wasn’t corrupt. It was systematically incompetent, which is far worse.
Feared for Life
Warner: For a while, you feared for your life and carried a gun. What made you so scared?
Markopolos: I discovered that Russian and Colombian gangsters were placing large sums into feeder funds, which were then giving the money to Bernie. If the Ponzi scheme unraveled, they were going to lose a lot of money. And people like that have a unique way of handling manager terminations.
Warner: Do you think Madoff’s family knew about the scam?
Markopolos: Of course they did. The sons were marketing for Bernie, and his wife helped with the accounting. Bernie’s younger brother, Peter, was chief compliance officer and Peter’s daughter, Shana, was the No. 2 compliance person. It’s ludicrous to think that the family wasn’t involved.
Warner: What about the clients? Did some of them know what Madoff was doing?
Markopolos: They had to suspect that Bernie was a crook. But as long as he was stealing on their behalf, they weren’t going to ask too many questions.
Warner: Irving Picard, the trustee in charge of liquidating Madoff’s company, has recovered about half of the $17.3 billion in principal that investors lost. Do you think he’s doing a good job?
Markopolos: Picard has exceeded all expectations. You can trade on Picard’s claims, and the last time I checked they were trading 70 cents on the dollar. That implies that Picard will recover between 85 cents and a dollar on every dollar lost.
Warner: Last year, Congress approved sweeping regulatory reform of the financial industry. Do you think that will prevent another Madoff?
Markopolos: Only nine people have been arrested in the U.S. in the Madoff case. What kind of message does that send? I think the lesson is, crime pays. Same thing with the big banks that generated tons of falsified mortgage loans. What happened to them? They all got bailed out.
(Rick Warner is the movie critic for Muse, the arts and leisure section of Bloomberg News. Opinions expressed are his own.)
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