Saturday, September 3, 2011

Harry Markopolos - From Chasing Madoff To Fixing Our Economy

By Nicole Powers

“You can't have a AAA credit rating with a junk rated Congress.”
- Harry Markopolos

Harry Markopolos has a way with numbers. It's this innate ability that led him to uncover Bernie Madoff's epic Ponzi scheme almost a decade before market forces ultimately leveraged a confession out of the spectacularly crooked investment fund manager.

In 1999, while working as a portfolio manager at Rampart, a Boston based investment management company, Markopolos had been asked to reverse engineer a fund offered by Bernard L. Madoff Investment Securities LLC so his firm could compete by offering a similar product. After studying Madoff's marketing material for a mere 5 minutes, Markopolos realized that the results the fund claimed to achieve were highly improbable, a further 4 hours of mathematical modeling proved the stated returns were categorically impossible by legal means.

Smelling a rat, Markopolos assembled an informal investigative team to probe Madoff's operation further. In May 2000, when Madoff's scheme was only a $3 to $7 billion fraud, they submitted their first whistleblowing report to the Securities and Exchange Commission (SEC). It was summarily ignored. Frustrated but undeterred, Markopolos' tenacious group, dubbed The Foxhounds, submitted numerous subsequent memos (in 2001, 2005, 2007 and 2008) offering even more evidence, to no avail. A 2005 missive had what one might consider to be an attention-grabbing title -"The World's Largest Hedge Fund Is A Fraud" - but even this failed to get an appropriate response from those charged with policing Wall Street.

It was only following the crash of 2008, when Madoff's investors were clamoring to liquidate their assets and he was unable to meet their demands, that the man responsible for the largest act of financial fraud in world history was forced to fess up. By then, Madoff's "fund" had grown on paper to a value of $65 billion. In the following days, the complete and utter failure of the SEC came to light, as press outlets - who had also been alerted by Markopolos, but by and large had declined to report his findings before Madoff's arrest - competed to interview the "Madoff whistleblower." With egg on their faces, the government also sought out Markopolos' knowledge and expertise, and on February 4, 2009 he delivered some riveting televised testimony in front of the House of Representatives' Financial Services Subcommittee.

In March 2010, Markopolos published a book chronicling his investigations into Madoff and the utter incompetence he bore witness to during his dealings with the SEC. Called No One Would Listen: A True Financial Thriller, it became a New York Times bestseller. A new film, Chasing Madoff, based on the book is currently in cinemas.

I caught up with Markopolos, who now works as a freelance investigative accountant exposing Fortune 500 wrongdoing, to talk about Madoff and the current state of play in our financial markets. We also asked him to focus his considerable financial acumen our nation's balance sheet and assess the future prospects of our economy. Given Markopolos' track record, his conclusions about America's should-be junk status are indeed cause for concern, if not outright alarm.

Read my exclusive interview with Harry Markopolos on