August 23, 2011
Unmasking Bernie Madoff
“They roar like a mouse and bite like a flea.”
That’s how whistleblower Harry Markopolos characterized members of the Securities and Exchange Commission (SEC) for their failure to heed his warnings about the worldwide financial fraud perpetrated by investment adviser Bernie Madoff.
Markopolos is the subject of the new documentary “Chasing Madoff,” based on his book, “No One Would Listen,” which chronicles his decade-long battle to get the press and, particularly, the SEC to investigate and intercept Madoff’s activities. In a recent interview, Markopolos said he initially came across those activities while working at Rampart Investment Management Co. in Boston, first as a portfolio manager, then as chief investment officer, and it took him all of five minutes to realize that Madoff was running a gigantic scam.
In a nutshell, Markopolos explained, Madoff was robbing Peter to pay Paul. “He was taking money from new investors and redistributing it to old investors and keeping a small piece for himself. He was just redistributing the money and never investing any of it.”
Markopolos added, “He gave the lion’s share of the fees, well over 90 percent of them, in fact, to the feeder funds, to the big banks that were marketing the scheme and taking it international for him. So they were more than happy to look the other way.”
Against this formidable array of wealth and power stood Markopolos and the small team he assembled — his colleagues at Rampart, Frank Casey and Neil Cello; along with award-winning financial journalist Michael Ocrant, whom Markopolos described as “the only Jewish member of my team.”
“Chasing Madoff” unfolds like a thriller as the tiny group uncovers the facts and pursues justice.
Markopolos and his team gave material on Madoff to the SEC numerous times, but they were ignored. At one point in the film, a Congressional committee excoriates SEC members for their negligence. According to Markopolos, the agency was underfunded, and its personnel were totally incompetent.
“They were untrained in finance. It’s an agency that’s run overwhelmingly by lawyers. Lawyers never understand finance; the reason lawyers go to law school is that they can’t count. They’re bad at math. Putting them in charge of overseeing the capital markets is ludicrous.”
Ultimately, Madoff was brought down by the financial meltdown of 2008, during which numerous institutions were imploding. As Markopolos explained, nobody thought their investments were safe, so they went to Madoff first to withdraw their funds, because it appeared that he never lost money and that his firm was particularly solvent.
“There was a run on the bank, so to speak, and, as a result, he knew with a date certain that he was going to collapse, and he had weeks to destroy documents, develop cover stories and warn his closest henchmen that the end was near. So he turned himself in at a time and place, and under circumstances, of his own choosing. He had to do that because he had stolen from some of the most powerful, wealthiest people in the world. He’d also stolen from organized crime; he’d stolen from the Russians, the Colombians. The only place he was going to survive was in prison.”
Madoff is now serving a 150-year sentence. What is most painful about this whole affair for Markopolos is his failure to have Madoff stopped before he ruined so many people. Some of the film’s most poignant moments occur when individual victims tell their stories. Markopolos remembers a speaking engagement in Las Vegas, where a man approached him at the cocktail party with tears in his eyes.
“He had just buried his father. His father owned an accounting firm and got invested with Bernie Madoff in 1976, and he recommended Madoff to his family members, so they invested. He also recommended Madoff to his firm’s clients, and they became invested. They all got wiped out, and he couldn’t live with himself, so he died of heartbreak.”
If there is anything positive coming out of all this, it might be that the SEC is now a totally different agency. “The SEC has reformed itself.” Markopolos said. “They have a whistleblower program, one that I suggested in front of Congress. They pay the whistleblowers to come in while the schemes are still going on, so you can stop them and find out about a Lehman Brothers before they collapse, not afterward.”
However, he insisted that much more needs to be done, such as hiring additional financial talent at better salaries and paying them big bonuses like those paid on Wall Street, to level the playing field.
As for what Markopolos would like audiences to learn from this film: “I’d like investors to realize that, if it’s too good to be true, it never is. Another thing I’d like them to learn is that you have to diversify your investments. And, I’d say for individuals, if you don’t stand up and point out when something criminal is taking place, then bad things are going to happen.
“No one spoke up about the mortgage fraud either, and that brought the nation to its knees.”
The film opens Aug. 26.
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