June 14, 2009
The Man Who Figured Out Madoff's Scheme
Tells 60 Minutes Many Suspected Madoff Fraud; Says SEC Is Incapable Of Finding Fraud
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Play CBS Video Video In His Own Words At this 2007 meeting of a non-profit group called the Philoctetes Center, Bernie Madoff seemed to think the SEC was doing a good job!
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Video A .960 Batting Average? Harry Markopolos, a financial investigator, describes the warning signs that should have alerted others to suspect Bernie Madoff.
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Video The Man Who Knew Harry Markopolos repeatedly told the Securities and Exchange Commission that Bernie Madoff's investment fund was a fraud. He was ignored, and investors lost billions of dollars. Steve Kroft reports.
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Harry Markopolos (CBS)
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Photo Essay Madoff's Victims A look at some of Bernard Madoff's famous clients.
Later this month, Bernard L. Madoff will be sentenced for what is believed to be the largest financial fraud in history. He will most likely spend the rest of his life behind bars. Yet there is still much we don't know about the scam, which involved by some account a fraud of more than $50 billion. Investigators are still trying to figure out who all was involved and where the money went.
But the proof that it happened can be found in the ruined lives of thousands of victims. The one person who knows the most and is willing to talk about it is Harry Markopolos, the man who figured out Madoff's scheme before anyone else.
Markopolos sat down with 60 Minutes correspondent Steve Kroft earlier this year for his first television interview .
Until a few months ago, Harry Markopolos was an obscure financial analyst and mildly eccentric fraud investigator from Boston who most people would never notice on the street.
But today he enjoys an almost heroic status, pursued by journalists and movie producers, and honored by colleagues as the man who went to the Securities and Exchange Commission and blew the whistle on Bernie Madoff and his $50 billion fraud.
But he seems uncomfortable with the attention, and knows that he is no hero. "I stand before you a 50 billion dollar failure," he said at an event.
Asked how many times he sent materials to the SEC, Markopolos told Kroft, "May 2000. October 2001. October, November, and December of 2005. Then again June 2007. And finally April 2008. So five separate SEC submissions."
"And in spite of all of the things that you did, it still ended up in disaster?" Kroft asked.
"There's nothing to be proud about in this case. I feel horrible about the result. It's been a total disaster for the victims," Markopolos replied.
It began a decade ago, when Markopolos was working for a Boston investment firm. His boss told him that Madoff, a former chairman of the NASDAQ stock exchange, was running a huge unregistered hedge fund that was producing incredible returns. He wanted Markopolos to reverse-engineer its trading strategy and revenue streams so the firm could duplicate Madoff's results.
"He had the patina of being a respected citizen. One of the most successful businessmen in New York, and certainly, one of the most powerful men on Wall Street. You would never suspect him of fraud. Unless you knew the math," Markopolos told Kroft.
"I mean, you're like a math guy, right?" Kroft asked.
"I've taken all the calculus courses, from integral calculus through differential calculus, as well as linear algebra. And statistics, both normal and non-normal," Markopolos said.
Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud. "
It was the performance line that Markopolos said caught his attention. "As we know, markets go up and down, and his only went up. He had very few down months. Only four percent of the months were down months. And that would be equivalent to a baseball player in the major leagues batting .960 for a year. Clearly impossible. You would suspect cheating immediately."
"Maybe he was just good," Kroft remarked.
"No one's that good," Markopolos said.
Produced by Andy Court and Keith Sharman
© MMIX, CBS Interactive Inc. All Rights Reserved.
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See all 68 CommentsA tiny fraction of 1% of the world`s Jews lost money in Madoff`s scheme but you describe it as a "financial holocaust".
Clearly, English is not your first language.
Why don`t you go back where you came from?
Where in that total article can anyone infer there was a lack of regualtion? Well, duh..how many time did Markopolos go to the "regulators?"
Please, those of you with glass bellybuttons...go optic.
JUST HOW BERNIE MADOFF GOT AWAY WITH IT ALL, FOR SO LONG...
With all these holdings and monies, and the wife (Ruth Madoff) not having any viable evidence as to how she acquired such wealth, I don't see why Madoff's victims cannot get a substantial portion of their loses back.
Folks, all of this happened because of numerous: "De-Regulations" that took place under Ronald Reagan. And Bill Clinton was kept so busy with the Monica Lowinski business that he had no time to keep an eye on most of the gov'ts business during his last years in office. Then George Bush came along and further relaxed many of the laws enforced by the fed govt. He even contracted out a great deal of the work that was done by govt employees to private contractors, who botched up things more times than not, for the people they were being paid to service.
BUT MADOFF KNEW HE HAD NOTHING TO FEAR FROM THE SEC under the Bush Administration. And if anyone even thought to go the the SEC with their suspicions, they got nowhere. Because Madoff had officials at the SEC eating out of his hands. And that should be investigated as well, because our govt is supposed to work for us, (rich or poor), but work.
1) If anyone ever needed proof that capitalism needs to be regulated in a transparent way, this is a flaming example they should focus upon.
2) Self-regulation does not work and never has.
3) Government agencies that get their budget from fees paid by clients they are regulating become corrupt and enablers of the problems they are meant to solve.
4) Regulatory agencies must be run by personnel who have the training and background to understand what it is that they are regulating, and this does not mean a collection of lawyers interpreting documents to verify compliance.
5) Markopolos should be immediately appointed to oversee a complete overhaul of the SEC and restructuring of its oversight functions.
Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud. "
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Too bad this guy who blew the whistle in 2000 was trying to use EVIDENCE and actual numbers during a 10 year era when everything was belief-based.
He has the stones to suggest that he be allowed to keep his penthouse and millions of dollars put in his wife's name that had nothing to do with the Ponzi scheme? How dare he!!!
Everything he and his extended family owns should be taken, liquidated, and put toward whatever can be salvaged from his corrupt and greedy scheme, so something can be returned to those that were bilked. As for Madoff, an orange jumpsuit, and a suite in Rikers Island is all he deserves.
"Because people in glass houses don't throw stones. And self regulation on Wall Street doesn't work," Markopolos said. ]
so if this is true ... then you'll never be able to get anyone who really understands the business to 'police' the business ... since in order to know it you have to come from it.
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