A Lonely Lament From a Whistle-Blower [Markopolos; Madoff]

Harry Markopolos, the Boston-based investor-turned-investigator who for years warned regulators that Bernard Madoff was running a huge Ponzi scheme, has received pitches to appear on television shows, make movies and write books elaborating on his experience.

Later this month, he is scheduled to appear before Congress to present recommendations to improve the Securities and Exchange Commission.

But rather than enjoy a sense of vindication, Mr. Markopolos says he is miserable. He has trouble sleeping and is haunted by the apparent suicide of Thierry Magon de La Villehuchet, a French money manager found dead shortly after Mr. Madoff's Dec. 11 arrest on fraud allegations.

Although a colleague of Mr. de La Villehuchet's says he doesn't know of any warning, Mr. Markopolos says he told Mr. de La Villehuchet as well as investors at other firms that he thought Mr. Madoff was a fraud. He regrets that he couldn't persuade many of them.

Part of the reason he didn't press his warnings: Fear of retribution by Mr. Madoff, says Mr. Markopolos. A lawyer for Mr. Madoff declined to comment.

A former colleague of Mr. Markopolos, Frank Casey, says he casually told Mr. de La Villehuchet of hunches about Mr. Madoff. Mr. Casey, who in the early part of this decade worked with Mr. Markopolos at an investment-management firm in Boston, says at the time he thought Mr. Madoff was committing illegal acts, such as front-running trades, though he didn't make that accusation nor did he suspect Mr. Madoff was perpetrating the kind of Ponzi scheme to which authorities say he has confessed.

A lot more details on Madoff and his coterie in this series of articles (no subscription):

Madoff’s Tactics Date to 1960s When Father-in-Law Was Recruiter

Madoff’s ‘Dull’ Returns, Investigation Didn’t Alarm Notz Stucki

Madoff Enablers Winked at Suspected Front-Running

Madoff ‘Red Flags’ Could Have Been Raised by Software

Banks to Transfer $535 Million to Madoff Bankruptcy Trustee

Ex-Madoff Worker Fights $58,000 Bill for Boss’s Car

Meanwhile, Mary Schapiro (Obama's new SEC head) who had missed Bernie's scheme while she was working at and leading FINRA (Financial Industry Regulatory Authority) which has responsibility for supervision and regulation of financial institutions and funds, walked out of it, no questions asked, with millions of dollars worth of pension and bonuses :
SEC chief Mary Schapiro is worth as much as $25m

Dec 26, 2008
The Bernie Madoff I Knew
BY Laura Goldman (her first-person account)
http://pajamasmedia.com/blog/the-bernie-madoff-i-knew/

When I heard the news of Bernard Madoff’s arrest, I breathed a sigh of relief. “Thank God, I dodged that bullet” was my first thought. For sure, there was no gloating on my part. Anyone, who has been in the brokerage business for a long time, has been preyed on by con artists more than once.

As a broker, you try your best to avoid them, but there is always one that slips through where your guard is down. Madoff and my paths crossed in Palm Beach over 10 years ago. We were both scouring for clients there, albeit on different rungs of the social and economic ladder. My office was the lunch counter at Green’s Pharmacy while Bernard’s was the much grander Palm Beach Country Club.

Hearing whispers of his investment prowess, I approached “Uncle Bernie” one day and asked to meet him to discuss referring clients to him. Madoff’s clients bragged that he showed consistent returns of 10-18% each year and rarely had a down month.

At the meeting, Bernie, known as the Jewish T-bill, was very charming and low key. Bernard, the former chairman of the NASDAQ stock exchange, did not want to answer questions about his investment business and strategy.

He only grudgingly admitted that he employed a split conversion strategy that used both put and call options. I did not know what to make of his opacity.

I was discomfited by his saying how lucky that I was that he allowed me to invest with him.

The structure of Madoff’s investment also concerned me. Similar investments would have been established as a hedge fund with a separate custodian of the assets. The general partner of a hedge fund takes a management fee and a percent of the profits. Mr. Madoff insisted on keeping the assets in house at his own brokerage firm, but only charged commissions, which meant a lower payout for him.

Madoff, always the salesman, assuaged my doubts about the investment structure. “I make up for the lower fees with the additional volume of investments that my fee structure attracts.”

The consistency in returns, the small size of the auditing firm, and the structure of the investment were troubling, but they were not the deal breaker for me. Since my office had previously been in the same building as the Philadelphia Stock and Options Exchange, I knew many of the employees of the exchange and leading market makers.

When I called them, all of them said that they knew Bernie but did not trade with him. Even though he said that he traded his options over the counter, it still seemed strange to me that none of the giants in the tight-knit options world traded with him. After 45 minutes of detective work, I passed on the investment.

Even with the red flags raised on the investment, I struggled with turning down the investment opportunity. I was worried that my cautiousness was causing me to miss a great opportunity to earn lots of money. The product that Bernie Madoff had “created” would have been as easy to sell as ice water on a hot summer day.

After turning down the opportunity, I frequently encountered clients of Bernard Madoff. Most had the lion’s share of their assets invested with him.

My suggestions to diversify their assets fell on deaf ears. Sadly, many Jews believed in Bernie Madoff more than they believed in God and were just as unlikely to forsake him.

Even though the drumbeat of rumors about Bernie’s business eventually grew louder in the financial community, there was nothing that I could do about it. I could not take on someone with the stature of Bernie without proof in black and white.

I wasn’t the only one with doubts. In 2001, Barrons and MAR Hedge Fund Report wrote scathing reviews of Bernie’s investment business.

The title of the MAR article did not pull any punches — “Madoff tops the charts; Skeptics ask how.” Barron’s was also hard-hitting. “The recent MAR Hedge report, for example, cited more than a dozen hedge fund professionals, including current and former Madoff traders, who questioned why no one had been able to duplicate Madoff’s returns using this strategy.

Likewise, three option strategists at major investment banks told Barron’s they couldn’t understand how Madoff churns out such numbers. Adds a former Madoff investor: “Anybody who’s a seasoned hedge-fund investor knows the split-strike conversion is not the whole story. To take it at face value is a bit naïve.”

These articles gave me an excuse to contact Madoff’s clients again.

Instead of being thanked for sending them the articles, I was attacked. “How dare you say anything bad about Bernie.” Some dismissed the attacks on Bernie as anti-Semitism.

Several of those who received my mailing asked me questions. Still, even though I planted the seeds of suspicion, they did not grow. Most decided to continue investing with Bernie. They told me that they did not want to give up a good thing. They did not believe that the music would stop and they would be left without a chair.

Now that the music has stopped, many of Madoff’s clients are finally singing my name. Unfortunately, there is nothing that I can do for them now. I wish that I could say that this type of fraud would not happen again, but unfortunately I can’t. Now that Bernie has proved how easy is to do, one can be sure that con artists will be falling over themselves to imitate him. END

Follow up:

Markopolos Blasts SEC for 'Financial Illiteracy'

February 4, 2009 | By Michael R. Crittenden

WASHINGTON -- Fraud investigator Harry Markopolos blamed the Securities and Exchange Commission's "financial illiteracy" for failing to heed his warnings about money manager Bernard Madoff.

Mr. Markopolos had warned the SEC for nearly a decade that Mr. Madoff was operating a Ponzi scheme. Mr. Markopolos is set to testify before a House committee Wednesday, and 311 pages of his written testimony became public Tuesday evening.

"There was an abject failure by the regulatory agencies we entrust as our watchdog," Mr. Markopolos said in remarks prepared for the meeting.

.....

His experience blowing the whistle to the SEC led him to conclude "that the SEC securities' lawyers if only through their ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Madoff later confessed."

Mr. Markopolos acknowledged that his team didn't go through official channels beyond the SEC to expose their suspicions. He said he didn't think the Federal Bureau of Investigation would take him seriously because of the SEC's decision not to pursue the case. His group didn't contact the Financial Industry Regulatory Authority because of the Madoff family's connections to Finra.

Mr. Markopolos said he and his team were worried for their safety because of Mr. Madoff's position as a powerful Street investor. This led them to submit some documents anonymously.

Mr. Markopolos said he and his team were worried for their safety because of Mr. Madoff's powerful position and status .... that led them to submit some documents anonymously.

VERY instructive is Madoff "investors" whining that they have been screwed-over.......yet they made a lot of money over the years.......and took out a heckava lot more than they put in. Clearly, some of the "pigeons" were in on the scam.

Some investors gave Madoff AN ASTOUNDING $100-500 million to "invest" for years and years. Some investors even wrote PERSONAL checks to Madoff's subrosa spinoff vehicle that was not listed on the Securities Exchange (tax evasion modus?).

NOT EVEN ONE INVESTOR blew the whistle on Madoff.....all accusations of fraud were made by objective analysts outside the scam operation. And when fraud raised it's ugly head, Madoff and his investors scared off accusers. As Laura Goldman wrote---whistle-blowers were accused of being anti-Semitic---a very scary charge.

The now-famous 2005 Markopolis Report to the SEC raised fraud issues and yet the SEC "turned a blind eye."

It must be considered that the SEC backed-off investigating Madoff NOT because they are incompetent, but because SEC investigators risked losing their jobs if they zeroed in on Madoff. CAREER KILLER In the ranks of L/E, it is NOT advisable to imply people of Jewish heritage are doing something illegal---even moreso, it is a career killer to suggest it. FBI agents have been lacerated and condemned----even losing their jobs. Madoff's concentrating

Madoff seemed to know L/E dared not suggest he was doing something illegal and he may have colluded to use scary charges of anti-Semitism to forestall investigations into his operation.

Madoff had a lot to lose if he was investigated. He knew he was operating a fraud----a fraud that subsidized his lavish lifestyle; posh homes all over the world, several yachts, private planes, country club memberships, and purchases that included pricey watches and jewelry.

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