CNN Senior Executive Producer
I wonder what would have happened if Harry Markopolos went to lunch at Bernard Madoff's Palm Beach Country Club in the fall of 2000, stood up in the dining room, and shouted "Madoff is a fraud!" I suspect Madoff's fellow club members, many of whom joined for the sole purpose of meeting Madoff and getting invited to put millions in his investment fund, would have looked the other way. A guy who screams fraud in a crowded country club would be considered a nut, especially given the returns Madoff's investors were getting on paper.
Harry Markopolos is not a nut. And shouting fraud in a crowded room is not his style. Harry Markopolos goes through proper channels. The proper channels didn't work. He started blowing the whistle on Bernard Madoff's alleged Ponzi scheme nearly a decade ago. But it was a whistle in the wilderness. Who is Harry Markopolos? Would you have paid attention to him ten years ago, or five years ago, or five months ago – before Madoff was formally charged with executing what might be the largest financial fraud in history. I know this. We'll all listen to him later today when he exposes what he says is another giant financial fraud that federal investigators have missed.
Harry Markopolos has operated under the radar, to put it mildly.
Harry Markopolos first showed up in a footnote in an obscure financial industry publication in 1997.
The second sighting came on September 12th, 2001, the day after the twin towers fell. The Boston Herald, Markopolos' home town newspaper, found him, with members of his Rampart Investment Management firm, at Boston's St. Anthony Shrine, praying for those who lost their lives the day before.
We find him again, nearly four years later, in July 2005. Markopolos wrote a letter to the editor of The Army Times about Iraq, questioning, in his words, "why the Army's senior leaders who might disagree with the current war strategy lack the courage to speak out." Markopolos had the credentials to write that letter. You'll find out why soon.
The fourth, and final reference to Harry Markopolos, before the Madoff story broke, came in September 2005, in a Connecticut newspaper called The Stamford Advocate, with the following headline: "Fraud 'starts at the top', Analyst tells Norwalk, Conn. Crowd." The opening line: "If you're considering blowing the whistle on your company's illicit activities it may be best to have someone like Harry Markopolos on your side." Markopolos told the group of investors that day: "I can teach you how to spot fraud and what to do about it, so you aren't in the hot seat." And he adds "You've got to be real courageous to be a whistle blower." That's it. That's all you would have discovered about Harry Markopolos by searching all of America's public news sources.
Harry Markopolos – Boots on the Ground
A little more digging turns up a far more fascinating story. Markopolos is a former Army special ops commando who had to swim 50 yards in combat boots and full battle uniform to gain admission to the U.S. Army JFK School of Special Warfare. From 1993 to 1995 he commanded a 64-member special ops squad overseas.
When he left the Army, he joined Rampart Investment Management Company. In late 1999, he testified before Congress today, the company's Senior V-P told him that investors in New York were buzzing about the fantastic and consistent returns that Bernard Madoff was getting. Try to replicate those returns for us, Markopolos was asked. After studying Madoff's strategy and numbers, he said, "within 5 minutes I suspected it was a fraud." You can read why by going through this captivating testimony from Harry Markopolos before the House Financial Services Subcommittee at this link. It reads like a financial spy novel.
Markopolos and his team of three investigators took their evidence on Madoff to a guy Markopolos calls "the SEC's hit-man," one of the old hands in the Boston office of the Securities and Exchange Commission, who had a reputation for going after stock fraud cases that ended with people in jail. "Throughout the past 9 years," Markopolos told members of Congress today, that SEC hit man, a guy named Ed Manion, "was the only SEC staff member who ever truly understood the Madoff scheme and the threat it posed to the public."
Markopolos, a certified accountant and investment advisor, describes a trip he made to Europe to meet with 14 French and Swiss banks who handled investments for wealthy individuals. "All bragged about how Bernard Madoff had closed his hedge fund to new investors but "they had special access to Madoff and he'd accept new money from them." That's when Markopolos concluded that Madoff was likely running a Ponzi scheme – recruiting new investors to pay off the old.
So there's Harry Markopolos and his small team of financial commandos. They're getting no traction with the SEC legal staff. Neither is the SEC's Boston "hit man," Ed Manion. Madoff was a major force on Wall Street. He had a lot to lose. The SEC wasn't acting. Those factors, taken together, says Markopolis, made him become "fearful for the safety of my family." You know whistleblowing is a scary business when a former special ops commando, whose financial investigative team includes a former Army Ranger, is scared for his family's life. His fears may have been unfounded. But it must be frightening being a whistleblowing commando team with no backup.
Nearly a decade after he first tried to blow the whistle on what he suspected was a giant theft, Capitol Hill treated Harry Markopolos like an oracle. Today, Harry Markopolos is a brand name. A search of his name on Google now turns up more than 65-thousand hits. Harry Markopolos is finally on everyone's radar. He is someone we journalists will want to chase in the coming months and years as we try to keep corporate America honest. Who knows, maybe The Obama Administration will recruit him for the SEC.
If only we had met Harry Markopolos sooner. The next time Harry blows a whistle, he won't be in the wilderness.