AC360 Monday 8p

There are growing questions about the ferry crew's actions. The latest on the South Korean ferry disaster live on AC360.
February 5th, 2009
09:28 AM ET

Where have you been, Harry Markopolos?

Harry Markopolos says he warned the SEC about Madoff for nine years and no one listened.
Harry Markopolos says he warned the SEC about Madoff for nine years and no one listened.

Michael Schulder
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.

Discovering Harry

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.

The Oracle

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.

soundoff (274 Responses)
  1. curt yeager

    Restoring confidence should be job one right now . Americans are smart enough to know that the government and financial institutions are infested with crooks and whoremongers. God knows how much we need exterminators like Harry Markopolos to get our house in order. That is the only kind of stimulus I am willing to pitch in on.

    February 6, 2009 at 10:17 am |
  2. P Burke

    I certainly "get" why people villainize "W" for the problems in the US and abroad, however, Mr. Markopolos brought Mr. Madoff's scheme to the SEC in 1999. The SEC has been ineffectual for a very long time.

    I would be very encouraged if President Obama would put Mr. Markopolos in charge of the SEC, and others like him to lead government, instead of nominating "tax cheats".

    February 6, 2009 at 10:12 am |
  3. Dimitris

    "His fears may have been unfounded"

    Are you serious? I don't know how you can throw around the phrase "may have been" with such ease. Going after a mob man like madoff required great courage and wit. It would be silly to even hint at the idea that Madoff and the rest of his mob (dealing with BILLIONS of dollars) wouldn't go after Markopolos's life.

    His fears were very well founded.

    February 6, 2009 at 6:40 am |
  4. Marissa McWillaims

    2thumbs up for Harry Markopolos: independent financial fraud investigator (9 years finally paid of) yet, pity it took such a long time to unravel this mystery fraud.....

    probably it's because there are too many frauds that the SEC congress to not believe his warnings.....
    down with Madoff....has he no heart even in times of economical crisis he does these things?!
    Markopolos states:

    Bernie Madoff is running the world's largest unregistered hedge fund. He's organized this business as [a] "hedge fund of funds privately labeling their own hedge funds which Bernie Madoff secretly runs for them using a split-strike conversion strategy getting paid only trading commissions which are not disclosed." If this isn't a regulatory dodge, I don't know what is.

    February 6, 2009 at 4:48 am |
  5. Lori Michele

    Harry Markopolos should get a congressional award for his heroic actions. However, the SEC should get seriously reprimanded and overhauled for its negligent behavior. This financial crisis is partially due to the fact that federal agencies have failed to do their job. European news talks about Wall Street and the American rating agencies as if they are a bunch of criminals never to be trusted again. The only way that Mr. Obama can restore credibility in the American Financial System is to do a complete overhaul.

    February 6, 2009 at 3:53 am |
  6. Stanley

    Why are Republicans so eager to undermind President Obamas Stimulas package. When the Republicans were in office (Bush) they dug us a dip hole and if we are to get our Country going again we need to come together as Human beings. My dream maybe the same as others in this Country, is for their to be a Government for the people that work for all of us, not just the wealthy people. I love our Country and wouldn't change it for any other Country in the world. Lets act like Human beings and do what's right for the Country and several States that are in Financial trouble. Remember Republicans your last President got us in this mess, we can still save our Finacial future for our Children.

    February 6, 2009 at 2:45 am |
  7. rod

    Sounds like he was doing the criminal investigating work that may be, oh, I don't know maybe, the FBI and SEC should have been doing. I'm sure there are plenty of out of work people, now with the right motivation, willing to step into the breach and help clean house, in what has been exposed as, a corrupt system of exchange. Great persistance in doing the right thing. Great story of a "Few Good Men." Hopefully there are many sequels, ending with the bad guys going to jail for a long long time.

    February 6, 2009 at 2:01 am |
  8. wendy fletcher

    Wendy Fletcher
    Cary N. C.

    February 6, 2009 at 1:58 am |
  9. wendy fletcher

    no I don't think what the president is asking for,is wrong! those who are trying yo stop this, do they have eyes or ears? the U.S.is in trouble, they need to support our president Quickly! we that are in the Lion's Den say,SOME ONE DO SOMETHING BEFOR IT IS TOO LATE1 President Obama Won! GET OVER IT AND LETS GET GOING BEFOR IT IS TOO LATE1

    February 6, 2009 at 1:55 am |
  10. Sandy Valone

    First, Obama only won 52% of the popular vote. While I was even raised in the same city and same years as him, I voted opposite, due to experience.

    Second:
    I can actually sit on the fence, unlike so many people involved in politics so I feel I can see both sides:

    I have several major issues with this stimulus package:

    1. Since when did we get money for not working? Is this what our country was founded on?
    2. Since when have we honored those who have failed, and cheated others? I didn't know that was what our country was founded on?
    3. Personally, when I am on a budget, there is no ice cream, shopping, etc. So what is up with all these ridiculous fat projects? Nancy P. is a significant offender. How can you trust her?
    4. Since when do we make HUGE financial decisions with the pressure and time constraints given to these folks? Did we ever think that just maybe, if we didn't listen to the media, preaching such doom and gloom, do you think things could turn around faster, rather than putting our grandchildren in debt?

    If I were Republican, I would stick to my guns, and not let this stimulus pass. If I were Democrat, I would back off of so many "stimulus" incentives. God help our Country!!!! I think I should run for public office. SV

    February 6, 2009 at 1:36 am |
  11. Doward D. Scott

    Evening all, im here in Va . lost my job at Qimonda tech last week after 10yrs. we just close our doors for good Tuesday. 3800 people out, some with not package.. we all need help. why are people playing with your familys live???

    February 6, 2009 at 1:25 am |
  12. Renee Drew

    Dear Media , some of you need to address our President as the President, not Mr. I feel that it is very tacky!

    February 6, 2009 at 1:20 am |
  13. Russel - South Africa

    Arrogance or just a lack of manners??? While watching your coverage of President Obama departing on Airforce One. I couldn't help but notice that while the President was climbing the stairs to board Airforce One, a man stood at the base of the stairs, saluting his President in the freezing cold, while his new boss simply walking up the stairs and entered the aircraft without turning and acknowledging the "little people" there to see him off. Has his Presidency gone to his head or is it just a case of, he doesn't know any better. What the President has to remember, the reason he is where he is, is due to people like those standing and saluting his back, having stood in long queues to vote for him.

    February 6, 2009 at 1:17 am |
  14. Kareem

    Hey Anderson.
    Please let Representative Ackerman (New York) know that he gave me much more confidence in our legislative bodies yesterday, when he rightfully tossed aside the pleasantries and demanded HONESTY from the Security and Exchange Comission employees.

    If we have more lawmakers like Representative Ackerman on Capitol Hill who are really seeking transparency, I believe all the political rats would be running back to the D.C. sewer system where they belong.

    February 6, 2009 at 12:29 am |
  15. Anthony Roeback

    The Republicans seem to think that it is better to give Americans a hand out (tax cuts) as a means to stimulate the economy. This is short term plan that leads to no benefit. Americans want jobs, not a hand out. If you give money to job less people, they will hold on to that money for bills and basic needs. This will not support the retailers that are suffering due to a lack of confidence. It is like that old saying, if you give a man food today, he will need it again tomorrow, if you give him a means to grow his own food, he will be self sufficient from that moment onward. Americans are not beggars and pan handlers. We need our government to assist in generating jobs so that we can EARN our money. Tell those Republicans that insist on making pan handlers out of us to think higher of the American resolve. We are better than they think we are!! Support the stimulus package!!!

    February 6, 2009 at 12:20 am |
  16. Rae

    sorry, I couldn't find any other way to link the story. watch the "baby smoking" on You Tube. You be surprised how Chinese people watching and laughing at 2 year old boy smoking. father of the baby was so proud to see his son can smoke and act like an adult. so sad

    February 6, 2009 at 12:09 am |
  17. Luis

    God bless Harry Markopolos. It the media who is suppose to keep our government and authorities in check. To bad the media if friends with people like Madoff and Barak Obama.

    You think CNN is going to question anything Barack does? Hell No. Barack is the "chosen one" how dare CNN try to question Barack.

    We nee more whistle blowers like Harry Markopolos on t.v.

    CNN is a complete Joke. to bad Glenn Beck left. That was the only good thing about CNN.

    CNN= Communist News Network.

    February 6, 2009 at 12:07 am |
  18. Rae

    watch "baby smoking" u tube. so sad.

    February 6, 2009 at 12:04 am |
  19. Ljiljana (Liliana)

    Michael Phelps

    His gold medal should be given to that nice Serbian boy, who does not have to smoke pot in order to win in swimming competition. DUI four years ago, and what else? These things never happen to real Olimpic winners.

    Ljiljana George

    February 5, 2009 at 11:59 pm |
  20. Tom

    Small problem with this “Holly Roller” / Whisle Blower
    Harry Markopolos

    He claims to have knowledge 8 or 9 years ago and went to SEC. If the SEC did not respond did he have no other options? State AG, FBI or maybe the NY prosecutor.

    Why did he allow this to run on for 8 or 9 years? My guess is good pay and other perks.

    He comes out now, 8 years later, to claim his sainthood.

    Come on, something's not right

    Tom

    February 5, 2009 at 11:55 pm |
  21. Carole Clarke

    Harry Markopolos did a right act but will not be rewarded for it because he made far too many people look incompetent. When you get an economy this huge you get "agencies" to run it that are also large. Its a perfect set-up for chiselers, con-men and fraud. They will be unable to police themselves because that is the first area that is co-opted by the criminals. When you invade a space, the first thing you take out is the ability to retaliate, then you take out the communications and records systems, then human resources. Military 101. Never underestimate your opponent.

    Too many people enter public service because there are "opportunities" to enrich themselves. They hide amongst the good guys and make their exit before they are caught. You would have to hire outside "marshals" to police the agency that can garner evidence for trial and that requires extreme oversight that many are not willing to accept. And we don't want computer systems telling us what to do either. Honest government requires honest citizens.

    February 5, 2009 at 11:41 pm |
  22. Jo L

    You know what? I am really tired of the people chosen toserve as our house rep and sen being so high and mighty. I am a teacher and in my classroom I teach my children to talk to each other and to come up with a soultion which will be good for everyone. Nine time out of ten no matter what the problem, they come up with an answer within 10 minutes or so. They have to sit down and work together to solve whatever. So what happened to the men and women who are supposed to be making our laws and our world a better place in which to live. Give me a call and I will send my 3rd graders over. Give them a few minutes and they will have a solution. Oh, and by the way maybe the medi should keep their hands off for a while and let the political analysists take a rest. Sometimes it helps to just look at the beauty and goodness which surrounds us. How about leading the news cast with good news for at least 5 minutes. If the sun shines don't sit inside each day take a short walk and then go to work. And, No I am not crazy and it really does work.

    February 5, 2009 at 11:34 pm |
  23. J Beaudry

    Obama Picks Porn Lawyer for #2 at Justice

    CHICAGO, February 4, 2009 (LifeSiteNews.com) – President Obama has made a major mistake and put America's families at risk by selecting David Ogden to become Deputy Attorney General, says Fidelis, a pro-family organization.

    February 5, 2009 at 11:32 pm |
  24. sandra moulin

    Anderson,

    Pres. Obama needs to take the remainder of the money left over from the bank bailout and use it to open a Federal Recovery Mortgage Bank. There can be no confidence until we as a nation stop forcing Americans from their homes. None of those guilty of this fraud are in jail. Secondly he needs to order that every bank that received taxpayer money to support their fraud should bring back to America every out sourced job within 90 days,talk about creating jobs and stimulating our economy!

    February 5, 2009 at 11:31 pm |
1 2 3 4 5 6