Tavis: Harry Markopolos is a former securities industry executive whose own investigative work uncovered the massive Ponzi scheme perpetrated on investors by Bernie Madoff. The new book about his experiences is called No One Would Listen: A True Financial Thriller. He joins us tonight from Boston. Harry, good to have you on this program.
Harry Markopolos: Thank you for having me, Tavis.
Tavis: Having gone through the text, I understand – and for those who know your story, they understand why you would call the book No One Would Listen. But for those who don’t know the back story on what you did to uncover Bernie Madoff’s scandal, you called the book No One Would Listen why?
Markopolos: Because we had an eight and a half year journey. My team and I crossed two continents. It was the four men; I was the team leader and we turned in Madoff repeatedly to the SEC.
I was the point man. I turned him in. I never let the SEC know I had a team in the field tracking Madoff because it was too dangerous of a case. I didn’t want anything to happen to my men or to their families.
Tavis: When you say “too dangerous,” true that you slept with a gun sometimes because you thought that someone was gonna get on to you and maybe harm you?
Markopolos: After June 2002 when I went to Europe and I saw the offshore nature of the feeder funds, knowing that they were dirty money funds, and I knew that Madoff at that time – it was pretty clear to me that he was stealing from organized crime and, if he was doing that, he had to either be criminally insane or an organized crime boss himself.
I wasn’t sure which. So from that point on, I carried a gun and I checked for bombs every time I got into my vehicle.
Tavis: How do you end up doing the work that the SEC, the Securities and Exchange Commission, is supposed to be doing?
Markopolos: Well, they had a billion dollar-plus budget. They had 3,500 people busy not doing their jobs. They seemed to be protecting the industry. They seemed to be captive to the industry.
They didn’t seem to be trained in finance or financial mathematics, so it was left up to my team. It was four volunteers. We did it on unpaid status because it was important to us. If we didn’t do it, then no one would.
Tavis: It was important to you why? True, there was some competition here, yes?
Markopolos: There was. In 2002 when we first discovered Madoff, I was tasked by my bosses at the investment management firm to compete with Madoff. I knew it was clearly impossible. It wasn’t fair. It’s hard to compete against somebody that just types his numbers into a computer every month and they’re all false returns. You can’t compete with perfection.
So for the first two and a half years, he was definitely a competitor, actually for the first four years. But after I left the industry in August of 2994, after that it was just because it was important for us to stop him.
Tavis: So your boss comes to you – here’s how this story really begins, as you said a moment ago. Your boss comes to you, wants you to compete with Bernie Madoff because he can’t figure out how Bernie’s making money that y’all ain’t making, so he wants you to compete and to beat Bernie Madoff.
You start digging into how well Bernie’s doing and when do you get tipped off? When do you come to figure out that, to your earlier point, you can’t compete with this guy because he’s cheating?
Markopolos: That took about five minutes. I read his strategy description and, just from the holes in that description, it appeared that Madoff would have to only pick stocks that either went up or stayed the same. He couldn’t afford to pick stocks that went down. That was the first thing I spotted. That was probably 30 seconds in.
The second thing was that his performance line went up at a 45 degree angle. Well, the markets move in three directions. They can go up, down or stay the same. His returns only went in one direction, up, so that was clearly impossible.
And the third thing, and that probably took a couple more minutes, I looked at his monthly returns. Over 96 percent of his months were positive and that would be akin to a Major League baseball player batting 960. Given what we know about the ethics and moral tone at the top in Major League baseball, you would suspect cheating immediately, and so we did.
Tavis: I don’t mean to chagrin, I don’t mean to make light of obviously your intellect and your brilliance at looking at numbers, but I’m still trying to figure out what occurred to you in seven minutes had not occurred to the SEC, anybody making money with Bernie Madoff or, quite frankly, anybody else in this large circle?
How did all of this go unseen by everybody else and you picked up on some trends here in five to seven minutes?
Markopolos: The feeder funds. He had about 339 of these companies called feeder funds that were feeding him new victims. They were getting paid to look the other way. They never did any of the due diligence that they said that they were doing.
They never verified the assets, they never checked into the strategy, they never really investigated and the reason was, they suspected that Madoff was a fraud, but they suspected that he was cheating his broker-dealer clients, his legitimate clients, because Madoff was trading five to ten percent of the daily stock exchange volume in the United States.
They were assuming that he was front-running those clients and stealing returns from them and delivering those returns to the hedge fund clients illegally. They didn’t want to ask any questions, so they just assumed that Madoff was a good crook; he was their crook. They didn’t realize that a good crook would cheat everybody, including them.
Tavis: So the answer here is that it wasn’t that you were the only one who figured this out, but the greed on their part made them look the other way?
Markopolos: They were blinded by greed. They didn’t want to ask questions because they were afraid of the answers they were going to receive, so they thought it was best not to know because Madoff was making them rich.
He was giving them well over 90 percent of the total fees from the scheme and that was his brilliance. He took the smallest piece for himself and that’s what kept the scheme going for so long and that’s why it got so big.
Tavis: So how many times did you reach out to the SEC before they actually pay attention to your filings?
Markopolos: Too many to count. There were five major submissions, but there were many minor ones along the way. It was repeated over an eight and a half year period where I kept giving them the information and they kept just looking at it, but they never comprehended a single word of it.
So I put it in the back of my book on an appendix and I’ve talked to readers and they say they don’t have any mathematical backgrounds, but they understood from reading my submissions that there was something fishy going on that was easy to spot.
Tavis: So it seems to me, now that Bernie Madoff is in jail, that clearly a lot of attention, most of the attention, has been focused on him. What say you about where that spotlight really ought to shine beyond this single guy? Because, to your point, he couldn’t do all this by himself.
Markopolos: Well, he did. He had a lot of help. He had 339 different companies around the globe helping him. They were in 40 different countries. He was very big in Europe, certainly big in Latin American, certainly big in North America. His next final frontier would have been Asia.
He had a couple of outposts in Asia. If the scheme had kept going for a few more years, the Asians would have become big victims. They were lucky they escaped. There were certainly hundreds of people, if not thousands, that knew that Madoff was a fraud. They need to be brought to justice.
I feel that most of the perpetrators overseas will not be brought to justice and very few here in North America will be brought to justice because I just don’t the government has the resources to do this case and bring everybody to the bar of justice they need to.
Tavis: So when you suggest that persons who read your book as you’ve been touring around the country understand the clear English, the clear language in which you write, that the SEC should have understood if everyday folk can figure that out, but do the victims here have any responsibility in knowing or having some idea that, with a line that only goes straight up, something was wrong here? Something was a little fishy here?
Markopolos: It was such a well-designed scam that I don’t think a normal victim would have any chance against Madoff. They left it up to the professionals and the professionals clearly fell down on their job. He had such good lies, such a great reputation in the industry.
He owned a broker-dealer firm. It was prosperous. He seemingly didn’t need to steal. I don’t see how an individual investor if they weren’t from the finance industry would be able to figure that out. But for the professional investors in those feeder fund companies that were supposed to be market professionals, they have no excuse.
Tavis: I want to stay on this point, Harry, because I want to talk – this is important to me because I think this is something that is informative and instructive for all of us, even those of us who don’t have the kind of big money that you had to have to invest with Bernie Madoff.
The question again is, if you’re with a firm and the line always goes up, it never dips, it never goes down, it never levels, what ought the everyday investor, the average American, take from that line always going up?
Markopolos: There’s two possible conclusions you could reach as an investor. The first one is that you’re about to invest or have invested that’s undergoing a bubble. So it’s going up at a rapid clip, you’re only seeing the upside and the downside is yet to come and you’re probably going to get wiped out soon, so get out.
The second thing is, it’s a Ponzi scheme. For the individual investors that did go with Madoff and invested 100 percent of their assets, the thing that they forgot was rule number one in investing. Diversify, diversify, diversify. Don’t put all your eggs in one basket.
Tavis: Bernie Madoff, again, has gotten all kinds of negative press as he should have gotten, but do you think these Ponzi schemes are a lot more common than we hear about, even though they’re not the size of the Bernie Madoff scheme?
Markopolos: Well, now you’re hearing about them. They’re coming to the attention of the press because people lack confidence. Investors are certainly pulling money or they’re cautious about putting money into the market, so these schemes rely on a constant inflow of new investors. Without that, they collapse and that’s why you’ve been reading about so many collapsed Ponzi schemes.
The other factor is that the SEC now finally knows what to look for in a Ponzi scheme and they prioritize attacking Ponzi schemes whenever they find them. Of course, they’re very hard to find because Ponzi schemers don’t exactly register with the SEC. They’re off the books, they’re not registered anywhere, so they really need tipsters to come into the SEC and tell them where these Ponzi operators are.
Tavis: What did you learn, Harry, as a whistleblower?
Markopolos: It’s dangerous. You take career risks and, in this case, certainly you take personal safety risks for you and your loved ones and for your team members and their loved ones.
You have to be very careful when you blow the whistle. You can’t blow it too loudly or too publicly because, if you do, you risk harm to yourself or economic harm certainly, so you have to be very careful what you do.
Most whistleblower stories ended tragically. The families end up suffering tremendous economic hardship. You have to be very careful. You have to have good attorneys and you have to always be thinking three steps ahead of the bad guys.
Tavis: Was it worth it?
Markopolos: If you ask my team in that, if we would do it again, we would tell you no, it was too dangerous. We were very lucky to get the other side of this case. So I’d say that most whistleblowers that I’ve talked to, they all say the same thing. They wouldn’t do it again.
Tavis: And, finally, in the eyes of that boss who wanted you to compete with Bernie Madoff, have you been vindicated?
Markopolos: I don’t feel any sense of elation or vindication. The press likes to write that and I don’t. But the case had a tragic ending. The investigation by my team and I was highly successful, but the case ended in tragic failure. We felt we should have stopped Madoff in under $10 billion dollars in the year 2000. He should have never gotten the $65 billion.
He shouldn’t have been able to wipe out all those thousands of families that he wiped out, so I feel more remorse than anything else, remorse and a tremendous sense of anger.
Tavis: His name is Harry Markopolos. His new book is called No One Would Listen: A True Financial Thriller. Harry, thanks for your work and thanks for coming on to share your story.
Markopolos: Thank you for having me, Tavis.