Madoff’s Fund was Like Heroin
Bernie Madoff was paying one percent a month.
Month after month.
To his investors.
Many of his investors suspected, or were told, that something was up with Madoff.
But the investors didn’t listen.
“Once you get those kinds of returns – and that happened to so many of those feeder funds – it was like heroin,” Madoff whistleblower Harry Markopolos told Corporate Crime Reporter last week.
Markopolos was onto Madoff’s $65 billion Ponzi scheme for eight years. He tried to warn people, but no one would listen.
“You couldn’t pull the needle out. You needed Madoff, because if you didn’t have him, and your competitors did, your returns paled in comparison to their returns.
And so people were scrambling to have Madoff in their portfolios.”
Markopolos is on a book tour.
Pushing his new book – No One Would Listen: A True Financial Thriller (Wiley, 2010).
Markopolos got to know one of Madoff’s European investors – Thierry de la Villehuchet.
Thierry was the founder of Access International Advisors – a major hedge fund that invested with Madoff.
Markopolos liked Thierry and tried to warn him about Madoff.
When Madoff was exposed, Thierry killed himself.
“He lost $55 million of his own money,” Markopolos said. “He lost between $1.4 billion and $1.6 billion of investors’ money. And his sense of honor meant so much to him that the only way he could apologize was to commit suicide. And to him that was a positive act of honor. You had to know him and his character and why he did that. I respect that a lot more than the other 330 fund to funds that are lying low in the weeds trying to avoid bankruptcy in the civil courts, or avoid criminal prosecutors that would put them in prison.”
“Here’s a man who took personal responsibility, in a gruesome fashion – I wouldn’t recommend it. But that was his way of atonement.”
Markopolos was getting nowhere with the Securities and Exchange Commission (SEC).
So, he tried to get the information to then New York Attorney General Eliot Spitzer.
Spitzer was speaking at the JFK Library in Boston on December 17, 2002.
“I wrangled an invitation,” Markopolos said. “It was filmed. I made sure I wasn’t going to appear on the camera. I was a little bit nervous. I had twin sons who were going to be born in March 2003. And I knew that Spitzer was a big hedge fund investor. And I thought he might be invested with Madoff. And anybody who was invested with Madoff would always believe Madoff. Because the guy was so charming.”
“And so, I tried to deliver a package to him anonymously. I gave it to an aide at the library. And I said – would you please hand this to Mr. Spitzer?”
“I made sure it didn’t have fingerprints on it. And I headed into the darkness of the wintry night.”
“Spitzer later said he never got it. I’m sure he gets dozens of anonymous submissions every month. He said he didn’t recollect receiving it. I’m sure he didn’t.”
“It was so unbelievable. The fraud was so large. He was like the press. The press didn’t believe it either. It was too big.”
“Think about it. In 2001, the time of my second submission to the SEC, there were maybe five hedge funds in the world that were $2 billion. I’m saying – oops – Madoff is $12 to $20 billion – six to ten times as large as the world’s largest hedge funds. And by the way, you never heard of him managing money because he’s so secretive.”
“The press didn’t believe it. Neither did the government.”
“Once Spitzer left the Attorney General’s office, there was no cop on the beat in Wall Street,” Markopolos said. “The federal banking regulators weren’t even asleep at the switch. They were comatose. Barely responsive to heat and light. And the SEC was also comatose. There was no cop on the beat. You had trillions in assets. And look what happened. The whole financial system collapsed.”
“Here’s a shocking statistic. The SEC’s budget this year will be $1.3 billion. We will have individual hedge fund managers who will earn more than that and report that as taxable income this year. We always have a few hedge fund managers who make $2 billion or $3 billion in a given year. How uneven is that playing field?”
“You are sending the intellectual equivalent guppies to chase sharks. It’s not working. The regulators are getting eaten.”
Markopolos is now a full time fraud buster.
“I do large qui tam and IRS whistleblower cases,” Markopolos said. “I do $1 billion plus financial fraud cases. I’ll do maybe half a billion and up health care fraud cases. It has to be big, bad, and ugly with hair and warts before I get involved. I like to figure out the fraud mathematically. And then I recruit a whistleblower team.
And then I’ll file a case under seal.”
He says he now has filed more than a dozen cases under seal.
Only one has been unsealed – by California Attorney General Jerry Brown against State Street Bank – for a massive foreign currency fraud.
The case can be made that Markopolos has done more to curb Wall Street fraud that all of the 3,500 SEC staffers put together.
And he tries to make the case.
“In the last decade, Madoff – $65 billion – I did that case,” Markopolos said.
“I did $20 billion market billion in market timing cases – the SEC turned down those cases as well. And the quality of proof was at least as good as Madoff.”
“That’s $85 billion. And now I’m doing the foreign currency cases. Let’s say that’s another $15 billion.”
“Let’s say that’s $100 billion in fraud cases in the last decade. I did a hell of lot more than 3,500 people at the SEC with billion dollar plus budgets for the last decade. Who is more effective?”
“So, yes, I’d love to turn the SEC around. To do it, I would have to fire most of their staff. But I would be able to get good staff from Wall Street. And the first thing I would do would move them out of Washington.”
A new documentary about Markopolos – The Fox Hounds – is scheduled to be released later this year.
Also, sometime this summer, he’ll sit down with Hollywood producers.
“A bunch of big studios are interested,” Markopolos said. “Sony, Paramount, 20th Century Fox. Tom Hanks, Brad Pitt, guys I’ve never heard of. Jerry Zucker wants to do it. I’m not a Hollywood person. I told my team this – we did the Madoff case. And that guy was beyond evil. The SEC was easy to beat – they were slow, bureaucratic, not too swift.”
“Hollywood is going to be challenging. Hollywood’s accountants make Enron’s accountants look like choir boys.”
RUSSELL MOKHIBER is editor of the Corporate Crime Reporter.
[For a complete transcript of the Interview with Harry Markopolos, see 24 Corporate Crime Reporter (7-16), March 29, 2010, print edition only.]