HARRY MARKOPOLOS, WHO WARNED THE SEC ABOUT BERNARD MADOFF, SAYS HUNDREDS SUSPECTED THAT MADOFF'S FUND WAS A FRAUD -- "60 MINUTES" SUNDAY
In His First Television Interview, Markopolos Says the SEC is Incapable of Finding Fraud
The man who blew the whistle to the Securities and Exchange Commission about Bernard Madoff says hundreds of people on Wall Street suspected Madoff's fund was a fraud. In his first television interview, Harry Markopolos tells Steve Kroft about his futile efforts to expose a Ponzi scheme that lost investors billions of dollars. Kroft's report will be broadcast on 60 MINUTES Sunday, March 1 (7:00-8:00 PM, ET/PT) on the CBS Television Network.
Madoff is currently under house arrest, accused of running what may be the largest investor fraud operation in history. Markopolos, a financial analyst and fraud investigator, says a lot of people had serious doubts about what Madoff was doing. The proof is in the firms that didn't put money in his fund. "I would say that hundreds of people suspected something was amiss with the Madoff operation. If you look at who the victims were not, you'll notice that the major firms on Wall Street had no money with Mr. Madoff," he tells Kroft. Click here to watch an excerpt.
Markopolos tells Kroft there were ample ways the SEC could have figured out that Madoff was a fraud. For example, Markopolos concluded that for Madoff to execute the trading strategy he said he was using he would have had to buy more options on the Chicago Board Options Exchange than existed. All the SEC had to do was talk to people in the options industry, as Markopolos did. "I would talk to the people I had trading relationships with and ask 'Did you have a trading relationship with Mr. Bernard Madoff?' And they all said 'No. We don't think he's for real.'"
Markopolos submitted information on Madoff to the SEC in 2000, 2001, 2005, 2007 and finally last April of 2008. While a case file was opened and the SEC discovered that Madoff had misled them, the governmental watchdog agency never found the fraud. They are not trained to do that, says Markopolos. "What I found from my dealings with the SEC over eight and a half years is that their people are totally untrained in finance," he says. "Most of them are just merely lawyers without any financial industry experience."
What SEC staffers are good at, he says, is scrutinizing paperwork required by the SEC. "They can check every piece of paper perfectly and find misdemeanors and they'll miss all the financial felonies occurring...even when pointed to fraud they are incapable of finding fraud, that's how bad they are," Markopolos tells Kroft.
In an ironic twist, Madoff once said the SEC was an effective watchdog. In a video of a roundtable discussion he participated in at the non-profit Philoctetes Center in New York obtained by 60 MINUTES, Madoff can be heard saying, "In today's regulatory environment, it's virtually impossible to violate rules. This is something the public really doesn't understand but it's impossible for a violation to go undetected, certainly not for a considerable period of time."