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Video: Whistle-blower contemplated killing Madoff

  1. Closed captioning of: Whistle-blower contemplated killing Madoff

    >>> on nbc.

    >>> imagine stumbling across the largest financial fraud in u.s. history , but when you try to expose it, no one listened. that's what happened to this man, after he realized bernie madoff's investment operation was actually a $65 billion scam. we'll talk to harry markopolos in a moment. but first, how the house of madoff collapsed.

    >> bernie madoff awaits sentencing for mastermining the largest ponzi scheme in history.

    >> it was the news that rocked the financial world, on december 11th , 2008 , respected financier, bernie madoff was arrested in his new york city penthouse apartment by federal agents after admitting to his sons that he had been running quote, basically a giant pondsi scheme. the losses were staggering. first thought to be $50 billion. they finally totalled $65 billion in real money and imaginary profits.

    >> we are struggling to pay our motor home bill. and to put food on the table. and he took our life away from us.

    >> bernie madoff pleaded guilty and was sentenced to the maximum term, 150 years in federal prison . madoff had operated for years under the radar of regulators. victims asked how could the securities and exchange commission , watchdog for investors, not have known? the awful truth was, they did know. for eight years, one man tried to tell them, boston trader, harry markopolos. but this warning was ignored. and lost in a sea of bureaucracy. harry markopolos is now telling his story in the new book "no one would listen." a true financial thriller. harry , great to have you here, good morning.

    >> good to be here.

    >> i want to start off, i said at the end there, one man tried to warn people. you want people to know right off the bat that you worked as part of the team, there were others working on this as well?

    >> i had a four-man team, we were tracking it for eight years.

    >> you worked for a securities firm in boston. and basically people in the business started to hear about the returns that bernie madoff was getting for his investors. and your bosses said to you, look, harry , reverse-engineer this. we want you to use his system and see if you can dupe i had indicate his results. you worked very hard at it, but you couldn't do it.

    >> it was impossible. it was clear in five minutes that the strategy was bogus as a $3 bill. i had to model it. i couldn't replicate it. and we were losing customers to this man. every money manager around the world was losing money to bernie madoff.

    >> so an alarm goes off in your head and the team you were working with and you go to the s.e.c. , not once, not twice, not three times, but four separate times, starting in 2000 , and either they didn't understand what you were trying to tell them, or the information fell through the cracks.

    >> they didn't understand. they had lawyers there, not finance people. they weren't capable of understanding what i had written and presented to them. i had gift-wrapped this case and delivered it on a silver platter and they still didn't take it.

    >> at one point, harry , didn't they call bernie madoff in for an interview?

    >> they called him in, but he was the only person they never talked to. they never talked to any of his staff if they had, the stories wouldn't have meshed. and they would have solved the case.

    >> given that the s.e.c. is supposed to be the watchdog over these kinds of investments, how long do you think it should have staken them to get this?

    >> half an hour at the most.

    >> and they did nothing for ten years?

    >> nothing for ten years.

    >> parts of this book, harry , read like a manual on investments and government bureaucra bureaucracies. other parts of it read like a real hollywood thriller. at one stage, during your investigation, and you're trying to uncover this ponzi scheme for the world to see, you begin to fear for your life. and i want you to try to explain to our viewers why you started to feel that way.

    >> in june 2002 , i took a key trip to europe with a french nobleman . i was meeting a very high-money crowd, an offshore secret money crowd in the uk, france and switzerland. at that point, when i saw the offshore nature of this money, the money coming in was hidden, untaxed money and i knew there was organized crime connections to this case at that time.

    >> so basically, to connect the dots here, you're thinking, wait a second, if organized crime is involved in this, and they're reaping huge benefits from bernie madoff's scheme, the last thing they're going to want to see is someone blow the whistle on their gravy train .

    >> madoff was victimizing the russian mob , and the drug cartels , he had a lot to fear.

    >> there's something else in this book that astonishes me. i need you to explain this. at some point during this period where you're trying to expose bernie madoff, you said to yourself, first of all, you went out and bought a gun, okay, to protect yourself. but you took it a step further. you said, look, if bernie madoff contacts me directly, or indirectly, and threatens me in any way, i am going to prepare myself to --

    >> kill him. it was the only choice. it was him or me. this man was a human predator. he would have no social conscience about taking me off the face of the earth. it was me or him.

    >> take this the right way, harry . i'm sitting across from you -- you look like an accountant, okay? you don't look like a guy who's going to commit a hit on another human being . how did you get to that stage where you actually thought, i may have to go out and kill bernie madoff and how would you have explained it to law enforcement ?

    >> well i would hope not to get caught. i certainly had good army training. and it really, it really was him or me. i had a family to protect. the government wasn't protecting me. they were not doing their job. and i felt forced into a rather difficult moral dilemma.

    >> you talk about the incompetence or dereliction of duty at the s.e.c. and a lot of people are going to say, okay, that was starting in 2000 , we're now ten years later. what's changed? in your opinion, what has changed? what lessons did they learn from this?

    >> it rocked the s.e.c. to its foundations. they're turning this agency around. it was nonfunctional. they're trying to become dysfunctional. it's crawl, walk, run. it's going to take them years to get to the run stage.

    >> so right now, if there are other people committing ponzi schemes , in this country, do you think they are at a greater risk of being caught? or are they also going to operate under the radar for a long time?

    >> the s.e.c. is really attuned to ponzi schemes , they're bringing more and more of those to justice. whereas before they ignored them. now they're aggressive in pursuing them. so i feel very good about some of the positive benefits of this case. but there are very few.

    >> there are so many people who watched this whole story unfold. and a lot of those people have one major question right now, and that is -- could bernie madoff have done this alone. or even with just one or two other people. i would like you to shed some light on that.

    >> he had a global conspiracy . he's operating in 40 nationings. he has 339 companies feeding him new victims. he's passing along over 90% of the fees to the people helping feed victims into this scheme. he had a lot of help. he had the big banks helping hill. he had custody banks helping him.

    >> helping him in a criminal way or just turning a blind eye ?

    >> turning a blind eye . the accounting firms were turning a blind eye . all the companies setting up victims. no one asked the right questions.

    >> everybody talks about the incompetence at the s.e.c. but what about the investors? especially the hedge funds that were funneling money into bernie madoff, who were supposed to be doing their due diligence on behalf of their investors. and did nothing. was it incompetence on their part? or sheer greed ?

    >> it was sheer greed . they assumed that madoff was front-running an illegal activity. so they didn't want to ask questions that they didn't want to hear the answers to. so they turned a blind eye , never did any due diligence checks.

    >> i think even an average investor will find your book fascinating. what is the take-away for that person? the typical investor, what lessons should they learn from this?

    >> don't trust your government. do your own research. use common sense, if you don't understand the strategy, don't invest in it.

    >> harry markopolos, "no one

    would listen: a true financial thriller." thank you very much.

TODAY books
updated 3/1/2010 10:01:22 AM ET 2010-03-01T15:01:22

Harry Markopolos is the whistle-blower who uncovered Bernie Madoff’s Ponzi scheme 10 years before the rest of the world learned of the biggest financial crime in history. While a lot has been written about Madoff’s scam, few actually know the dramatic details of how Markopolos and a small group of sleuths went about investigating the fraud that reached around the globe. In “No One Would Listen,” Markopolos shares his story. An excerpt.

On the morning of December 11, 2008, a New York real estate developer on a JetBlue flight from New York to Los Angeles was watching CNBC on the small seat-back television. A crawl across the bottom of the screen reported that Bernard Madoff, a legendary Wall Street figure and the former chairman of NASDAQ had been arrested for running the largest Ponzi scheme in history. The developer sat silently for several seconds, absorbing that news. No, that couldn’t be right, he thought, but the message streamed across the screen again. Turning to his wife, he said that he knew that she wasn’t going to believe what he was about to tell her, but apparently Bernie Madoff was a crook and the millions of dollars that they had invested with him were lost. He was right — she didn’t believe him. Instead, she waved off the thought. “That’s not possible,” she said, and returned to the magazine she was reading.

The stunned developer stood up and walked to the rear of the plane, where the flight attendants had gathered in the galley. “Excuse me,” he said politely, “but I’m going to be leaving now. So would you please open the door for me? And don’t worry — I won’t need a parachute.”

At about 5:15 that December afternoon, I was at the local dojo in my small New England town watching my five-year-old twin boys trying to master the basic movements of karate. It had been a gloomy day. Rain continued intermittently, and there was a storm in the air. I noticed there were several voice mails on my cell phone. That’s curious, I thought; I hadn’t felt it vibrate. I stepped into the foyer to retrieve the messages. The first one was from a good friend named Dave Henry, who was managing a considerable amount of money as chief investment officer of DKH Investments in Boston. “Harry,” his message said clearly, “Madoff is in federal custody for running a Ponzi scheme. He’s under arrest in New York. Call me.” My heart started racing. The second message was also from a close friend, Andre Mehta, a super-quant who is a managing director of alternative investments at Cambridge Associates, a consultant to pension plans and endowments. I could hear the excitement in Andre’s voice as he said, “You were right. The news is hitting. Madoff’s under arrest. It looks like he was running a huge Ponzi scheme. It’s all over Bloomberg. Call me and I’ll read it to you. Congratulations.”

Nwehrkamp
I was staggered. For several years I’d been living under a death sentence, terrified that my pursuit of Madoff would put my family and me in jeopardy. Billions of dollars were at stake, and apparently some of that money belonged to the Russian mafia and the drug cartels — people who would kill to protect their investments. And I knew all about Peter Scannell, a Boston whistleblower who had been beaten nearly to death with a brick simply for complaining about a million-dollar market-timing scam. So I wouldn’t start my car without first checking under the chassis and in the wheel wells. At night I walked away from shadows and I slept with a loaded gun nearby; and suddenly, instantly and unexpectedly, it was over. Finally, it was over. They’d gotten Madoff. I raised my fist high in the air and screamed to myself, “Yes!” My family was safe. Then I collapsed over a wooden railing. I had to grab hold of it to prevent myself from falling. I could barely breathe. In less time than the snap of my fingers I had gone from being supercharged with energy to being completely drained.

The first thing I wanted to do was return those calls. I needed to know every detail. It was only when I tried to punch in the numbers that I discovered how badly my hand was shaking. I called Dave back and he told me that the media was reporting that Bernie Madoff had confessed to his two sons that his multibillion-dollar investment firm was a complete fraud. There were no investments, he had told them; there never had been. Instead, for more than two decades, he had been running the largest Ponzi scheme in history. His sons had immediately informed the Federal Bureau of Investigation (FBI), and agents had shown up at Madoff’s apartment early that morning and arrested him. They’d taken him out in handcuffs. It looked like many thousands of people had lost billions of dollars.

Video: Were SEC’s Madoff probes incompetent?

It was exactly as I had warned the government of the United States approximately $55 billion earlier. And as I stood in the lobby of that dojo, my sense of relief was replaced by a new concern. The piles of documents I had in my possession would destroy reputations, end careers, and perhaps even bring down the entire Securities and Exchange Commission (SEC), the government’s Wall Street watchdog — unless, of course, the government got to those documents before I could get them published. I grabbed my kids and raced home.

My name is Harry Markopolos. It’s Greek. I’m a Chartered Financial Analyst and Certified Fraud Examiner, which makes me a proud Greek geek. And this, then, is the complete story of how my team failed to stop the greatest financial crime in history, Bernie Madoff’s Ponzi scheme. For the previous nine years I had been working secretly with three highly motivated men who worked in various positions in the financial industry to bring the Bernie Madoff fraud to the attention of the SEC. We had invested countless hours and risked our lives, and had saved no one — although eventually, after Madoff’s collapse, we would succeed in exposing the SEC as one of this nation’s most incompetent financial regulators.

For example, it was well known that Madoff operated his legitimate broker-dealer business on the 18th and 19th floors of the Lipstick Building on New York’s East Side. But what was not generally known was that his money management company, the fraud, was located on the 17th floor of that building. Months after Madoff’s collapse, the FBI would reveal to my team that based on our 2005 submission providing evidence that Madoff was running a Ponzi scheme, the SEC finally launched an investigation — but that its crack investigative team during the two-year-long investigation “never even figured out there was a 17th floor.” I had provided all the evidence they needed to close down Madoff — and they couldn’t find an entire floor. Instead they issued three technical deficiency notices of minor violations to Madoff’s broker-dealer arm. Now, that really is setting a pretty low bar for other government agencies to beat. But sadly, all of this nation’s financial regulators — the Federal Reserve Bank, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, and the Office of Thrift Supervision — are at best incompetent and at worst captive to the companies they are supposed to regulate. As I would later testify before Congress, “The SEC roars like a mouse and bites like a flea.” In retrospect, considering how much I have learned since then, and how much my team has learned, that probably was inaccurate: I was being too kind. Tens of thousands of lives have been changed forever because of the SEC’s failure. Countless people who relied on that agency for the promised protection have lost more than can ever be recovered. In some cases people lost everything they owned. And truthfully, the SEC didn’t even need to conduct an extensive investigation. My team had given them everything they needed. With the materials we submitted, it would have taken investigators no more than the time it took to ask Madoff three questions for his fraud to be discovered and his operation to be shut down. The magnitude of this Ponzi scheme is matched only by the willful blindness of the SEC to investigate Madoff.

Excerpted from "No One Would Listen," by Harry Markopolos. Copyright (c) 2010, reprinted with permission from Wiley.

© 2012 MSNBC Interactive

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