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Madoff Whistleblower Wants to be Left Alone

Date: Wednesday, January 14, 2009
Author: Scott Malone, Thomson Reuters.com

After a decade of trying to convince U.S. authorities that Bernard Madoff's seemingly high-flying hedge fund was a scam, the man whose warnings could have saved a lot of money for a lot of people issued a terse message to the world: Leave me alone.

He will talk to Congressional investigators and that's it.

Mr. Madoff stunned the world in December when he allegedly admitted to running a "giant Ponzi scheme" that investigators have said cost investors $50 billion Previous Reuters Story. In a Ponzi scheme, money from new investors is used to pay back earlier investors.

Many people were fooled, but not Harry Markopolos, the 52-year-old former financial executive who had been onto Mr. Madoff since 1996.

Members of Congress have repeatedly invoked Mr. Markopolos' name in questions to the U.S. Securities and Exchange Commission about how it missed the $50 billion fraud.

"Why in the world didn't anyone respond to his allegations?" asked Rep. Carolyn Maloney (D-N.Y,), referring to a 19-page memo Mr. Markopolos wrote to the SEC in 2005 titled, "The World's Largest Hedge Fund is a Fraud." Ms. Maloney asked during a Congressional hearing: "What happened to his report?"

Mr. Markopolos, who was due to testify before a Congressional panel early this month but begged off because of illness, said in a statement that he would work with Congress and the SEC, but then wanted to get out of the spotlight.

"Once his Congressional testimony is complete and his cooperation with the SEC Inspector General's investigation concluded, he wishes to return to private life," according to a statement released Friday [Jan. 9] by attorneys for Mr. Markopolos, the former chief investment officer of Boston-based Rampart Investment Management Co.

Not a 'Hero'

While Mr. Markopolos has drawn praise for spotting the massive fraud, according to media reports he is not so proud of his unsuccessful nine-year campaign with the SEC against Mr. Madoff, who was a former chairman of the Nasdaq stock market, which is now part of NASDAQ OMX Group Inc.

"Why would people think I feel good about this?" said Mr. Markopolos, the past president of the Boston Security Analysts Society, in a story in the Boston Globe. "People think I'm a hero, but I didn't stop him. He stopped himself."

Interest in Mr. Markopolos has extended to authors and moviemakers. The Globe reported that he has been approached by people interested in making a movie about him, but he has rebuffed all overtures.

"They'll just add in sex and violence," the Globe quoted Mr. Markopolos as saying.

The derivatives expert turned his analytical focus on Mr. Madoff in 1996 after his boss at Rampart asked him to figure out how to match the returns of Bernard L. Madoff Investment Securities LLC. Years of analysis convinced Mr. Markopolos, originally from Erie, Pa., that it was impossible for Mr. Madoff to consistently outperform markets so dramatically. He brought his suspicions to SEC officials in Boston and later New York, eventually alleging that Mr. Madoff was running a "Ponzi scheme." That type of scam was named for Charles Ponzi, who defrauded Boston-area investors out of millions of dollars in the early 20th Century.

'Sophisticated, Coherent'

One factor that could have made it harder for Mr. Markopolos to convince regulators that Mr. Madoff's results were too good to be true is that he had neither the insider information that a staffer at the company would have nor the financial exposure of someone who had invested in the firm. He was looking into the firm as a competitor.

Still, Mr. Markopolos' observations would have stood out from typical complaints, said Jonathan Macey, a Yale University law professor who studies whistle-blowing.

"This is a very unusual case because usually a whistle-blower will call up and say, 'I think that Joe is ripping off the company.' The level of detail that this guy had, you read this thing and he does not come across as a nut. He comes across as somebody who's sophisticated and has a coherent story," said Mr. Macey, who has read Mr. Markopolos' letters to the SEC but has not met him personally.

One person who worked with Mr. Markopolos on a risk-management committee in the early part of this decade said he was not surprised that he remained focused on Mr. Madoff for so long.

"His background is one of risk management and mathematics," said Mark Williams, professor of finance and economics at Boston University. "It's about when you see an error, correcting it."

Mr. Madoff would have aroused Mr. Markopolos' passions by promising high returns without risk, Mr. Williams said. "Madoff was breaking the normal equation," Mr. Williams said. "From a pure academic standpoint, Harry was trying to break that and prove that something is wrong here."

A court spokesman said late on Friday that a U.S. judge would rule on Monday [Jan. 12] on a request by U.S. prosecutors to revoke Mr. Madoff's bail and jail him pending his trial.

By Scott Malone