page_title: Harry Markopolos
section_title: Madoff investigation
hierarchical_section_title: Harry Markopolos / Madoff investigation
caption_attribution_description: English: Bernard Madoff's mugshot
context_page_description: Harry M. Markopolos is an American former securities industry executive and a forensic accounting and financial fraud investigator.
  From 1999 to 2008, Markopolos uncovered evidence that suggested that Bernie Madoff's wealth management business was a huge Ponzi scheme. In 2000, 2001, and 2005, Markopolos alerted the U.S. Securities and Exchange Commission of his views, supplying supporting documents, but each time the SEC ignored him or gave his evidence only a cursory investigation. Madoff was finally revealed to be a fraud in December 2008, when his sons contacted the Federal Bureau of Investigation. After admitting to operating the largest private Pyramid scheme in history, Madoff was sentenced in 2009 to 150 years in prison. In 2010, Markopolos' book on uncovering the Madoff fraud, No One Would Listen: A True Financial Thriller, was published. Markopolos has criticized the SEC for failing to discover the Madoff fraud despite repeated tips, and for failing to investigate properly the larger companies it supervised. He described the private moments he had with victims of the Madoff fraud as: "Heartfelt, gut-wrenching things.
context_section_description: During 1999, Markopolos learned that one of Rampart's frequent trading partners, Access International Advisors, was dealing with a hedge fund manager who consistently delivered net returns of 1% to 2% a month.
  Frank Casey, one of Rampart's principals, met with Access CEO René-Thierry Magon de La Villehuchet, and learned the manager was Bernie Madoff, who was operating a wealth management business in which his clients essentially gave him carte blanche to invest the money as he saw fit, in a set of securities. Casey and Rampart's managing partner, Dave Fraley, asked Markopolos to try to design a product similar to Madoff's split-strike conversion, in hopes of luring away Access from investing in Madoff.
  When Markopolos obtained a copy of Madoff's revenue stream, he spotted problems. The biggest red flag, he believed, was that the return stream rose steadily with only a few downticks — represented graphically by a nearly perfect 45-degree angle. According to Markopolos, anyone who understood the underlying math of the markets would have known they were too volatile for this to be possible even in the most favorable conditions. As he later put it, a return stream like the one Madoff claimed to generate "simply doesn't exist in finance". He eventually concluded that Madoff could not mathematically deliver his purported returns using the strategies he claimed to use. As he saw it, there were only two ways to explain the figures: Madoff was either running a Ponzi scheme (by paying established clients with newer clients' money) or front running (buying stock for his own and the hedge fund's accounts, based on insider knowledge about market impacts from about-to-be-executed client orders at his company's unrelated broker-dealer business).
  Markopolos later said that he knew within five minutes that Madoff's numbers didn't add up. He claimed it took him another four hours to uncover enough evidence that he could mathematically prove that they could have been obtained only by fraud.
  Despite this, Markopolos' bosses at Rampart asked Markopolos to deconstruct Madoff's strategy to see if he could replicate it. He could not simulate Madoff's returns, using information he had gathered about Madoff's trades in stocks and options. For instance, he discovered that for Madoff's strategy to work, he would have had to buy more options on the Chicago Board Options Exchange than actually existed.
  His calculations of Madoff's trades revealed that there was almost no correlation between Madoff's stocks and the S&P 100, as Madoff claimed. Markopolos also could find no evidence that the market was responding to any Madoff trades, even though by his estimate Madoff was managing as much as $6 billion, three times more than any known hedge fund at the time. Given that Madoff's supposed trades should have had a ripple effect on broader markets, Markopolos suspected that Madoff wasn't even trading.
  With the help of two of his colleagues at Rampart, Casey and fellow quant Neil Chelo, Markopolos continued to probe the Madoff operation. What they found concerned him enough that he filed a formal complaint with the Boston office of the SEC during the spring of 2000. However, the SEC took no action. Nonetheless, some in the investing world were heeding Markopolis's findings. Joel Tillinghast of Fidelity Investments dropped his plans to study Madoff's strategies after a meeting with Markopolis in 2000 convinced Tillinghast that Madoff was almost certainly engaging in fraud. Tillinghast later wrote: "nothing in Madoff's ostensible strategy made sense." Michael Ocrant, editor-in-chief of MARHedge, joined the effort to publicize Madoff's questionable actions. Casey surprised Ocrant with information that Madoff, whom Ocrant only knew to be one of the largest market makers on NASDAQ and one of the largest brokers on the New York Stock Exchange, actually ran a secretive multi-billion dollar hedge fund, directly managing investors' money. Ocrant investigated and wrote an article, "Madoff tops charts; skeptics ask how", published May 1, 2001, questioning Madoff's ret
caption: Bernard "Bernie" Madoff
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