Book Excerpt: Investigating Bernie Madoff

In 1999, local financial analyst Harry Markopolos was asked to figure out how Wall Street titan Bernard Madoff managed to achieve his spectacular investment returns. After concluding it was impossible — that Madoff was a fraud — Markopolos reported his findings to the SEC. Over the next nine years, Markopolos would warn the SEC four more times, to no avail. As this exclusive excerpt from Markopolos’s new book details, the audacity of Madoff’s scheme was matched only by the SEC’s unwillingness to investigate it.

On October 25, 2005, I met with Garrity and several others in the SEC office. Garrity had read my report and had a lot of questions. There was a whiteboard in the front of the meeting room, and when there was something he didn’t understand, he had me outline it on the board. I spent hours drawing charts and diagrams and guiding him through the math. At one point he asked about the possibility that I was totally wrong. “What if his returns are real? Is there any possible explanation for that?”

Actually, there was one, I said. “Bernie Madoff is an alien.”

By the time we finished our meeting, Garrity not only understood the math, he also understood the threat that Madoff posed to the economy. I left the meeting more excited than I had ever thought possible.

Garrity called me less than a week later. “I’ve found some irregularities that are very disturbing,” he told me. “I’m not at liberty to share them with you, but I think I need to put you in touch with our New York regional office.” He said that if Madoff were subject to the Boston office’s jurisdiction, he would have a team tearing his office apart tomorrow. Unfortunately, Madoff was in New York. Garrity promised to do as much as he could before passing my report along, and he gave me the names of the two people he would be contacting. The only thing I asked was that my identity be protected.

One of the names Garrity gave me was New York branch chief Meaghan Cheung. She was Garrity’s counterpart in New York. He had suggested I contact her directly, and in early November I called and identified myself as the Boston whistleblower. I guess I expected some kind of reaction. But all she would say was that she had read the report. She didn’t ask a single question about it. Not one. When I asked if there was anything she didn’t understand, she acted as if I were insulting her. The point I was trying to make was that I could help; the point she was trying to make was that she didn’t want my help. That was the way our relationship progressed. Over the next few months I would call or e-mail her from time to time. She would always take my call, but she never initiated a conversation or followed up.

As the weeks passed, it became obvious to me not only that Cheung wasn’t going to do anything to stop Madoff, but also that she did not seem to appreciate the danger I was in. What really frightened me was the fact that she knew my identity, and I worried that she would be careless enough to allow my name to get out. The more I considered the potential danger, the more anxious I got. By then, we had discovered that Madoff’s operation was a massive international scheme spread across several continents, involving the rich, royalty, and possibly some of the most dangerous men in the world.

I felt boxed in: I was trying to alert the government about how big this thing was, but because it was so big the government refused to take me seriously. The enemy was a grandfatherly philanthropist, the most respected man in his community, perhaps the very last person anyone would suspect of violence. But we already knew that his reputation was his disguise, and that he was a world-class criminal. What nobody could predict was how far he would go to protect himself.


  • lynda

    Thank God for Markapolos–and for Mike Garrity. Is it completely impossible for someone (like those whom Madoff defrauded) to initiate a suit against the NY SEC and perhaps Ms. Cheung personally? If a watchdog institution and the person directly in charge of the relevant branch fails to keep watch over precisely what it is charged with watching— and this occurs not because of mere oversight but because of repeated acts of willful negligence–and that negligence ends up costing possibly millions of investors a collective billions of dollars—why should Ms. Cheung and the higher ups in the SEC who knew about this and should have acted, walk away scot-free? I assume that Cheung and the others who were directly in the know continue today to work at the SEC and likewise continue to make a whole bunch of bucks for their supposed proficiency as watchdogs. I say they should be rudely shoved out of the kennel and fined so heavily that they will find themselves sharing the mean financial

  • arthur

    I wonder if Meaghan Cheung of the SEC was a product of Affirmative Action ?