Q&A with Harry Markopolos

An interview with the man who unmasked Bernie Madoff.

In spite of all your warnings, the SEC repeatedly missed catching Bernie Madoff. You write than an official from the SEC’s Inspector General’s Office cried during your first meeting with the agency. 

It was that and more. My lawyer explained that the SEC deputy inspector general was crying because of liability. A case against the SEC [by Madoff investors] alleging negligence is probably going to go to the Supreme Court. It may overturn the doctrine of sovereign immunity. It is the tailor-made case. The IG was asking me one question after another about the SEC staff. They thought the staff was corrupt. I led them to the fraud, but instead the SEC weren’t corrupt, they’re so f—ing dumb.

You write in your book that SEC officials tried to cover up their knowledge of Madoff, of the roadmap you had given them, even denying they had heard of you.

I got a phone call right after Bernie was arrested. Someone within the SEC told me, “The cover-up has begun.” Also, a reporter from the Washington Post told me the SEC was denying I ever existed. You saw the cover-up in action in the SEC’s congressional testimony. SEC senior staff didn’t answer any questions. I was frightened. I stayed up all that night to safeguard my computers and documents that would bury the SEC and show people how bad they really are.

Why were investors so blind?

They thought Madoff was front-running [when a broker puts his or her order ahead of the customer’s, knowing the stock price will likely move]. Once investors assumed it was front-running, they were all figuring, “Well, he’s a crook, but he’s our crook. He gets caught, goes to prison — we get to keep our profits.” Others were afraid of Bernie.

Were you worried about retribution from investors for outing Madoff?

I wasn’t worried about the high-net-worth investors or the royal families. The Russian or Latin American folks [who reportedly invested in Madoff]? Yes. Those were the people I was worried about.

Jeffry Picower, Madoff’s biggest winner, allegedly withdrew $7 billion over many years. He died late last year in his swimming pool.

Dead men tell no tales. He took out $7 billion. I figured it caught up to him.

What happened to Ed Manion and Mike Garrity in the SEC Boston office?

I told SEC chair Mary Schapiro she should give them the highest honor. Meanwhile, not one person from the SEC has been punished. [SEC examiner and attorney on the Madoff case] Simona Suh was actually promoted and is now a branch chief. No one has been fired. The SEC’s Rob Khuzami said he wants the big cases, there are no sacred cows, and if someone tries to intimidate an SEC exam team, that’s a red flag. I appreciated that remark, but I wonder if they get the message. Lawyers at the SEC haven’t prosecuted criminal cases. What good is a securities lawyer on a finance case?

Are you satisfied with the way the SEC is trying to revamp itself?

They’re reorganizing. But if you keep the same people, how can you be effective? My hat is off to them. But with lawyers in charge, what hope do they have of discovering securities fraud? On Wall Street, lawyers are the hired help.

In the book, you write that you bought a gun for protection and at one point considered going to New York and killing Madoff.

If I felt threatened, I was going to. If he had gotten wind of me, I knew the scheme would fall apart. I figured I’d get a free pass and a jury wouldn’t convict me. Some people just deserve it. He fits that bill.

Personally, how has life changed?

Positively. People on the street just come up and thank me: on the train, in airports, in restaurants. I feel embarrassed by that. But I didn’t stop Madoff, the market stopped him… Victims thank me. I can’t tell you how nervous I was about them. I failed, and yet they thanked me. I really didn’t stop Madoff, and it tears at my gut. The only two emotions I have are sadness and anger at the SEC. I’ve turned it into humor. I feel better about it this year than last year. But I don’t feel gratified at all. I never have a happy thought about this case.

So why did so many people commit their entire life savings to Madoff and not spread the risk?

It’s human nature. It seemed risk-free. They were considered foolish if they didn’t join the money club. They intuitively knew the risk was low for the returns. They never saw the true risk, because they weren’t trained in finance. The statements showed 35-50 blue chip stocks with put option to protect against downside. Investors didn’t feel like they had fraud risk.