COLUMBIA — A whistle-blower that helped uncover the biggest financial scam in U.S. history said in a lecture at MU on Friday that it only took him five minutes to realize what was going on.
Harry Markopolos, a certified fraud examiner and financial analyst, told a nearly full auditorium in Cornell Hall that he noticed investment numbers reported by Bernard Madoff’s Wall Street investment firm were too good to be true, and that he noticed the inconsistencies nearly a decade ago.
Madoff, previously a chairman of Nasdaq, pleaded guilty in March 2009 to numerous counts of fraud that cost investors an estimated $65 billion.
Markopolos said he was alerted to the fraud when he realized that its profit margins were too perfect compared to that of legitimate firms.
He said Madoff began running an enormous Ponzi scheme in the early 1990s, fooling both individual and institutional investors.
A Ponzi scheme uses individual investors’ own money to promise big returns for subsequent investors. The scheme does not make actual profit but rather recycles money as the promoter skims personal profit off the top.
Although Markopolos said he alerted the U.S. Securities and Exchange Commission of his suspicions, little was done to investigate his claims.
“Nobody saw the obvious, nobody asked any questions," he said. "Nobody had professional skepticism. And that’s how this thing was allowed to go on for decades.”
Markopolos said fraud examiners at the commission had little experience and were either fooled by Madoff’s privacy provisions or overlooked several glaring inconsistencies.
Over several years, Markopolos investigated the firm through its investors at home and abroad. He said that at one point, he realized his knowledge of the deceit, which included investments made by organized crime rings, could put him in danger.
“I began carrying a gun and checking for bombs,” he said.
The commission and FBI eventually began investigating the firm, and after Madoff’s sons reported him to the authorities at the end of 2008, Madoff was arrested and charged with fraud. He was convicted and sentenced to a maximum sentence of 150 years in prison.
“Many thousands of direct victims who went from riches to rags literally overnight,” Markopolos said. “Research programs at teaching hospitals closed down; doctors, P.h.Ds, research assistants. All because the money had come from charities that had invested everything in Madoff.”
Markopolos said the ordeal was not just horrible for investors but for the reputation of the U.S. in general, which was known for credible capital markets internationally.
In March, Markopolos released a book, "No One Would Listen: A True Financial Thriller," describing his decade-long experience in detail.
Business student Aaron Flader, who attended the lecture, said he was concerned about the implications of the fraud for the U.S. government.
“The fact that he said something about it and no one decided to do anything is kind of scary,” he said. “Going in to the workplace, I have to be concerned about it. It teaches us what goes on the business and how to catch certain fraud and how to prevent it.”
The lecture was part of the Richard M. Orin Ethics Symposium, sponsored by the MU School of Accountancy.