Swindler’s list: the Bernie Madoff story

Harry Markopoulos is a name you’re no doubt unfamiliar with.

Well here’s a heads up. Get used to the name: Mark-o-pou-los. You’re going to hear it over and over and over again, as the swindle of the century is investigated, dissected and unfurled for all to see. History will register Mr Markopoulos as the loudest whistle blower nobody heard.

When US District Court Judge Denny Chin on June 29 - in US v Madoff, US District Court, Southern District of New York (Manhattan) - imposed on Bernard L. Madoff a sentence of 150 years, many in the media from Wall Street to Fleet Street to the streets of the Emerald City, patted themselves generously on the back for closing the book on the thief. They immediately sought to outdo each other with their guesstimates as to the quantum of the scam - from a few billion dollars to over US$67 billion - and quickly turned their eyes away from Mr Madoff and towards his victims' efforts to salvage whatever they could from the financial train wreck that allegedly was his criminal enterprise.

But was it his alone?

Or were there armadas of advisors and brigades of brokers that aided and abetted Mr Madoff? Middlemen who wilfully averted their gaze in exchange for their snouts being allowed to gorge at Madoff’s trough, ever so generously?

Putting aside the numerous sideshows, including that, to date, only a small fraction of what was allegedly deposited with Bernard L. Madoff Investment Securities (BMIS) has been recovered, the real story is what possessed the hedge funds and a bevy of money managers (collectively known as “feeder funds”) to channel billions of their clients’ funds with great regularity to BMIS? And without verifying what exactly BMIS was doing?

As at July 2009, prosecutors identified more than 1,300 investors who have lost more than US$13 billion since 1995 from Madoff's Ponzi scheme. But that sum excludes the feeder accounts. While the total losses are expected to rise significantly, to date a measly US$1.2 billion has been recovered.

To get a grip on the feeder funds and the brokers that ran them, as well as a sketch of what made Mr Madoff tick, one could do worse that read Catastrophe - The Story of Bernard L. Madoff, The Man who swindled the World, by husband and wife team, Gerald and Deborah Strober.

For years, Mr Madoff had the reputation of a money manager with the golden touch. Regardless of how well or bad the economy travelled, as sure as the sun came up in the morning, his clients could count on a healthy growth in their “investments”.

A small part of the cash funnelled Mr Madoff’s way was applied to lubricate his sumptuous lifestyle, which included multi million dollar homes in Manhattan, in Montauk, Long Island and in the well heeled enclave of Palm Beach, Florida. Oh, and to prop up his taste for the high life, such as the US$100,000 AmEx bill for January 2008, 11 months before his house of cards imploded.

Deborah and Gerald Strober in Catastrophe point to many lessons over the years that apparently went unheeded. Chief among them was the necessity for transparency in Mr Madoff’s financial transactions. In addition they expose the cult-like adoration of Mr Madoff by many professionals and amateur investors, as they apparently paid too much notice to the "emperor's new clothes".

The emperor in question was outed several years ago by a do-gooder with a wealth of financial market experience, Mr Harry Markopolous. His 2005 submission to the United States Securities & Exchange Commission is included in the book’s appendix. But the SEC nor any money manager (or hedge fund operator for that matter) paid the necessary attention to Mr Markopolous’ warnings of the Ponzi scheme. Apart from Mr Markopoulos, it seems that nobody openly queried the mathematically impossible returns they were receiving from Madoff’s “management” of their money. Either the brokers and money managers were in on Mr Madoff’s scam or they were fools. And it’s hard to see the wizards of Wall Street as fools.