Jeff Koopersmith on Harry Markopolos, the man who dared blow the whistle on an SEC that is at best incompetent, at worst corrupt beyond redemption.

February 11, 2009 – Geneva (apj.us) – For almost ten years I’ve been writing about the tragic state of American – no Western, no worldwide business and economics.  What progress have we made over five thousand years when “dealers” live in 50 million townhouses in London or New York, and nearly 3 billion people live in mud and collect their daily pay in garbage dumps?

Lately my focus has been rightfully on Wall Street, but when I listen to one of the rare breed represented by Mr. Harry Markopolos you realize that some spirit of decency and justice still exists in the United States. (Harry, please don’t let me down!  I wince because every time I think we’ve found a hero; something turns up to prove me wrong.)

Last week, Mr. Markopolos, who tried against what seems all odds for nearly a decade to blow the whistle on super white collar fraud Bernard Madoff testified before a congressional committee, one of many charged with overseeing your bank deposits and investments as well as the investments of pension funds, colleges, and charities. It appeared these committees did no such thing under Republican control.  See my discussion of former Senator Phil Gramm and his lovely wife.

Often we see films where illicit businessmen and women hire someone to murder someone who is about to expose their criminality. Mr. Markopolos proves that such fears are not a figment of Hollywood’s imagination.  As he worked to convince the regulators that Bernard Madoff was in a decade-long process of stealing $50 Billion more or less from investors Harry had to worry that he would be “disappeared” as they say in Columbia.  He went under false names and even volunteered to disguise himself to get a close look.

From what I know, I’d say Markopolos is one of the luckiest men to yet be alive.  While it is unclear what men will do to protect themselves from going to prison – it is certain that out of all the people involved with Mr. Madoff at least one wouldn’t hesitate to order the trigger pulled inasmuch as Madoff is sure to have had organized crime funds in his trust.

The thing is – While Harry Markopolos focused on Bernard Madoff, it is fairly obvious, even to the casual observer that there must be dozens if not hundred of Madoff’s running around looking for new homes in countries that have no extradition treaties with the United States. 

While Madoff might be a large chunk of this criminal iceberg, the rest of it might be so big as to wipe out what little trust is left in the capitalistic system despite the often-heard remark that this system is better than the other’s we’ve tried.

Leaving “God Bless the United States of America” off the table – which Harry chose to sign his written congressional testimony when he should have signed off “God Help….”|
And putting aside his sometimes Royal Canadian Mounted Police demeanor – Harry Markopolos seems to be the real thing and has the right stuff to open the eyes, or “finger” our elected and appointed officials although I was shocked to see the new SEC Chairperson Mary Schapiro fail to mention Markopolos’ testimony as she, only days later addressed Practicing Law Institute's PLI's "SEC Speaks in 2009" conference and outlined a framework for restoring investor confidence.  After giving herself several pats on the back for heading other agencies that failed the American people. She outlined three ridiculous solutions to current SEC problems:

Bring transparency and accountability to all corners of the marketplace,

Vigorously prosecute those who have broken the law and cheated investors, and

Modernize our country's regulatory system to match the realities of today's global, interdependent markets.

I was more than shocked. Stunned might be the word.  Here is the chairperson of  the SEC ignoring the comments of one of the most respected whistleblowers in history - she using tired and overused cures like transparency,  prosecution, and modernization when it is clear to anyone who graduated high school that the problem is the SEC staff itself, its refusal to take on big company’s misdemeanors and felonies (See Madoff and others), and its arrogance when, after it has its nose shoved in incontrovertible proof of crime, simply shrugging and going out for tea or coffee.  What Ms. Schapiro should have told her audience was that “heads would roll” starting at the top.

Was everyone at the SEC asleep when they realized that Harry Markopolos couldn’t even sign his name to his reports for fear of reprisal?  Did that raise a red flag that his findings on Bernard Madoff were in fact quite grave?   Did anyone in Boston, Washington, or New York at SEC give a hoot whether Madoff’s clients were sure to left at least impoverish if not dead from grief at losing their life savings. No.  It seems that the SEC staff took the position that the rich were playing their own games, and who were they to step in and save a bunch of rich people?  Or, worse, were they getting telephone calls in the night from Washington warning them to stop one investigation or another?  You bet.
Oh, to be a fly on the wall of the Capitol office buildings.

What will Chairperson Schapiro say when confronted with testimony that claims SEC lawyers colluded “through their investigative ineptitude and financial illiteracy acted to maintain large frauds such as the one Madoff later confessed to?  The SEC legal team ignored and insulted by their ignorance several attempts by 25 year portfolio veteran Ed Manion an SEC staffer, and not a lawyer, who is one of the most respected experts in the field and urged the SEC to clamp down on Bernard Madoff.  It’s sickening to imagine a bunch of legal eagle snobs who didn’t know a put from a call and would not admit to themselves or others that law school teaches you little or nothing about the real world of white collar crime. 

Mr. Manion fears that the SEC will fire him if he comes to Capitol Hill and testifies about what he found when he attempted to gain interest in the Madoff case from the legal team at SEC.  I think he should have no fear, not with the Obama Administration and a Democrat controlled congress.

Mr. Markopolos took a look at one of Bernard Madoff’s prospectus and within a few hours knew that Madoff was a fraud.  Where were the “brains” at SEC?  Asleep at the wheel. 

And remember – this was in 2001-2002! Fully six years before Madoff finally admitted his Ponzi scheme.

Markopolos’ investigation continued right though 2006, when SEC official Meaghan Cheung just blew him off and never followed up on the Madoff crimes.  In fact, Markopolos points out that she did not understand them even though he walked her through the scheme more than once as well as with her colleagues at SEC.

Markopolos tried again in 2006 with an email submission to Cheung.  By this time Mr. Madoff, according to Markopolos was becoming desperate and taking as much as $3 million per “client-sucker” so as to be able to pay the older investors – typical with a Ponzi scheme.  Cheung ignored him again.

By 2008, Markopolos gave up, and months later Madoff admitted his fraud.

Look at this timeline of Markopolos’ work on the Madoff Ponzi-scheme.
You won’t believe your eyes, and will not be able to understand how the SEC could have allowed this to continue.

Today Markopolos is interested in fixing the national regulators.  He know that few trust our banks, insurance companies, brokerages, hedge funds and that investors do not trust the Federal Reserve Bank and the US Treasury. There is no transparency, although FED Chairman Bernake now says he will have a web site up in “a few weeks” that provide same.

I have clipped some of his suggestions for you below, but in a nutshell, Harry Markopolos may be the only person on earth who can at least show a plan to fix a broken system. 

He would start with replacing most of the people at the SEC and bring together a single agency that would be able to share information across the desk – and not hoard it.  This reminds me of the problems we had with intelligence and police agencies in the US during the early 2000s – who too seemed unwilling to share what they knew.

Whatever the future brings in terms of effectiveness and transparency of our economic system – Harry Markopolos will be the man to thank.  I hope historians remember him and what he has done.

A true hero.

Jeff Koopersmith is an internationally renowned political consultant, opinion research authority and policy analyst. He has lobbied for causes including the alternative fuel sector and women's health, and is an expert on the international real estate market. He lives in Philadelphia, Washington and Geneva.