Harry Markopolos

In 2019, Markopolos published a report alleging fraudulent accounting within General Electric. The report caused the company's stock to drop 10.3% on August 15, 2019. The stock closed at $9.03 prior to the report, and then closed at $8.01 the following day when the report was published. Markopolos claimed GE was a fraud "bigger than Enron." Subsequently, GE called the report "meritless" and an attempt at "market manipulation" by Markopolos; Wall Street analysts shrugged off the report; and the regulators called the report "fairly simplistic." A Financial Times article labeled the report "some ill-thought out twaddle disguised as deep financial analysis." Strangely, the Markopolos website (www.gefraud.com) alleging this giant fraud disappeared after criticism about the quality of his analyses. The full report is still available, however, in internet archives. Three months after the 175 page Markopolos report, GE stock had risen almost 44% to close at $11.52 on November 15, handily outperforming the general stock market. But on May 15 GE closed at $5.49 per share, a 29-year low for the company.

When Markopolos obtained a copy of Madoff's revenue stream, he spotted problems. The biggest red flag, he believed, was that the return stream rose steadily with only a few downticks — represented graphically by a nearly perfect 45-degree angle. According to Markopolos, anyone who understood the underlying math of the markets would have known they were too volatile for this to be possible even in the most favorable conditions. As he later put it, a return stream like the one Madoff claimed to generate "simply doesn't exist in finance". He eventually concluded that Madoff could not mathematically deliver his purported returns using the strategies he claimed to use. As he saw it, there were only two ways to explain the figures: Madoff was either running a Ponzi scheme (by paying established clients with newer clients' money) or front running (buying stock for his own and the hedge fund's accounts, based on insider knowledge about market impacts from about-to-be-executed client orders at his company's unrelated broker-dealer business).

From the beginning, Markopolos believed that Madoff was most likely running a Ponzi scheme, given his voracious appetite for cash; a Ponzi scheme can last only as long as new money is flowing in to pay existing investors. His colleagues, Casey and Chelo, were more inclined to think that Madoff was front-running. Casey and Chelo believed Madoff was already a very wealthy man, and on paper it made no sense for him essentially to steal billions of dollars that he didn't need. They suspected that it was more feasible for him to increase his returns on actual trades via front-running. Markopolos, however, doubted this, since front-runners don't need the massive amount of new investor money that Madoff kept bringing in. Additionally, Markopolos believed that if Madoff was front-running, he would have to siphon off money from his broker-dealer arm to pay the investors in his hedge fund. This would have resulted in the customers of his broker-dealer operation getting shortchanged — something that would not have gone unnoticed by Madoff's more sophisticated broker-dealer customers.

Chasing Madoff, a documentary film based on the book was released in 2011.

Markopolos's account of the Madoff scandal, No One Would Listen: A True Financial Thriller, was published in 2010.

On June 3, 2009, Markopolos told a conference at Boston College, his alma mater, that he believed Madoff personally kept less than 1 percent of the $65 billion reported stolen, and would probably lose what remained of his portion to money launderers. Markopolos estimated that $35 billion to $55 billion of the money Madoff claimed to have stolen never really existed, but were simply fictional profits he reported to his clients. Markopolos believed that Madoff's customers lost $10 billion to $35 billion, most of which went to early investors. "Madoff will wind up in a special prison designed as much to keep the crook's victims out as Madoff in. He's a guy who can't afford not to be in prison," he said. Thierry Magon de La Villehuchet committed suicide soon after Madoff's scheme collapsed, having lost $1.5 billion.

On February 4, 2009, Markopolos testified before the United States Congress' House Financial Services Committee's capital markets panel and on March 1, appeared on CBS's 60 Minutes.

Although Madoff's scheme did not collapse until 2008, Markopolos believed that Madoff was on the brink of insolvency as early as the summer of 2005, when Casey found out that at least two banks were no longer lending money to their clients to invest with Madoff. This prompted Madoff to seek loans from banks. In June 2008 — six months before Madoff's scheme imploded — Markopolos' team uncovered evidence that Madoff was accepting leveraged money. In his book, Markopolos wrote that this was a sign Madoff was running out of cash and needed to increase his intake of new funds to keep the scheme going.

He not only feared the power Madoff's brother, Peter, had in that organization (he is a former Vice Chairman), but also feared that Madoff might have had associations with Russian and South American organized crime. Markopolos believed the FBI would reject his allegations without the SEC staff's endorsement. He believed that only a few SEC officials, including Manion and SEC Boston branch chief Mike Garrity, understood Madoff's operation well enough to detect the fraud. Markopolos met with Garrity during 2005, and said that while Garrity realized almost immediately that Madoff was violating the law, he could not take any action because Madoff was not based in New England.

He also added that during 2005 it was Meaghan Cheung, the branch chief of the SEC's New York office, to whom he gave his 21-page report alleging that Madoff was paying old investors with money from fresh recruits. "Ms. Cheung never expressed even the slightest interest in asking me questions", Markopolos said, claiming she was too concerned with Markopolos mentioning the possibility of a reward and the fact that he was a competitor of Madoff. Cheung approved an internal memo during November 2007 to close an SEC investigation of Madoff without bringing any claim. Subsequently, she left the agency. He testified he gave details about the case during 2005 to John Wilke, an investigative reporter for The Wall Street Journal, but that it was never pursued. Markopolos testified he (anonymously) sent a package of documents concerning Madoff to former New York Attorney General Eliot Spitzer, who had successfully prosecuted a number of securities fraud cases, but that Spitzer apparently did not act, either. Spitzer's family firm had invested in Madoff's business.

Even after leaving Rampart in 2004, frustrated that he was in a business that had to compete with cheats and lawbreakers, Markopolos continued to be driven by the intellectual challenge of solving the problem, and the ongoing encouragement from Boston SEC staffer Ed Manion. The culmination of Markopolos' analysis was a 21-page memo sent during November 2005 to SEC regulators, entitled "The World's Largest Hedge Fund is a Fraud". It outlined his suspicions in more detail and invited officials to check his theories. He outlined 30 red flags that he believed proved Madoff's returns could not be legitimate. His analysis was based on more than 14 years of Madoff return numbers, during which time Madoff reported only four losing months, an implausible scenario that Markopolos said could be achieved only by fraud. In the document Markopolos states:

On December 17, 2002, Markopolos came up with a plan to deliver an investigative file anonymously to an aide of then-Attorney General of New York Eliot Spitzer as Spitzer delivered a speech at the John F. Kennedy Library in Boston. He put on a pair of white gloves to prevent leaving fingerprints, and wore an oversize coat.

With the help of two of his colleagues at Rampart, Casey and fellow quant Neil Chelo, Markopolos continued to probe the Madoff operation. What they found concerned him enough that he filed a formal complaint with the Boston office of the SEC during the spring of 2000. However, the SEC took no action. Nonetheless, some in the investing world were heeding Markopolis's findings. Joel Tillinghast of Fidelity Investments dropped his plans to study Madoff's strategies after a meeting with Markopolis in 2000 convinced Tillinghast that Madoff was almost certainly engaging in fraud. Tillinghast later wrote: "nothing in Madoff's ostensible strategy made sense." Michael Ocrant, editor-in-chief of MARHedge, joined the effort to publicize Madoff's questionable actions. Casey surprised Ocrant with information that Madoff, whom Ocrant only knew to be one of the largest market makers on NASDAQ and one of the largest brokers on the New York Stock Exchange, actually ran a secretive multi-billion dollar hedge fund, directly managing investors' money. Ocrant investigated and wrote an article, "Madoff tops charts; skeptics ask how", published May 1, 2001, questioning Madoff's returns. Within a week, Erin Arvedlund followed with an investigative article in Barron's, further questioning Madoff's secrecy and results; despite the details in these scathing articles, they generated no action from the SEC, and did not scare off Madoff's existing investors.

Markopolos harshly criticized the SEC for ignoring his warnings about Madoff. "Nothing was done. There was an abject failure by the regulatory agencies we entrust as our watchdog," he said in 65 pages of prepared testimony. He said that his original 2000 complaint gave the SEC enough evidence to stop Madoff when he was supposedly managing as little as $3 billion.

From 1999 to 2008, Markopolos uncovered evidence that suggested that Bernie Madoff's wealth management business was a huge Ponzi scheme. In 2000, 2001, and 2005, Markopolos alerted the U.S. Securities and Exchange Commission (SEC) of his views, supplying supporting documents, but each time the SEC ignored him or gave his evidence only a cursory investigation. Madoff was finally revealed to be a fraud in December 2008, when his sons contacted the Federal Bureau of Investigation. After admitting to operating the largest private Pyramid scheme in history, Madoff was sentenced in 2009 to 150 years in prison. In 2010, Markopolos' book on uncovering the Madoff fraud, No One Would Listen: A True Financial Thriller, was published. Markopolos has criticized the SEC for failing to discover the Madoff fraud despite repeated tips, and for failing to investigate properly the larger companies it supervised. He described the private moments he had with victims of the Madoff fraud as: "Heartfelt, gut-wrenching things. People trying to commit suicide or losing loved ones who've died of heartbreak."

During 1999, Markopolos learned that one of Rampart's frequent trading partners, Access International Advisors, was dealing with a hedge fund manager who consistently delivered net returns of 1% to 2% a month.

Markopolos had originally concealed his identity from SEC regulators during May 1999, although he did meet face-to-face with SEC officials in Boston during 2000 and 2001. After the SEC did not respond, Markopolos was fearful of taking his complaints to the industry's self-regulatory authority, the National Association of Securities Dealers (since succeeded by the Financial Industry Regulatory Authority (FINRA)).

In his interview with Steve Kroft of 60 Minutes, Markopolos said the biggest warning he noticed during his initial 1999 analysis of Madoff was that he reported losing months only four percent of the time. To Markopolos' mind, no one could possibly be that good, given the volatility of the markets. "As we know, markets go up and down, and his only went up," he said. Markopolos noted that during his tenure at Rampart, he traded with some of the biggest derivatives companies in the world, and none of them dealt with Madoff, because they didn't think his numbers were real. He admitted that he had some financial incentive to eliminate Madoff, as the two competed against each other from 2000 to 2004. However, he said, he felt compelled to pursue it, because "when someone's competing on your playing field, who's a dirty player, you want him tossed off the field." He assailed the SEC once again for ignoring his warnings, saying that the only reason Madoff was caught was that he ultimately collapsed under the weight of his own lies.

From 1991 to 2004, he served as a portfolio manager at Boston-based options trading company Rampart Investment Management, ultimately becoming its chief investment officer.

He began his career on Wall Street in 1987 as a broker with Makefield Securities, a small Erie-based brokerage. During 1988, he obtained a job with Darien Capital Management in Darien, Connecticut, as an assistant portfolio manager.

Markopolos attended Roman Catholic schools, graduating from Cathedral Preparatory School in Erie, Pennsylvania, in 1974. He received an undergraduate degree in Business Administration from Loyola College in Maryland in 1981, and a Master of Science in Finance from Boston College in 1997, also Catholic schools. He is a CFA charterholder, and a Certified Fraud Examiner (CFE).

Harry M. Markopolos (born October 22, 1956) is an American former securities industry executive and a forensic accounting and financial fraud investigator.