60 Minutes Archive: The man who figured out Madoff's Ponzi scheme

60 Minutes Rewind It's been two and a half months since Bernard Al-Madoff was arrested and charged with what is believed to be the largest financial fraud in history, but we still don't know much more about the alleged $50 billion scam What Madoff initially told the FBI agents who arrested him is that there are still no charges as federal prosecutors continue to unravel the case and try to figure out exactly what happened and who was involved, but proof that it happened can be found in the Ruined lives of thousands of people. The victims, the only person who knows more and is willing to talk is Harry Marco Polis, the man who discovered the plan before anyone else.

He sat down with us for his only television interview until a few months ago. Harry Marco Polis was an obscure financier. slightly eccentric fraud analyst and investigator from Boston, whom most people would never notice on the street, my modern Greek hero, how are you, but today he enjoys an almost heroic status, pursued by journalists and film producers and honored by his colleagues as the man who went to values. and exchange commission and he ratted out bernie

madoff

in his 50 billion dollar fraud thank you thank you please have a seat but he seems uncomfortable with all the attention and he knows he is not a hero I am before you a 50 billion dollar failure how many times did you submit material to the sec may 2000 october 2001 october november and december 2005 then again june 2007 and finally april 2008 so five separate sec submissions and despite all the things you did it ended in a disaster there is nothing to be proud of in this case i feel horrible about the result it has been a total disaster for the victims it started a decade ago when marco polos was working for a boston investment firm his boss told him that bernard

madoff

a former president of the Nasdaq Stock Exchange was running a huge unregistered hedge fund that was producing incredible returns.

He wanted Harry to reverse engineer his business strategy and his income streams so the company could duplicate Madoff's results. He had the veneer that she was a respected citizen. One of the most successful businessmen in New York. York and certainly one of the most powerful men on Wall Street. You'd never suspect it's a fraud unless you know math, so I mean you're like a math guy. I have taken every calculus course, from integral calculus to differential calculus. apart from linear algebra and statistics, both normal and non-normal, how long did it take you to realize something was wrong?

It took me five

minutes

to know it was a fraud. It took me another almost four hours of mathematical modeling to prove it. That it was a fraud, what were the things that caught your attention? It was the performance line, as we know that markets go up and down and yours only went up, you had very few down months, only four percent of the months were down months and that would be equivalent to a baseball player in the major leagues. batting 960 for a clearly impossible year he would be suspected of cheating immediately maybe he was just good no one is that good harry said there were only two plausible explanations either madoff was using insider trading to rack up huge profits or he was running a giant

ponzi

scheme

so Either way he was doing something illegal either way he knew he was going to go to prison in may 2000 marco polos took his suspicions about bernie madoff to the boston securities and exchange commission office. do you have some financial reason, yes, he was a competitor of mine between 2000 and 2004, while I was still in the industry and when someone competes in your playing field and he is a dirty player, you want him to be kicked off the field, he also thought he could be eligible for a sizable reward if the fraud involved insider trading, but that turned out not to be the case in his first letter to the SEC back in 2000, he's a little hesitant, he says, look, I don't have smoking gun in the year 2000, it was more theoretical in 2001.

It was a little more real in 2005. It had 29 red flags that you couldn't ignore, but in 2005 the degree of certainty was approaching 100 percent over time and with some calculations Using simple mathematicians, Marco Polos concluded that in order for Madoff to execute the trading strategy he said he was using, he would have had to buy more options on the Chicago Options Exchange than actually existed. However, he says that no one he spoke to there remembered doing so. a single transaction with the Bernie Madoff fund   I would talk to the people he had negotiated relationships with and I asked him if he had a business relationship with Mr.

Bernard Manoff and they all said no, we don't think it's real. Could I find someone? I didn't find anyone who traded with Mr. Manoff and I traded with the largest equity derivatives service. in the world and that is because Madoff's investment fund has never carried out any operations, at least since 1993, and probably due to a fact confirmed last week at a meeting of Madoff investors by the trustee in charge of liquidating his assets. , no one knew the depth of the fraud. but a lot of people were wondering who else had noticed this besides you. I would say that hundreds of people suspected something was wrong with the Madoff operation.

If we look at who the victims were not, we will notice that the major companies on Wall Street had no money with Mr. Manoff, I mean, write in this is the letter, I am quoting the letter to the securities and exchange commission, signal alert number 20. Some of the largest and most sophisticated financial services in the world suspect Madoff of being a fraud. firms and then you list some of the firms, yes I do the biggest firms on Wall Street, in conversations with high level people at those firms, that's correct and the section ignored that, did they call any of these people?

All the section had to do was choose By Telephone, they never did. If there were executives at the biggest investment houses on Wall Street who knew something was wrong, why do you think they didn't go to the SEC? Because people in glass houses don't throw stones or regulate themselves. Wall Street is down in January 2006, the New York office of the Securities and Exchange Commission finally opened a docket to investigate Harry's allegations about Bernie Madoff despite uncovering evidence that Madoff had misled them about investment activities. of the. The SEC closed case 11. Months later, without even opening a formal investigation, staff said there was no evidence of fraud.

What I discovered in my dealings with the SEC for eight and a half years is that their people don't have any financial training, they don't have any education, most of them are just lawyers without any experience in the financial industry, well, if the people there don't They are trained in working with securities, what are they trained in, how to look at the papers that securities laws require, they can check each paper perfectly and find misdemeanors, and We will miss all the financial crimes that are happening because they never look there , even when fraud is pointed out to them, they are unable to find fraud.

No one at the SEC spoke to us on the record about Harry Marcopolis' allegations, but one person who seemed to have a good opinion of the agency. It was Bernie Madoff. I'm very close to the regulator, so I'm not trying to say that they can't know that what they do is bad. In fact, my niece just married one too. Her niece's husband, who no longer works at Sec Madoff, has had long-standing ties to the agency and was called in to provide advice at this 2007 meeting of a nonprofit group called the Phil Octady Center. Madoff seemed to think that the SEC was doing a great job, you know that in the current regulatory environment it is virtually impossible to violate the rules when this is something the public doesn't really understand, but it is impossible for you to fall for a violation undetected, certainly not for a considerable period of time. time, but don't try to tell that to the phil octadies center today its main benefactor, the betty and norman levy foundation, fully invested in madoff one of the dozens of charities that have been devastated or deleted madoff's client list single spaced with type small It is 162 pages long and features victims ranging from Hollywood royalty to a carpenter's pension fund in Syracuse, New York.

Shelley Ludlow has been forced to put her mother in a Medicaid assisted living facility while she packed up her apartment to move in with a friend, all because Bernie Madoff's entire life was turned upside down by this man who sits in her penthouse and smiles on the same day last week 70 miles away Len and Marge Forest were leaving their home they had just sold on Long Island and were getting ready to drive to South Florida to sell their home there. They had their money with Bernie Madoff for 30 years and lost an eight-figure family fortune two days before their 80th birthday.

Do you have money to live long enough? I would say for 60 days. Knows? other people who are in the same situation oh yes, unfortunately we have many and I think probably what destroys me the most is the fact that I recommended that I leave to several people and they lost their money and I will never stop feeling responsible for them all leaving family and close friends. Len Forrest and his friends thought they were part of a small exclusive group of investors who were lucky enough to have a connection to Bernie Madoff and because they thought they were making 12 percent a year. they weren't willing to ask many questions harry marcopolis called it the classic affinity scam an affinity scam is where you take advantage of groups that are similar in nature to yourself so I'd be greek if I was going to run an affinity scam. he would run it in the greek american community here, bernie was jewish so he ran into the jewish community in the states but that didn't get him enough clients because he always needed new money to keep the plan going, history will tell.

After this, over time, Madoff expanded his reach from New York to Palm Beach, where he recruited hundreds of wealthy clients, many of them recruited from his own country clubs, and also made connections that allowed him to enter Europe and the United States. the hedge fund capital of the United States, Greenwich. Connecticut, it was here that Bernie Madoff made some of his biggest deals with large investment firms that were willing to provide him with billions of dollars of their clients' money to manage, and in return, Bernie Madoff agreed to pay these so-called Feeder funds a fortune in annual income.

Fees The largest of the feeder funds was the Fairfield Greenwich group. How much money did Fairfield make with Bernie Madoff each year? hundreds of millions of dollars if you are a feeder fund what are you supposed to do with those hundreds of millions of dollars that you receive? We are supposed to identify the best hedge fund managers in the world and invest only in them and we are supposed to make sure they are not running Ponzi

scheme

s. The real steroids here were the feeder funds, that's what made it an international Ponzi scheme. Attorney David Boyes is one of the country's top attorneys, representing the Fairfield Greenwich investors who lost nearly $7 billion when Madoff went bankrupt.

They are suing the firm for gross negligence alleging that it failed to investigate Madoff thoroughly and monitor his activities as he promised to do. in their marketing materials - portfolio composition analysis - portfolio stress testing - risk management - asset verification - do you think that really happened - no, we know it didn't happen - because we know all they did was give the money - to Bernie Madoff and they did it for 20 years they did nothing, essentially did nothing except lose their investors' money and enjoy very luxurious lifestyles with the money they took out. Walter Noel, one of the founding partners of Fairfield Greenwich, refused to speak to us and has reportedly been hiding out with his wife at his compound. on the private island of mystique, but in a statement to 60 Minutes his signature said that he was also a victim of Bernie Madoff because he had relied too much on his then impeccable reputation and the fact that there had been multiple reviews of the products of it.

In the end, for the second one, Harry Marcopolis had been right about Bernie Madoff going to prison, but it wasn't because of anything Harry or the SEC did in a bad economy that Madoff's lies simply collapsed under their own weight. No one was investigating him. mr manoff in the end, so he turned himself in before anyone in a position of authority began a serious investigation, that's how security typically does it, they come in after the crime has been committed, toe tag to the victims, count the bodies and try to discover who the criminals are. They were after the fact that it doesn't do any of us any good.