The man who pursued the biggest Ponzi scheme in history recounted the story and shared advice with Belmont student Wednesday during a convocation hosted by the Edward C. Kennedy Center for Business Ethics.
Harry Markopolos said his study of Bernie Madoff’s phony investment strategy was his first experience with “pure evil.”
“He was a horrible case to be part of, and I don’t have fond memories of it,” he said.
Markopolos, a portfolio manager and chief investment officer for a multi-billion dollar derivatives asset management firm in Boston, Mass., led a four-person team through an eight-and-a-half-year investigation that spanned two continents to understand Madoff’s investment strategy.
“His numbers were too good to be true. He never had a loss and took clients from every good firm,” he said. Markopolos said he realized within five minutes of looking at documents that Madoff was operating a fraud, but it took longer to convince the Securities and Exchange Commission.
Of the $65 billion that funneled through Madoff’s hands, most went to old investors receiving an average 12 percent annual return, 4 percent went to luring new victims through feed funds and private client banks and the remaining 1 percent Madoff kept. Among the red flags Markopolos found were undecipherable accounting statements and similar account numbers at different banks in different countries.
He described Madoff as a sociopath who attended weddings, funerals, bar mitzvahs and other family gatherings to win clients’ trusts and money.
His advice to Belmont students was to use professional skepticism, give trust to those who earned it and know your customer.
“If everyone says it is genius, I say you should have professional skepticism and demand proof,” Markopolos said. “If you don’t understand (financial documents) with your education, don’t assume you are stupid. Assume they are crooked.”
College of Business Administration Dean Pat Raines said, “We host events like this to become aware of situations that could cost any of our careers. The only currency we have is the trust that others have in us.”
Markopolos has written a New York Times best seller titled No One Would Listen and has appeared on 60 Minutes, CNN and the Today Show. He has been a portfolio manager at Darien Capital and Rampart Investment Management. He now pursues financial fraud cases full time.