Harry Markopolos

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

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.

He is a CFA charterholder, and a Certified Fraud Examiner (CFE).

He began his career on Wall Street in 1987 as a broker with Makefield Securities, a small Erie-based brokerage.

In 1988, he obtained a job with Darien Capital Management in Darien, Connecticut, as an assistant portfolio manager.

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 now works as a forensic accounting analyst for attorneys who sue companies under the False Claims Act and other laws, emphasizing tips that result in continuing investigations into medical billing, Internal Revenue Service, and United States Department of Defense frauds, in which a "whistleblower" would be compensated.

From 1999 to 2008, Markopolos uncovered evidence that suggested that Bernie Madoff's wealth management business was a huge Ponzi scheme.

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.

Frank Casey, one of Rampart's principals, met with Access CEO René-Thierry Magon de La Villehuchet, and learned the manager was Bernie Madoff, who was operating a wealth management business in which his clients essentially gave him carte blanche to invest the money as he saw fit, in a set of securities.

Casey and Rampart's managing partner, Dave Fraley, asked Markopolos to try to design a product similar to Madoff's split-strike conversion, in hopes of luring away Access from investing in Madoff.

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 that such a return stream "simply doesn't exist in finance", since the markets were too volatile even in the most favorable conditions for this to be possible.

Based on this and other factors, Markopolos 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).

Markopolos later said that he knew within five minutes that Madoff's numbers didn't add up.

He claimed it took him another four hours to uncover enough evidence that he could mathematically prove that they could have been obtained only by fraud.

Despite this, Markopolos's bosses at Rampart asked Markopolos to deconstruct Madoff's strategy to see if he could replicate it.

He could not simulate Madoff's returns, using information he had gathered about Madoff's trades in stocks and options.

For instance, he discovered that for Madoff's strategy to work, he would have had to buy more options on the Chicago Board Options Exchange than actually existed.

His calculations of Madoff's trades revealed that there was almost no correlation between Madoff's stocks and the S&P 100, as Madoff claimed.

Markopolos also could find no evidence that the market was responding to any Madoff trades, even though by his estimate Madoff was managing as much as $6 billion, three times more than any known hedge fund at the time.

Given that Madoff's supposed trades should have had a substantial ripple effect on broader markets, Markopolos suspected that Madoff was not even trading.

With the help of two of his colleagues at Rampart, Casey and fellow quant Neil Chelo, Markopolos continued to probe the Madoff operation.

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.

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, others in the investing world took Markopolos's findings seriously.

In 2000, Joel Tillinghast of Fidelity Investments dropped his plans to study Madoff's strategies after a meeting with Markopolos.

Tillinghast wrote years later that his discussion with Markopolos convinced him that Madoff was almost certainly engaging in fraud; as he put it, "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.

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 Ponzi scheme in history, Madoff was sentenced in 2009 to 150 years in prison.

In 2010, Markopolos's 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.