The Madoff Hunter

When Bernie Madoff pleaded guilty to running a Ponzi scheme in December 2008, it wasn’t the scope of the fraud that shocked Harry Markopolos. It was the fact that so many people were so clueless for so long. Though the Securities and Exchange Commission, The Wall Street Journal and almost everyone else who could’ve done something about it chose to ignore the Madoff scam, Mr. Markopolos, a financial fraud investigator, did not. He sniffed it out early—in 2005, he prepared a 21-page memo about Madoff for the S.E.C. titled “The World’s Largest Hedge Fund Is a Fraud”—he stayed on it and is now basking in what little limelight there is. His book on the case, No One Would Listen: A True Financial Thriller, was published last month. While Mr. Markopolos refuses to think of himself as a hero (as he’s been described by hedge fund manager David Einhorn), and doesn’t much care for the fame that’s come with being right, he will accept an invitation to the Playboy Mansion, which unfortunately has not been extended—yet.

The Observer: Do you feel like you’ve gotten enough credit for this?

Mr. Markopolos: Yes, too much. I’m not a hero, I don’t know why people would think that. I did what any similarly placed citizen was supposed to do. Yeah, my team and I took risks, it was a dangerous case to work on, but if you have core values and beliefs and believe in certain things, then you’ll do them, you just have to. Someone has to stand up, and if you don’t stand up, then civilized society falls apart. Heroes are brave. I wasn’t brave; I was very scared.

In your book, No One Would Listen, you mention that you kept a gun in your house and that you broke out your old army mask in the event the S.E.C. raided the place and used tear gas. Did you really think that was going to happen, or was it just for dramatic effect?

I thought the possibility was remote. Almost infinitesimal. But, here I had my gas mask sitting there, and if I put it where I could get to it, it doesn’t cost me anything. I’ve always learned that if it’s low or no cost to diversify against a risk, then you should do it. Would I have gone out and purchased a gas mask if I didn’t have one? No. But it was available, and the Army always trained me to take all precautions and do a worst-case analysis. Prepare for the worst case and you’re going to have a better result.

Who has a better chance of catching fraud on Wall Street, the S.E.C. or Inspector Clouseau?

I’d say it’s not a fair fight. Inspector Clouseau has a successful track record, whereas the S.E.C. does not these days. Inspector Clouseau is out there and has had a number of successful cases.

Why do they suck so much at this? Only a handful of them can play the “too busy watching tranny porn” card. [In February, an S.E.C. supervisor was reprimanded for more than 1,800 logged attempts to visit sites of that nature while on the job.]

They’re good at catching the small fry. Individuals that can’t fight back, small boiler rooms. But it’s the big firms that they haven’t been able to police because they lack the skill set and they lack the will to go after the large defendants who can actually mount substantial courtroom fights with lawyers who are better-skilled and higher-paid than the S.E.C.

Have you heard from any victims directly?

Yes. I run into victims a lot. And I always have private moments with then, and like to hear their stories. They all usually have very similar endings but how they got into the circumstances where they became victims is always different. And I’ve heard a lot of things that the press hasn’t reported, in these very private moments. Heartfelt, gut-wrenching things. People trying to commit suicide or losing loved ones who’ve died of heartbreak. You hear about so many people, older victims in their 70s, who’ve had to go back to work, or go on Medicaid, or leaving private nursing homes because they have to. For us, me and my team, it’s very hard.

Have you gotten any job offers? Are the short sellers dying to hire you?

Actually, I’ve gotten no job offers. My team and I have gotten dozens of offers from plaintiff’s law firms asking us to be expert witnesses in their cases against various Madoff feeder funds. We haven’t taken any, though, and let me tell you why. People are offering us lots of money to do this. But we all have Wall Street jobs, and we’re not going to leave those. And we’d rather write the book and diagram out a road map for all the victims and their lawyers so that they know what happened and they know how to try their cases based on what we’ve put in the book. So we didn’t want to take people’s money when we could write a book and do a public service. That was more important to us. For us, it wasn’t about the money; it was about getting the truth out.

The Madoff Hunter