I saw a remarkable film last night, recommended to me by my son Thom, who gets most of his films through a web site called 1channel.
The film is called Chasing Madoff, and has been made by Jeff Prosserman about a Wall street employee called Harry Markopolos, and, in my humble opinion (or as the kids say nowadays IMHO) if you watch this movie and Ferguson’s Inside Job, which won an Academy Award last year, any faith you may have had in the capitalist system should be lying tattered in the gutter.
Of course, I don’t have any faith in it from the beginning, so that conclusion is easily reached for me. Others may be of greater faith.
The story is based on Markopolos and the reaction he had in 1991 when he first saw the figures produced by Bernie Madoff, who, as everyone now knows, conducted probably the biggest fraud in history, involving something like $30 billion of other people’s money.
“It took me five minutes to realize this was a fraud, it couldn’t be anything else, it was all there in the figures,” says Markopolos. “Five minutes.”
Of course, he could have just accepted it and stayed quiet, but, as he explains, he is not built like that. When he discovers a fraud, he wants to do something about it.
So, having consulted three friends within Wall street, who agreed with him, he painstakingly began to gather the evidence he would need to expose this fraud to the authorities.
To make a long story short, he gathered the evidence and sent it to the Securities and Exchange Commission of the US federal government, one of whose jobs is to protect the public from this kind of fraud. He waited for something to happen, but nothing happened.
At first Markopolos and his friends thought only $2.3 billion was involved; only gradually did they begin to realize the immense scope of Madoff’s ponzi scheme, in which he was always borrowing to pay off earlier borrowings, thus giving people the impression he was a safe, legitimate place to put their money. Investors were usually paid six to 10 per cent, but the problem with this kind of scheme is that eventually he is owing so much, and has to pay so much that the whole edifice comes crashing to the ground.
The guts of this story, however, is how successful Madoff was able to be, not just in North America, but as the searchers began to discover, all over Europe: in fact, he seemed to them to be bigger in Europe than in North America. And it was a notable fact that even when he was managing billions of other people’s money, he never showed up on the Wall Street radar as a recognized money manager. He worked away, but somehow or other remained more or less anonymous for many years.
Harry scurried around to identify investors who were being taken by this guy, but Madoff was such a pleasant fellow that none of them would believe he could do such a thing --- and after all, they were being paid all the time, so how could these guys be right?
In May 2001 they enlisted the support of a Wall Street Journal reporter who wrote a great article, and again they waited for something to happen. They waited one week, two, three, four, and now they were realizing that some $20 billion were involved in the scheme. They talked to investors as many as they could find, to banks, to charities, all of whom had dealings with Madoff ---- the film quotes one bank in Paris as saying, “Madoff is a safe place for our money, we never lose any money with Madoff.”
By this time Markopolos’s activities against Madoff were becoming well-known, and with the example of a whistleblower who had been rubbed out by the Mafia before him, he began to get really nervous. “Madoff was running money for offshore banks, which were also involved in organizing money-laundering and like activities for organized crime, but Harry’s gang of four, as one might call them, began to realize they were on their own. Funds that are known as “feeder funds” were making so much out of Madoff that they did not want to know, although, says Markopolos in the film, eventually many people in Wall street began to realize Madoff was running a fraud, but they simply shrugged and walked away. Some of these feeder firms agreed that if the SEC would call them, they would talk, and Harry handed this information on to the SEC. “But those calls were never made.”
At a point at which 29 red flags warning about Madoff had been identified, Harry managed to persuade another Wall Sreet Journal writer, one of the top investigative journalists in the country, about what was happening. He hesitated, wanting to be sure of his facts, but eventually he wrote the story, and Harry and his boys sat back and waited for the exposé. The article never appeared. “Someone higher up in the Wall Street Journal stopped that story cold.”
Markopolos says: “I began to wonder is there someone higher up in the government stopping this? By 2001 I came very close to giving it all up.”
In 2008 came the global financial crisis, and Bernie Madoff ran out of money. Finally it was the market that brought him down. He was arrested, and the government now admitted they had known all the facts for more than a decade. What had happened to the regulatory agencies, established specifically to see that this sort of thing doesn’t ever happen?
“You guys fell down on your job,” shouted a Senator at a line of chastened Wall street types during a congressional hearing.
In the end Madoff pleaded guilty, and went down without talking, facing a 150 year prison sentence. Harry Markopolos was honoured for his sterling work in tracking Madoff by a national organization of fraud examiners. He was described as a hero. “I’m no hero,” he said, “I don’t like it when people say that. I was just doing what I was supposed to do.”
Some 300 firms have since admitted having been involved with Madoff, but only 12 people have been arrested, while hundreds, perhaps even thousands of individuals were totally ruined, not to mention charities that Madoff also targetted.
Markopolos’s conclusion on the SEC: “It roars like a mouse, and fights like a flea.”
This whole story makes me think of a book I read a few years ago by a British writer called Gangster Capitalism. The author's thesis was that all this publicity about organized crime and its misdemeanours is encouraged by the corporate world to draw attention away from the far greater crimes of corporations, that are being perpetrated every day of the year, and going largely unpunished.