Time Marches On: Madoff’s Swindle, Five Years Later

GUEST BLOGGER

Scott Patterson
ACFE Senior Media Relations Specialist

In 2008, we were still looking back on the massive accounting frauds at Enron and WorldCom when, almost overnight, Bernie Madoff became a household name. News broke that an enormous Ponzi scheme had unraveled, a scheme orchestrated by Madoff that was rumored to have cost investors tens of billions of dollars.

In case you let the five-year anniversary of Bernie Madoff’s fall from grace sneak up on you this year, chances are that, by now, you’ve noticed at least some of the press coverage surrounding this milestone.

Today, we know the dollar amount lost is close to $18 billion, as estimated by Madoff trustee Irving Picard. About half of that amount has been recovered, though the process of providing burned investors with a portion of their money is a slow, complicated one.

You can read about one those victims, Morton Chalek, whose $2.3 million account with Madoff ended up being nothing more than “fiction,” MSN Money reports. Chalek is 90 years old, and wonders if he will see any of the money before he dies. The Wall Street Journal provides an even more intense look at some of Madoff’s victims in “Madoff Victims Recount the Long Road Back” (please note, however, that the article requires a subscription).

Among the tales in the WSJ piece: A man whose wife died in January after they lost the bulk of their retirement nest egg in the fraud. The sudden loss of financial security left her “wrecked,” according to her husband, her whole mindset having changed since that fateful day. 

Another interesting article comes from CNNMoney: “Five things you didn’t know about Bernie Madoff’s Epic Scam.” Here’s one of them that surprised me (spoiler alert): No one is really sure when Madoff’s scheme began. Madoff has claimed it started in the late 80s, and then later claimed it didn’t begin until the 90s. According to this piece, it is believed to have taken shape many years earlier.

For those who would like to read the comments of a fraudster (arguably) in some degree of denial, those stories are out there, too. Madoff has granted a few prison interviews to eager journalists, including recently. Here are the main points I gleaned from those interviews: he believes his victims should have known better, he says the banks knew what he was up to, and his prison experience is “laid back.” Not exactly the degree of contrition I would be looking for had I lost my retirement fund to his fraud.

I’d rather instead focus on the words of Harry Markopolos, CFE, the whistleblower who, for years, saw straight through Madoff’s smoke and mirrors. Named CFE of the Year in 2009, Markopolos still travels the country speaking about his experience chasing Madoff. Accepting an award last month in Erie, Penn., Markopolos said: "I didn't do it by myself, I assure you that.  I had a lot of help and it (the award) is really for those people … We didn't do it for any kind of glory or any kind of awards.  We just did it to stop Bernie Madoff.”

Markopolos has referred to his helpers as “the bloodhounds,” a tight group of investigators who worked hard (and lost a lot of sleep) trying to expose Madoff. Five years later, it occurs to me that while the world doesn’t need any more Bernie Madoffs, we could sure use a lot more bloodhounds. 

The SEC: Where Are They Now?

AUTHOR’S POST

Mandy Moody, CFE
ACFE Social Media Specialist

It is no surprise that the name Harry Markopolos, CFE, continues to make headlines for the hold-nothing-back Congressional testimony he gave to both houses of Congress in 2009 regarding the Securities and Exchange Commission’s (SEC) failures to investigate his “gift-wrapped …  largest Ponzi scheme in history.” In case you forgot, he is referring to Bernie Madoff. You know, the New Yorker who just happened to fool investors, the SEC, friends and family out of more than $50 billion.

However, since the aftermath of Madoff, Markopolos recently said, “I'm giving a lot of credit to the SEC for changing their culture to one of investigating and enforcement. When you walk through their offices now, you'll see lots of CFE credentials framed and hanging in offices. Even their lawyers are earning their CFEs these days.”

Markopolos credits the change to Mary Schapiro, the SEC Chairman who recently announced she will be leaving after four years. The Washington Post recently reported that the SEC has filed more actions in the past two years (734 and 735, respectively) than at any time in its history. Post-Madoff, Schapiro put more than 400 SEC staffers through the CFE certification process when the SEC joined the ACFE’s Law Enforcement Partnership program.

As quoted in The Post on Tuesday Markopolos said, ‘“There’s a total sea change at the agency. They are aggressive. There’s no more free passes on Wall Street. They eagerly seek out big cases. . . . They used to be industry’s lapdog and now they’re actually an investor’s watchdog.”

Part of the credit goes to the Dodd Frank Financial Reform Act, which enabled Schapiro and the SEC to go after Wall Street. Part of the credit goes to Schapiro herself for her aggressive action and leadership. And, part of the credit we give to Harry, our 2009 CFE of the Year. It is because of his relentless investigation, countless requests for action and more-than-candid Congressional testimony that the stage was set for a different kind of oversight. He made enforcement popular and the whistleblower prom king. Kudos, Harry. We are proud to have you on our team.

Photo: Harry Markopolos, CFE, speaking at the 2009 Congressional hearing regarding Bernie Madoff and the SEC.

Two New Films, One Old Scheme

AUTHOR'S POST

Mandy Moody
ACFE Social Media Specialist

Tuesday, the Huffington Post released the trailer for the new documentary, "Chasing Madoff," starring whistleblower and CFE, Harry Markopolos. Even though I wasn’t working for the ACFE when Bernie Madoff turned himself in and the Wall Street Journal (finally) exposed Harry’s decade-long investigation, many of my coworkers were. In fact, several ACFE staff members were present for the tail-end of Harry’s journey and have continued to “listen,” support and honor a fraud fighter who brought new meaning to the phrase “going above and beyond.”

“Chasing Madoff,” based on Harry’s book, No One Would Listen, details the discovery, the investigation, the initial SEC filing, a second SEC filing, one more SEC filing, a scathing Barron’s expose, and, finally, the conviction and sentencing of the biggest Ponzi scheme to date. You can look for it in select theaters Aug. 26.

Fellow Ponzi schemer Marc Dreier will have to share the limelight once again with Madoff. The documentary, “Unraveled,” was shown this month at the 2011 Los Angeles Film Festival. Director Marc Simon, a a former employee of Dreier’s who lost his job (yeah, I reread that, too), films the former attorney and philanthropist for 60 days. The arbitrary number was not chosen for cinematic reasons, but rather ordered by a court. Simon decided to film Drier during the 60-day house-arrest period he served while awaiting sentencing.

“Unraveled” focuses more on the fraudster; his motives, greed and scam. Harry’s movie is almost solely focused on the fraud fighters, the good guys, which attempted to take down Madoff and save a lot of heartache and money. Oh yeah, did I mention Harry is a CFE?

I’m anxious to see both films and will definitely report back later. Let me know any thoughts below.

Let the Countdown Begin: ACFE Prepares for Annual Conference

GUEST BLOGGER

Cora Bullock

Assistant Editor, Fraud Magazine

Staff is abuzz here at the ACFE headquarters in Austin, Texas. Not about summer plans, but about the 22nd Annual Fraud Conference. I just came on staff in January, so I have not had a chance to attend, but that will change in a few weeks.

To be perfectly honest, when I first learned about the conference, I was nervous. VERY nervous. How was it possible that our staff could pull off the world’s largest anti-fraud gathering? The answer has become clear these past few months: hard work and fierce dedication. If anyone doubts that, they can listen in on the endless vendor and attendee calls, the packet stuffing, the auction organizing, the speaker wrangling, etc. etc. I sit among the event staff and have witnessed this, and more.

We will be creating webpage templates for stories and video. Speaking of video, we’re putting the finishing touches on the Fraud Museum video, and next week several of us will carefully remove about 30 pieces from the walls to pack them for their trip to San Diego. We’re also finishing “Conference Link,” the new e-newsletter that attendees will wake up to in their email boxes every morning of the conference, highlighting must-sees and must-dos, along with links to the previous day’s coverage. That will be ACFE social media guru Mandy Moody’s and my last task every night before we crash into bed so that it will be the first item in your inbox when you wake up in the morning.

Be sure to check the ACFE Annual Fraud Conference site for real-time conference coverage, photos, video and more. And, yes, we have some prizes we can't wait to give away.

Everyone does everything at conference. I will write stories on the break-out sessions, man the registration table, help set up and break down, act as a room monitor for some sessions, take photos and interview attendees, finally meet some of the writers for Fraud Magazine, answer questions and, most importantly, meet members! If you see a short brunette bearing down on you with a determined look in her eye, that would be me. I’ll try not to wring a promise out of you to write for the magazine, unless it somehow just happens to come up in conversation ….

We have fancy new ACFE blazers to wear, so now I’ll have to start thinking of wardrobe, especially shoes. What can I wear that will be comfortable from 7 a.m.-9 p.m. every day? Do those even exist? No matter, I’ll let the excitement of each day carry me away. Oh, and a respite from 95-degree days in Austin! See you soon!

What Can Baseball Teach You About a Background Check?

GUEST BLOGGER

Brian Willingham, CFE
President, Diligentia Group
Brewster, N.Y.

Bill James revolutionized the way that people look at baseball players. Sabermatricians, as his followers would later be known, felt that there was a direct correlation between a player’s past and future performance. Instead of relying on the subjective judgments of baseball scouts, James compiled objective statistics and analysis to measure a player’s performance, thus helping to predict future performance.

“Brady Ball”

A great example of Bill James’ method happened in 1996, when Baltimore Orioles slugger Brady Anderson hit 50 home runs in 687 plate appearances (equivalent to one home run for every 13.7 plate appearances), while in his previous three seasons, he hit a total of 41 home runs in 1,846 plate appearances (one home run for every 45 plate appearances).  

It’s clear that Anderson’s past performance did not correlate with his breakout 1996 season, and sure enough, he regressed back to one home run every 40 plate appearances for the remainder of his career.

Anderson was long suspected of using steroids for the 1996 season, but those reports have never been confirmed. Without analyzing historical statistics, it would be difficult to see the uniqueness of that 1996 season.

Making a connection

Collecting and analyzing information based on a baseball player’s past performance is similar to what a private investigator does when conducting a background check. Objective information is collected about a person’s past through open sources and public records to help clients make more accurate predictions about the future. Historical bankruptcies, financial difficulties, criminal acts, a litigious past, misrepresentations and regulatory sanctions are all indicators of potential problems down the road.  

Past performance issues in a background check

There were many “past performance” issues that should have been major red flags in Bernard Madoff’s Ponzi scheme, including a two-person accounting staff overseeing a $50 billion firm, a highly secretive investment strategy and investment gains that neither Wall Street professionals nor Harry Markopolos, the Madoff whistleblower, could recreate.  

Other examples of “past performance” as an indicator of the future can be found in my recent post about 11 convicted Ponzi schemers who had already served jail time for other frauds or in the ACFE’s recent post about Barry Minkow's recent criminal charges.

Final thought

Just like in baseball, there is no one piece of information or statistic in a background check that can help predict the future. In fact, there are multiple layers of information over a period of time that must be analyzed to fully understand someone’s past behavior.  

When trying to learn more about a person’s background, if you think that a few reference checks, Google searches, a referral from respected members of the community or a couple of face-to-face meetings are the most reliable predictor of future performance, you need to take a page from the great Bill James and evaluate past performance.

Thanks to Seth Godin’s “Bill James and you” for the brilliant idea. Brian Willingham is a New York private investigator and president of Diligentia Group.