MUCH HAS BEEN WRITTEN ABOUT THE MANY RED FLAGS that
might have alerted regulators to the enormous Ponzi scheme
Bernard Madoff confesses he operated, undetected, for nearly
Hindsight, it’s often said, is 20-20.
Harry Markopolos, the Boston-based financial adviser who
actually had 20-20 foresight about Madoff, chronicled 29 sepa-
rate red flags in the now famous memorandum, “The World’s
Largest Hedge Fund Is a Fraud,” that he submitted to the Se-
curities and Exchange Commission (SEC) in 2005.
But hindsight can work both ways. Looking back now, it’s
easy to see why some officials may have been inclined to dis-
miss Markopolos. He refused to sign his original letters to the
SEC and insisted on anonymity throughout most of his nearly
10-year campaign to expose Madoff. He sometimes relied upon
hearsay, quoting unnamed brokers and other market profes-
sionals who agreed privately, he said, with his assessment that
Madoff was not “for real.” Finally, the SEC had to consider at
the time that Markopolos may have been motivated by self-in-
terest or professional jealousy. He stood to earn a hefty reward
if Madoff was found guilty of insider trading (one possible ex-
planation for Madoff’s success in both up and down markets).
And he often insisted that Madoff’s returns had to be bogus be-
cause he—Markopolos—couldn’t replicate them. To some, this
sounded like sour grapes.