The Wall Street Journal Blew a Chance to Expose Madoff

A bombshell is buried in Harry Markopolos' prepared testimony to a House panel today: he contacted the Wall Street Journal on the Bernie Madoff fraud three years ago, and the newspaper did nothing.

It seems that the Journal missed an opportunity to achieve one of the biggest scoops ever, win a Pulitzer Prize and all that other good stuff--and extinguish the biggest fraud in financial history.

Markpolos says as follows:

[Pat Burns, communications director at Taxpayers Against Fraud] put me in contact with John Wilke, senior investigative reporter for the Wall Street Journal's Washington bureau. Mr. Wilke and I would become friends over the next three years. Unfortunately, as eager as Mr. Wilke was to investigate the Madoff story, it appears that the Wall Street Journal's editors never gave him approval to start investigating. As you will see from my extensive e-mail correspondence with him over the next several months, there were several points in time in which he was getting ready to book air travel to start the story and then would get called off at the last minute. I never determined if the senior editors at the Wall Street Journal failed to authorize this investigation.

According to his timeline, he contacted the Journal in December 2005. The emails to which he alludes can be found here.

At another point in his testimony, Markopolos pays the Journal the ultimate non-compliment by lumping together the newspaper with the lunkheads at the SEC, saying, "Unfortunately neither the Wall Street Journal nor SEC were inclined to even pick up a phone and dial any of the leads I provided to them."

Amazing, huh? Not to me. As I pointed out in Wall Street Versus America, in the mid-1990s "a few traders tried to arouse the interest of the Journal in the inside details of Mob infiltration of Wall Street firms--and the Journal, after some initial interest, did nothing."

Back then, the traders went to a highly regarded Journal reporter. No point in mentioning his name, because the fault, as with Madoff, was apparently with his editors.

However, Markopolos' experiences with journalists weren't all quite so dismal. He contacted Michael Ocrant, a reporter at MAR/Hedge, who ran his own article on Madoff in 2001, several days before the more widely reported Barron's article on the same subject. Greg Newton, now writer of the terrific Naked Shorts blog (which alluded to the Journal's failure yesterday), was publisher of MAR/Hedge at the time. But back then Markopolos didn't have all the information he had developed by 2005, which he was willing to give to the Wall Street Journal on a silver platter.

UPDATE (11:20 a.m.): Markopolos just raised the issue of his contacts with the Journal at the hearing, saying "I believe that senior editors of the Journal respected and feared Mr. Madoff" and wouldn't let him "get on the plane" and meet with him on the fraud. So I guess the cat is out of the bag, unless the media continue to ignore this intriguing aspect of the Madoff story.

Would my alma mater and the WSJ's competitor, Business Week, have done any better? In 2000-2001, with longtime finance editors Seymour Zucker and Bill Wolman on the job, I'd say definitely yes. They were tough as nails, and had the guts to tackle such a story. It's the editors who count in such situations at least as much as reporters.

That cuts both ways. Whenever I proposed a tough article at the magazine, these two gents always had to wage World War III in order to get it printed. Some editors at BW, even at the highest levels, hated investigative stories (until a month or two after they were published. Then they'd love 'em!).

Seymour and Bill retired in 2001, and I don't really know whether their successors as of 12/2005 would have had much appetite for a complicated story like this with a high-visibility, respected target. My gut instinct is that the reaction would have been the same as at the Journal.

UPDATE: The Journal, to its credit, mentions Markopolos' testimony concerning the paper in its online story today:

Mr. Markopolos said that in December 2005, he contacted a reporter at The Wall Street Journal, resulting in a number of phone calls and emails. Mr. Markopolos said he thinks that senior editors prevented the reporter from the newspaper's Washington bureau from flying to Boston to meet and discuss the Madoff issue. A spokesman for Dow Jones & Co., publisher of The Wall Street Journal, declined to comment on Mr. Markopolos's statements.

Former Journal managing editor Paul Steiger told Editor & Publisher that he "doesn't recall" an approach from Markopolos. Entirely possible, I guess, as not every tip goes that far up the ladder. But then he says:

"Just look at the people the Journal has done tough stories on," Steiger recalled. "People that were much bigger than Madoff. We would have loved to have done the story."

I agree with him until he says "We would have loved. . " The Journal was approached by the same whistleblower who caused members of Congress to scream at the top of their lungs at SEC officials yesterday, and nothing was done to pursue the story.

I think that readers of the Journal deserve a better answer than that.

© 2009 Gary Weiss. All rights reserved.