"No One Would Listen" to Harry Markopolos -- Including the Media

Harry Markopolos's book No One Would Listen has zoomed to No. 19 at Amazon.com and I can see why: it's a fast-paced thriller that is clearly the best book so far on the Bernie Madoff scandal. Markopolos sheds new light on how the SEC screwed up its Madoff probe--and how the media also dropped the ball.

Markopolos's book (marred only by, arghhhhh, reconstructed quotes) describes in detail his contacts with the late John Wilke of the Wall Street Journal, which fizzled out after a year. Forbes and the New York Times also were contacted and did nothing, but Markopolos had placed all his eggs in the Journal basket, which was a mistake.

Markopolos writes:

The question I wrestled with for a long time was: Why? When the newspaper that existed only to cover the financial world was handed a detailed explanation of the biggest fraud in Wall Street history, why wouldn't someone at least conduct a cursory investigation? Three phone calls, two phone calls, that's all it would have taken to verify that I wasn't some kind of nut, that the accusations I was making were based on fact. A half hour, that's all.

So far there are two alternative, contradictory explanations of what happened.

One, from Joe Nocera, is that Wilke "spent a little time rummaging around the Madoff story, but he didn’t really have any way to get at it, other than to take Mr. Markopoulos’s word for it, and that wasn’t good enough for either John or The Journal."

The other is that Wilke was eager to do the article but was stymied by his editors.

There's now an alternative theory being floated. A Wall Street Journal review yesterday concedes that "the press also did not cover itself in glory," but goes on to suggest that it was at least partly Markopolos's fault that he was ignored.

Former Journal editor Richard Tofel writes:

The author of "No One Would Listen" is fond of describing himself as "slightly eccentric," but he is not exactly self-aware. By his account, the fault for his having been ignored throughout eight years of warnings is everyone else's. But that conclusion requires ignoring much of his story.

Tofel goes on to recount some eccentric behavior by Markopolos and concludes his review as follows:

None of this behavior makes Mr. Markopolos's case against Mr. Madoff any less convincing. Nor does it excuse the SEC. But it does provide a fuller picture of the author than the cardboard cut-out of the lonely hero we've been hearing about for the past 15 months. With his book, Mr. Markopolos sheds more light than he intends on just why no one would listen.

Indeed. If Markopolos's case was convincing, that doesn't excuse the SEC--or the media.

I have a better explanation for why Markopolos didn't make any headway in the press: he just failed to contact enough reporters.

When Wilke began to lose interest, Markopolos should have gone back to Barron's, which ran an early account raising questions about Madoff, or approached Fortune or BusinessWeek, or other people at the Times or Journal. Or any number of other publications.

In other words, Harry Markopolos could have used a good press agent--which says a hell of a lot less about Markopolos than it does about the financial press.

© 2010 Gary Weiss. All rights reserved.

The Wall Street Journal is Short Staffed

Yup, that's the explanation that's percolating out of the Wall Street Journal on why it ignored Bernie Madoff whistleblower Harry Markopolos.

An anonymous source tells the CJR's Audit that unnamed Journal editors, and not reporter John Wilke, were to blame:

This person says Wilke wanted to do the story but couldn’t get approval within the Journal’s labyrinthine editorial structure to proceed.

“Wilke was hot for the story but the editors had him on other things,” my source says. “The paper had been through cutbacks and didn’t have enough people to do everything at once.”

Yeah, right. As I said before, they didn't believe Markopolos. If they did, if they believed it was possible a former Nasdaq chairman and one of the most distinguished people on the Street was a crook, it stands to reason they would have gone all out to investigate that. These are not stupid people.

In effect, this anonymous person is saying "despite the possibility of Madoff possibly being a crook and ripping off investors, we couldn't spare anyone from the mutual fund scoreboard or the Page One A-Head desk, and none of our X-dozen Wall Street reporters were available, as all were doing more important things than determining whether a vaunted Wall Street figure was a criminal". But there you have it, third hand, through an anonymous source. Sure would be nice to get an official explanation.

By the way, if they really were all tied up with more important things, why didn't they tell Markopolos to take his story elsewhere?

UPDATE: The Audit updated its item to reflect further comment from the Journal, whose spokesman now says that this unnamed source is wrong:

CORRECTION:
In this post I said the Madoff story got caught up in the “Journal’s labyrinthine editorial structure.” In fact, I didn’t have enough evidence to support that. Subsequently, the Journal spokesperson got back to us, saying this: “As a general rule, we don’t comment on our news gathering decisions, but the statements you are providing us are materially wrong and don’t come from a person in a position to know our editing decisions.”

That apparently relates to the "didn't have enough people to do everything at once" quote above, which I had found amazing. Evidently it's not true.

OK, so what is the truth? Only the Journal can address that. Since this happened under a previous editing regime and different ownership, I can't see what's stopping the newspaper from explaining why it ignored Markopolos.

UPDATE: A letter from Jesse Eisinger, published at Talking Biz News, points out that reporter John Wilke had a full plate during this entire period. I have no doubt about that, which is why Markopolos should have been referred to another reporter. I can't understand why Markpolos didn't do that on his own initiative, after it became clear he was getting a runaround.

© 2009 Gary Weiss. All rights reserved.

We Need to Know Why Harry Markopolos Got the Bum's Rush

Ryan Chittum of CJR's Audit column follows up on the strange story of the Wall Street Journal and Harry Markopolos, the Bernie Madoff whistleblower.

Reacting to my blog post yesterday, in which I theorized that the Journal simply didn't believe the guy, Chittum says:

That sounds right to me. We all know who Markopolos is now. But who knew him then? Trust me, Journal reporters get a lot of cranks weaving elaborate conspiracy theories and trying to convince the WSJ to print them.

I see Chittum's point, and of course the folks at the Audit know whereof they speak. The former editor of the Audit, Mark Mitchell, has morphed into a shrill stock market conspiracy theorist, now on the payroll of Overstock.com's wacky CEO Patrick Byrne. Mitchell recently alleged that the Audit was "bribed" by a hedge fund. So as you can see, it happens in the best of families.

But the problem with the "crank" theory is that Markpolos simply did not have any of the hallmarks of a crank. He was a trained forensic accountant and fraud examiner. He worked for a respected money management firm. His motives were as impeccable as his credentials, and while he may have been a bit overbearing, suggesting lines of questioning, their treatment of the man simply makes no sense to me.

The Madoff morass is just too big, too destructive, too poorly timed to let a shrug and a "I doubt he contacted us" and "we cover even bigger scandals" suffice. I think the Journal should do what what the New York Times has done in the past, most recentlty in its 2005 post-mortem of the Valerie Plame affair, and cover this story itself. It should explain how it passed up on an opportunity to expose the biggest financial scandal in history. It should explain why somebody at the newspaper didn't hear this man's story.

I would not be terribly surprised if the Journal does just that. Like it or not, the newspaper is part of the story, just as the Times was with Valerie Plame.

© 2009 Gary Weiss. All rights reserved.

More on Markopolos, Bernie Madoff and the Wall Street Journal

Jason Linkins patiently combed through all the emails and other documentation released by Bernie Madoff whistleblower Harry Markopolos the other day, and the result is a definitive, blow-by-blow account of Markopolos's dealings with the Wall Street Journal in the Huffington Post.

As I observed in an update to my earlier post, former WSJ managing editor Paul Steiger told Editor & Publisher that he didn't know that Markopolos approached his paper. Indeed, the E&P story questions whether the newspaper received a tip from Markopolos at all:

Former Wall Street Journal Managing Editor Paul Steiger said he does not recall the tip a Journal reporter supposedly received about Bernie Madoff three years ago, and adds he "highly doubts" it happened.

Excuse me? Is he saying that Markopolos did not approach the Journal, that his testimony is false?

Anyway, as recounted by Linkins, who based his account on the voluminous supporting documentation released by Markopolos, the whistleblower struggled throughout 2006 to get the Journal's attention, and actually kept the faith through 2007. I repeat: 2007! The man's patience was extraordinary.

First 2006:

Markopolos stayed on the hook with the Journal through 2006. In August, he finally mentions that he's "meeting with the WSJ in two weeks," a meeting he secured after threatening to take the story to "Ben Stein over at Barron's." An "immediate response" from the WSJ, with a meeting set-up, was his reward.

Even still, the next reported contact with Wilke was at the end of September 2006. Wilke was still working the story at that time, but it's telling that in his September email, he captures the effort as one "to get the Bernie Madoff Story up and running."

In November 2006, Markopolos said the following in an email to a third party:

"[Wilke] said that his editor thinks that hedge fund scrutiny will increase now that Democrats are in power and greenlighted John's investigation starting in January.

I guess we wait and see what transpires...the guy does top shelf corruption stories, but everything he investigates in on a schedule."

Yeah, I guess so. Makes you wonder, reading this, if there was more than one person in the Journal's Washington bureau, or more than one person covering finance at the Journal.

Then came 2007, and Markopolos was still being led around by the nose:

By January 2007, Markopolos had detected further disturbing news on Madoff, still sending the news to Wilke like shock and awe: "Bernie Madoff purported to deliver 8.45% to his investors in 2006...It didn't happen because it is mathematically impossible."

The defibrillation didn't help. By February 2007, Markopolos is sounding a downcast note: "The Wall Street Journal's John Wilke has been a huge disappointment. Obviously they were the wrong choice. Eventually Bernie will blow up and everybody will say, 'I told you so.'"

Nevertheless, at the end of June, Markopolos is back in touch with Wilke, encouraging him to go out on strike: "Keep it up. Murdoch would be poison for the paper." If Wilke continued to be a "disappointment," Markopolos didn't let on. His Murdoch criticism was larded with praise for the paper and its "insightful financial journalism" and the need to preserve it.

So, at some point, Wilke manages to get back in Markopolos' good graces. But movement on the story seems to grind to a dead halt soon after. For months, the collected emails from Markopolos are mainly filled with gallows humor on the coming disaster, shared with the handful of contacts with whom he'd been pursuing the investigation.

Since the Journal is unlikely to ever explain itself, I'll try to offer my guess as to what why a top investigative reporter and his editors dropped the ball so terribly:

They didn't believe Markopolos.

It's that simple. I can't think of any other possible explanation, and I don't think that any other one has any chance of being credible.

© 2009 Gary Weiss. All rights reserved.

Madoff and the Mob (again)

One of the more interesting aspects of Harry Markopolos's testimony before the House Financial Services committee yesterday was his assertion that the Russian mob, or Latin American drug cartels, were probably involved in the Bernie Madoff fraud. This issue has reared its head before.

Markopolos also said (and the two are being jumbled together in news reports) that he was in fear for his life, albeit for different reasons. His written testimony said: “Our analysis lead us to conclude that Mr. Madoff’s fund and the secret walls around it posed great danger to those questioning and investigating them. He was one of the most powerful men on Wall Street and in a position to easily end our careers or worse.”

That makes sense. Personally I think an even greater danger came from civil litigation, and that was certainly a credible threat, even though Madoff was guilty as hell and knew it.

Markopolos had no evidence of mob money was involved; it's basically a hypothesis, based on the amount of dirty money flowing into offshore accounts. Frankly I think it's a bit of a red herring that tends to divert attention from the real issue, which is the failure of regulators to uncover the fraud.

The House committee, particularly Rep. Gary Ackerman, pounded their fists convincingly for the cameras, which is nice I guess, and the SEC officials present were suitably evasive and squirmy. But what happens before the cameras doesn't matter. Let's see Ackerman put some legislation where his mouth is.

As for the mob: It's entirely possible that shady money was invested with Madoff, through feeder funds and such, but the shtunk would have been insane to solicit money directly from people he knew were involved in organized crime. Since he was a ripoff artist, he'd have been putting his life in danger. Indeed, skimming the list of victims released today, it's obvious that Madoff went out of his way to rip off people who weren't going to pose much of a danger to him -- such as the dead (the "Estate of Howard M. Squadron," a noted New York attorney, for instance).

Now it's always possible that the mob was involved in some other way, such as through money laundering. In Born to Steal I describe how money laundering was used by crooked brokers in the 1990s. Perhaps Madoff used such mechanisms to get his money out of the country. But, again, no evidence on that has energed so far.

© 2009 Gary Weiss. All rights reserved.

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.

Harry Markopolos on the SEC's 'Abject Failure'

The Wall Street Journal website has Bernie Madoff whistleblower Harry Markopolos' prepared testimony for his appearance before a House committee tomorrow, replete with copies of emails to the SEC.

It is absolutely devastating. Among other things, Markopolos says that because of the SEC's "abject failure" to do anything, because of its "investigative ineptitude and financial illiteracy," he was in fear for the safety of his family.

This is an infuriating document. Infuriating to me personally, because I can tell you that if Markopolous had come to me or to anyone at Business Week -- which at that time (May 2000) had editors who could actually understand such things -- he'd have been taken seriously and his allegations would have been investigated thoroughly.

Markopolos laid out the case against Madoff. He spoon fed it to the SEC, and they spat it out. Something needs to be done to prevent this from happening again, or else, really, what is the point of having an SEC?

Here's a passage of Markopolos's testimony, in his section on recommendations for SEC reform, that has a bearing on my previous item today on issuer retaliation and many other subjects I've covered in this blog and in my book:

Raise the Enforcement Bar to Incorporate Good Ethics in the SEC's Mission Focus

Just because it's not illegal doesn't mean the SEC should ignore unethical behavior in themarketplace, which it has been doing for several decades now by trusting the industry to self-regulate its way to good behavior. The SEC must change its mission toward ensuring full transparency, fair play, and zero tolerance for unethical financial dealings. . . the SEC needs to recognize that securities laws are not the be all and end all of regulation, they are merely thea bsolute bare minimum standard which market participants must follow.

It's tempting to respond to this by saying "fat chance," but Markopolos is absolutely right.

© 2009 Gary Weiss. All rights reserved.

The SEC Still Needs a Seeing Eye Dog

Gretchen Morgensen's New York Times column yesterday sticks a pin on the issue that the SEC will have to wrestle with, if it is to stem its slide into oblivion. Will it continue to ignore credible evidence of wrongdoing, or will it continue to be a tool of corporate interests and Wall Street?

Morgensen focused on Allied Capital, whose shares collapsed last week. That was no surprise to anyone who had followed the warnings of short-seller David Einhorn, whose struggle with Allied and the typically stone-headed SEC are chronicled in his new book Fooling Some of the People.

Chris Byron once referred to the media as the SEC's "seeing eye dog," but others have served in the role--thousands upon thousands of tipsters, mainly self-interested, and the SEC has worked very hard to ignore what they say.

Some are shorts, like Einhorn, and others are just disinterested but enraged citizens, such as the Bernie Madoff whistelblower Harry Markopolos. "Just as the S.E.C. failed Mr. Madoff’s investors as tipsters told the agency he might be up to no good, it also seems to have let down Allied’s shareholders by ignoring analyses of aggressive accounting at the company," says Morgensen.

But you'd never know that by reading through the lengthy, self-serving barrage of obfuscations and baloney provided to the Senate Banking Committee on Tuesday by SEC enforcement director Linda Thomsen.

Here's what Thomsen says about its thousands of seeing-eye dogs:

The Enforcement Division receives hundreds of thousands of tips each year from various sources. Some are from credible sources who provide detailed information in support of the tip, and some consist of nothing more than newspaper clippings or printed promotional material sent with no further explanation. Some come from industry competitors, some from disgruntled present or former employees, some from present or former investors, and others are totally anonymous. On the one hand, complaints, tips and referrals from the public often provide valuable information about potential securities violations; on the other hand, sources at times may be attempting to enlist the SEC's authority and resources in efforts to advance their own private interests, which may or may not be consistent with our enforcement mission.

Complaints, tips and referrals come to the Enforcement Division in every imaginable form. We get telephone calls, handwritten letters, thick bound dossiers with numbered exhibits and extensive accounting analyses, complaint forms from the Enforcement Division's Office of Internet Enforcement, newspaper articles with company names circled in red ink, formal referrals from other regulators, informal referrals from other Offices and Divisions of the SEC, notes from reformed fraudsters, anonymous scribbling, seemingly random pieces of a company's financial statements, and occasional lengthy and disjointed diatribes that make no discernible securities-related claims.

While we appreciate and examine every lead we receive, we simply do not have the resources to fully investigate them all. We use our experience, skill and judgment in attempting to triage these thousands of complaints so we can devote our attention to the most promising leads and the most serious potential violations. Because the process necessarily involves incomplete information and judgment calls made in a tight timeframe, we are also continually working on ways to improve our handling of complaints, tips and referrals to make optimal use of our limited resources.

There are a number of major channels through which complaints, tips and referrals flow in to the Enforcement Division. . . .

Notice how Thomsen dances around the elephant in the room, which is Markopolos, whose name she does not utter in all this extended blather. Markopolos was not some crackpot living in an abandoned car. He was a forensic accountant.

He did not, however, have the financial resources to employ a battery of lobbyists, and thus could not get his concerns taken seriously by the commission -- as does, for example, the naked shorting conspiracy nuts, which have a high paid Washington lobbying firm pleading their discredited cause, paid for by the trust fund of Overstock.com's wacky CEO Patrick Byrne. That has enabled this fringe issue to become a priority of the SEC under its chairman Chris Cox. The result was that the Madoff fraud and the Aillied ills (and numerous other significant issues) ignored by every SEC chairman since Arthur Levitt, while this fringe issue was the subject of thousands of wasted SEC man hours.

It is no coincidence that Einhorn and other opponents of fraud have become targets of Byrne and his paid cyberstalker, the nauseating former Jeb Bush flack Judd Bagley. Einhorn also was the subject of a smear campaign by Allied. Indeed, Byrne has embarked on a similar campaign against reformed felon Sam Antar, for dissections of Overstock accounting (such as this) that have also been ignored by the SEC.

The new SEC chairperson, Mary Schapiro, has an opportunity to prove that she is serious about reversing the SEC's decline by acting on credible tips, ignoring high powered lobbying campaigns, and punishing public companies that attack critics. "Issuer retaliation" was ignored by the SEC under Cox, despite early promises.

It's not just a question of resources. It's a question of political will, and a wholesale change in an SEC culture that genuflects to the rich, powerful and connected.

I have very little faith in Schapiro, as I've said before. Given her background, I don't expect her to actually reverse course. But who knows? Maybe she'll surprise everybody. We'll know she has when we start seeing some action.

© 2009 Gary Weiss. All rights reserved.