Madoff Scandal—Harry Markopolous's 19-page letter to the SEC in 2005: "The World's Largest Hedge Fund Is a Fraud"
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Various laws attempt to protect and reward insider whistleblowers who call to public attention wrongdoing by the institutions that employ them. But little incentive exists for outsiders to point out big shots' fraud and misinformation, other than public approbation. So, let's take a moment to salute Harry Markopolous, who first brought Bernie Madoff's Ponzi scheme to the Securities and Exchange Commission's awareness in 2000 and then wrote them a 19 page letter in 2005 listing 29 Red Flags (you can read it here; thanks to Clusterstock).

Of course, the SEC didn't do anything substantive about it (other than one SEC official marrying into the Madoff family). Markopolous tried to talk the SEC into taking action by warning them that if they didn't move fast, Elliot Spitzer would beat them to it. (But now we know that the Spitzer family real estate firm, like so many New York real estate businesses, had money with Madoff.)

One thing that stands out is that Markopolous wasn't alone. He was just the guy who kept complaining about it. Markopolous's 2005 letter cites numerous experts, either by name or by position, who figured out this was a fraud. But Markopolous was one of the few to do anything about it.

Also, at least two journalists, one for Barrons and one for a trade paper, exposed this scam early in this decade, but nobody cared.

There's just not much of a market for debunking. People want to believe in geniuses. Look how many people believe Malcolm Gladwell is a genius. If he isn't a genius, everybody asks, how come he's so rich? Hunnh? Hunnh?

Malcolm, himself, is dimly aware that he's kind of an idiot, but he believes that the true geniuses are the people he profiles so credulously. In turn, the folks Malcolm writes up probably had doubts about their own brilliance, too, at least until they saw themselves acclaimed in The New Yorker. After all, you can't put anything over on The New Yorker—they've got a hung-over Jay McInerney checking the facts! So, they must be legit.

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