Sense on Cents

Harry Markopolos has become a household name in the realm of financial regulatory oversight. Harry earned his stripes for his dogged pursuit of the Madoff scam, especially in light of the lack of support from the SEC.

Harry characterized the SEC as incompetent during his initial Congressional testimony addressing the Madoff scam early last year. During that testimony, Harry characterized FINRA as “in bed with the industry.”

Who in America did not view Harry as a hero for his determination and drive in exposing the Madoff scam?

In light of Harry’s work over the years, I was somewhat befuddled by Harry’s excessively complimentary remarks directed toward Mary Schapiro last fall during Congressional testimony highlighting SEC Inspector General’s David Kotz’ review of the SEC’s handling of the Madoff affair. Harry seemed to lose his disdain for Mary and the SEC.

Well, Harry has regained his edge and his contempt for the SEC.

He shares as much in an interview in today’s Sunday New York Times Magazine, entitled Math is Hard:

What was it like to spend nine years trying to persuade the Securities and Exchange Commission that Bernard Madoff was a fraud, only to learn that the agency thought he was perfectly reputable?
For nine years I was the S.E.C.’s doormat.

Now you’re triumphant, a hero in investment circles who exposes the S.E.C. as the most futile of agencies in your new book, “No One Would Listen.”
It was a trip through the twilight zone.

Why do you think the S.E.C. failed to wake up to Madoff’s $65 billion Ponzi scheme until he turned himself in?
They weren’t even asleep at the switch; they were comatose. They didn’t respond to heat and light, much less evidence of wrongdoing. They were not engaged in the fight.

This was when William Donaldson was head of the S.E.C.?
Donaldson was too tough on Wall Street, so he got the ax. Then you had Christopher Cox, because he wasn’t going to do his job. That’s why he got the job.

You met last year with Mary Schapiro, the current head of the S.E.C. How did that go?
I would say she was coldly polite. Her general counsel, David Becker, did most of the talking. He and I did not get along at all. He was getting ready to come across the coffee table and strangle me.

In the year since you testified before Congress about the S.E.C.’s failures, many of the agency’s employees have been replaced.
They’ve redisorganized. They redisorganized the enforcement unit. I actually approve of that. I think Robert Khuzami, the new head of the enforcement division, has got fire in his belly.

Are you saying the S.E.C. under Schapiro is about to catch fraud on Wall Street?
She has the wrong staff. They’re a bunch of idiots there.

What do you mean?
The five commissioners of the S.E.C. are securities lawyers. Securities lawyers never understand finance. They don’t have the math background. If you can’t do math and if you can’t take apart the investment products of the 21st century backward and forward and put them together in your sleep, you’ll never find the frauds on Wall Street.

So why doesn’t the S.E.C. hire finance people? Why don’t they hire you?
They’re overlawyered. They’re poisoned by lawyers.

You actually began your career as a money manager in Boston who first noticed Madoff’s monkey business when your boss told you to try and duplicate his investment returns. You realized they were mathematically impossible.
Madoff was a competitor of mine, and I couldn’t compete against him because he was making up his investment returns, and I had to manage according to the market. It wasn’t a level playing field.

What will you do with your book royalties?
Fund the three boys’ college educations. Harry Louie and Louie Harry are identical twins. Age 6. I have a 3-year-old as well.

Is that some kind of Greek tradition? Giving kids the same name?
You saw the movie “My Big Fat Greek Wedding”? Everybody has the same name. Only the people change; the names never do.

Has anyone contacted you about making a film based on your book?
Yes. All the major studios. Sony, Paramount, Tom Hanks, you name it.

Where did you learn about finance?
You don’t learn much in grad school. Half the formulas they teach you are false. It’s a lot of self-study. I read a lot of finance books, and I usually read them with a calculator because I go through the math to make sure I master the formulas.

Were you always a math whiz?
I needed a tutor in 7th and 8th grade. Whatever it was, I was having big problems with algebra.

In a recent interview with a government investigator conducted in prison, Madoff called you “a joke in the industry.” Have you ever met him?
No. I was asked if I wanted to. I don’t want to sit there and hear his lies.

I commend Harry for speaking his mind, but why the flip-flopping in his assessment of Schapiro and the SEC? More importantly, when will he shed some details on his statement characterizing FINRA as ‘in bed with the industry’?

I would only wish to get Harry on No Quarter Radio’s Sense on Cents with Larry Doyle. Now that would be interesting.

LD

This entry was posted on Sunday, February 28th, 2010 at 12:23 PM and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.