Q&A: The 'numbers guy' who sussed out Wall Street's biggest fraud artist

'Chasing Madoff.' A new documentary tells the story of whistleblower Harry Markopolos who figured out the fraud of the century.

Trader Harry Markopolos and filmmaker Jeff Prosserman tell the story of 'Chasing Madoff'

A scene from Chasing Madoff, director Jeff Prosserman's documentary adaptation of financial analyst Harry Markopolos's best-selling book about Bernard Madoff's multi-billion dollar fraud. (Cohen Media Group)

In the late-1990s, Harry Markopolos was an options trader with a Boston-based investment company. He was the numbers guy in the firm, talented at identifying patterns and trends from a cacophony of confusing figures.

He was also highly curious. When he heard about wunderkind investment manager Bernie Madoff, a former chairman of the NASDAQ stock exchange and a big man on Wall Street, Markopolos started doing the math on the Madoff investments.

What he famously discovered, almost immediately, was a massive fraud scheme. But how to prove it?

Markpolos and three colleagues spent the next decade constructing a paper trail around Bernie Madoff — and alerting the U.S. Securities and Exchange Commission on more than one occasion. But no one would listen.

It wasn't until the banking crisis of 2008 that authorities took Markopolos seriously. By then, Madoff was pretty much forced to admit what he was up to, because he was out of cash.

Markopolos has since become something of a folk hero. He testified before Congress and the SEC adopted many of his suggested reforms.

He recently published a book about the Madoff case entitled No One Would Listen: A True Financial Thriller. And now there is a new documentary out, Chasing Madoff, directed by Jeff Prosserman, and showing this week, May 7 - 15, at the Toronto Jewish Film Festival.

CBC producer Jennifer Clibbon recently interviewed Markopolos and Prosserman in Toronto.

CBC News: What is it about the Madoff case that remains so important, and what does it represent in the broader context?

Harry Markopolos: First, the case is not over. It's still very active. There are hundreds of people involved that are still free men and women who need to be rounded up. Unfortunately most of them will go free, especially in Europe.

Harry Markopolos and Jeff Prosserman in Toronto in May 2011 for Prosserman's documentary 'Chasing Madoff.' (Timothy Neesam, CBC)

So everybody is waiting to see where the next criminal shoes drop, and they will. And they want to see who gets away, which most will, and they want to see who gets arrested.

Jeff Prosserman: It's a human story. As much as there is a financial side, there were so many innocent people who were screwed by this situation.

If anything, we look at the book and the documentary as a warning that there are many predators out there that are getting away. Everyone should be asking those questions.

CBC News: Mr. Markpolos, you are now a private consultant specializing in white-collar crime and fraud. What has changed at the SEC as a result of the Madoff case?

Harry Markopolos: They have adopted many of the reforms that I listed in my book. They are a far more aggressive agency.

Where before, they would shy away from the large cases. Now they aggressively seek out those cases. They are looking to restore their reputation and the only way to do that is to do a number of large cases against formerly protected species on Wall Street, the large investment banks.

They also have a whistleblower program, thanks to my testimony before Congress. They can pay bounties to those whistleblowers. They have hired industry professionals on their staff, which is a good thing.

I'd say the negative thing is there's no accountability for the existing staff that were there pre-Madoff. They probably needed to fire about half of their staff. They need to do a skills-testing of their staff and they are still over-lawyered.

But on the whole I really admire the job that Mary Schapiro has done. If you should give them a Ponzi case today, they actually know how to solve it.

CBC News: What has changed on Wall Street since the banking crisis?

Markopolos: Nothing. Nothing at all. No lessons were learned because the 'banksters' got bailed out. What they learned is: crime does pay.

Prosserman: It's just business as usual. There should be a public outcry, but whether it's because the media just doesn't cover it to the full extent, or any way you spin it, justice isn't being served.

CBC News: Is there a contradiction here? The SEC has changed, but Wall Street hasn't?

Markopolos: Actually, Wall Street has changed: It has become emboldened. They know they can get away with it, so it has only gotten worse.

Look at the banks which aided and abetted: HSBC, JPMorgan, Citigroup, Bank of Santander, BBVA, Union Bancaire Privee, Union Bank Switzerland, Credit Suisse, and the list goes on and on and on.

How many of them have been brought to justice? And the answer, of course, is none of them.

CBC News: You recount how in your book and in the documentary that, once you had the numbers in front of you, it took just minutes to see the fraud.

Markopolos: If you read a mystery novel, the protagonist figures out the case in the back pages. But with Madoff, nothing was ever destined to make sense. So I solved it in the first five minutes. There were no straight lines here. It was always a crooked line. And it was always surreal.

CBC News: Can you describe the chain of events that led you to your initial discovery of fraud.

Markopolos: I was handed a one-page, marketing tear sheet, with four things on it and all four were clearly false. I knew immediately that it was a fraud because I had managed similar products and I knew what the strategy was capable of doing.

He would have had to pick stocks that only went up or stayed the same, but never went down. Well, no one has ever done that in human recorded history. And so I knew he couldn't do it either.

CBC News: When you looks back on it are you amazed that you're the only one who came to this conclusion?

Markopolos:  I was not the only one who came to that conclusion. There were hundreds of others who saw it and walked away. It was the brotherhood. A code of silence.

People would walk away and say "something is wrong here," but no one would report that to the authorities, except a few other brave individuals. And the authorities were never able to connect the dots.

CBC News: As more details come out about the fraud scheme, many aspects of the Ponzi case seem so obvious, so blatant that you wonder how he got away with it for so long?

Convicted Ponzi artist Bernie Madoff, leaving a New York court house in January 2009. (Brendan McDermid/Reuters)

Markopolos: Madoff paid so high of a fee, well above industry standards so of course people are going to look the other way.

The thing that flummoxed us was the involvement of the big banks. We would see them marketing this product. We would see them loaning money to the victims so that they could invest more money with Madoff.

That's what was really shocking. Their willingness to look the other way, and you could see why: Madoff was paying well over 90 per cent of the fee pie to anybody who would market for him.

CBC News: Madoff has been giving interviews from jail about how his fraud scheme started as an accident. How do you interpret that?

Markopolos: All lies. He's not capable of telling the truth. I think it started when he got in the industry in 1962. I can personally date Ponzi notes going back to 1981 that I have seen.

CBC News: What kind of impact do you hope your documentary will have?

Jeff Prosserman: I think Harry's story is a microcosm of the greed and arrogance that exists today on Wall Street and people in power.

I hope that it's treated as a warning, an outrage to people to discover that it's still happening.

Ultimately, people should be taking steps, whether it be questioning their own statements, or questioning their trust in institutions. If you are complacent then it's your own fault.