Whistleblower Tells How He Outed Bernie Madoff

April 26, 2013

Bernie Madoff Arrested

When a whistleblower tries to stop fraud and corruption, often times the hardest part is getting someone to listen. That was certainly the case for one of the men who helped to uncover the biggest Ponzi scheme ever  in the United States.

Frank Casey was just doing his job at Rampart Investment Management when he noticed returns on Bernie Madoff’s investments were “too good to be true.”

Casey and two co-workers, Harry Markopolos and Neil Chelo, carefully reviewed Madoff’s investment model and returns and became convinced it was a scam. Convincing the government, it turns out, wouldn’t be quite so easy.

Falling on Deaf Ears

The trio told the Securities and Exchange Commission what they had uncovered, but the blockbuster information fell on deaf ears and was initially ignored. Casey told the alarming behind the scenes story of how Madoff got away with his fraud for so long in a recent speech at the University of Utah’s David Eccles School of Business.

Sworn to Secrecy

The Desert News reports that Casey says one of the reasons Madoff was able to keep his scam under wraps for so long was because his investors were sworn to secrecy and forbidden to reveal they were investing with his company.

Casey and his colleagues made their first report to the SEC in 2000, but the lack of attention given to that report and subsequent reports, enabled the $65 billion scam to continue for many more years than perhaps were necessary.  In all,  Casey’s colleague Markopolos made five submissions to the SEC over six years. Finally, someone listened and investigated.

In 2009, Madoff pleaded guilty to 11 federal charges and was sentenced to 150 years in prison. He was also ordered to pay $170 billion in restitution.

Verify, Verify, Verify

During Casey’s speech, he said the Madoff scandal has made investors aware that they must be much more diligent in verifying a financial manager’s credentials and methods of investment.  He’s developed a system he calls T.I.P.S. as a guide for what to look out for:

  • “T” for third party verifications – Find out who is doing the auditing.
  • “I” for internal controls – separation between the person making investments & the one tracking profits and losses.
  • “P” for pedigree – Who are the managers and where did they come from?
  • “S” for strategy – Are the returns too good too be true?

To learn more about how the Madoff scandal was uncovered, watch the video below from FRONTLINE.

Watch The Madoff Affair on PBS. See more from FRONTLINE.