WHEN: TODAY, MONDAY MARCH 1ST
WHERE: CNBC'S BUSINESS DAY PROGRAMMING
Following are excerpts from the unofficial transcript of a CNBC interview with Madoff Whistleblower Harry Markopolos and former colleague Frank Casey. Excerpts from the interview will run throughout CNBC's Business Day programming today and will be available on CNBC.com.
All references must be sourced to CNBC.
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MARKOPOLOS ON PLAN TO KILL MADOFF:
MARY THOMPSON: You actually had a plan to go down and kill Madoff yourself.
HARRY MARKOPOLOS: I did and rightfully so. Speaking to the FBI, they told me, For that kind of money, a lot of bad things happen to people.
FRANK CASEY: Harry used to vent, his apprehensions, his fears. And we understood this. I mean, he would say, "Frank, if I get lead poisoning of the high-velocity nature make sure that this piece of information gets out to the press immediately." And so, we would store files of his, as backup.
HARRY MARKOPOLOS: in retrospect, we know that he was basically an organized crime chieftain. It's pretty obvious. He kept it in the family, veils of secrecy. He took the fall without speaking. He didn't cooperate with the government. He had his capos that were raising money for him that were clearly in on it, getting 300 and 150 percent annual returns. And he was preying on other organized crime families, the Russian mob and the drug cartels
MARY THOMPSON: But what's your proof that he, you know some of his clients were the Russian mob and, and drug cartels.
HARRY MARKOPOLOS: It's so obvious when you see the off-shore feeder funds. There's nothing legitimate about an off-shore feeder fund. They're one step or one-half step removed from organized crime. The best thing you can say about investor and organ, and off-shore feeder funds is they're tax cheats in their home nations. And then you go downhill from there. Very attractive to organized crime, easy to launder money.
MARKOPOLOS TRIES SPITZER:
MARY THOMPSON: You know, during your investigation, you actually went up to someone or an aide of someone who you thought really had the fight in them, that being the former governor of New York, the former attorney general of New York, Eliot Spitzer. And at that moment, he was presenting in Boston. And you put the documents that you had given to the S.E.C. in an envelope in another envelope.
Then you took one of your biggest overcoats, you put on gloves and you presented it to an aide. You took out your name, everything. And you said, "Please give this to Mr. Spitzer." And retrospect, should you have gone up to him in person? Would you have done it differently?
HARRY MARKOPOLOS: I had twin boys about to be born a few months later, and I was so worried for my safety. I have regrets. I wished I had confronted Mr. Spitzer personally, told him, "I'm president for the Security Analysts Society. I've got 4,000 members. I'm highly respected in this investment community. These are my documents. I have proof that Madoff's a fraud, meet with me. It's the biggest case in history, it'll make your career." If I had said that, this case could have turned out far differently. That's a big regret for me.
MARY THOMPSON: You also gave the story to the Wall Street Journal,
HARRY MARKOPOLOS: They sat on that one for three years. They had it in December of 2005. In March of 2001, I actually went to Forbes. They turned the story away, as well. The New York Times turned it down repeatedly, as well. Michael Okrant kept going to the New York Times and they kept refusing the story. It was too big, can't be true.
MARKOPOLOS ON SEC COVERUP:
HARRY MARKOPOLOS: I got the warning phone call, the day after Madoff turned himself in, 8:00 A.M., sharp, I get a phone call from a trusted source high-up in the S.E.C. Called me out of the blue and said, "Harry, we're being told we don't know you. We've never met with you. It's clear that operation cover-up has begun here, watch your back. "They had a lot of hide, and I knew that immediately. Madoff wasn't gonna kill me. But that didn't mean the S.E.C. wasn't gonna come in and take my computers and my documents and destroy them. And so, I had to rush home and safeguard those documents.
MARY THOMPSON: During those nine years, when you tried repeatedly to go to them and tell them, y- inform them about Madoff, what would you say was I don't want to describe it as a highlight, but the worst example of the S.E.C. at its worst, during that time?
HARRY MARKOPOLOS: I'm calling the S.E.C. branch chief in New York, Megan Chung, saying, "I've inches and inches of documents. I have dozens of phone numbers with contact information of witnesses that you can call about this case and get to the bottom of it very quickly." She never made one call.
MARY THOMPSON: You've spoken with chairwoman Shapiro and subsequently, there have been changes made at the S.E.C. Do you think they've gone far enough?
HARRY MARKOPOLOS: You've got to give them a reward. If you're giving them a bounty, there'll be a lot of heads coming through that door on silver platters like I delivered Madoff's head on a silver platter to the S.E.C.
MARKOPOLOS ON WHO ELSE KNEW:
MARY THOMPSON: The ten years that you were investigating Madoff, between the two of you, how many people on Wall Street, how many people told you, "Oh yeah, we know Madoff is a fraud?
HARRY MARKOPOLOS: Many dozens. We warned many people. If you look at who the victims were not, in Boston and in New York, in the financial center, it was the big firms in our two cities.
FRANK CASEY: I would ask the question eventually, "What do you know about Bernie?" And then you would see the wink-wink, nod-nod. And it would be, "Well, he's probably front-running and trading against his book, using the capital as to finance and leverage up his broker-dealer or whatever, as a market maker." And then they would just say, "But not my problem."
MARY THOMPSON: Do you think they're to blame, too? I mean, in your book, you lay the blame fairly squarely at the feet of the S.E.C. But does the prof the Wall Street community have a responsibility here?
HARRY MARKOPOLOS: They should have gone to the regulators and reinforced our story. People were afraid of Madoff.
MARY THOMPSON: What was the most ridiculous explanation that you heard from someone, trying to explain how Bernie got his returns?
HARRY MARKOPOLOS: Oh, that's easy.
HARRY MARKOPOLOS: He has perfect foreknowledge of the capital markets, because he sees his order flows and he knows exactly which stocks are gonna go up and when before they go up and same for down. He has no perfect foreknowledge. And they hold themselves out as fiduciaries with long-standing experience, conducting extensive due diligence. It was nothing but lies. None of that due diligence was ever conducted. These people were nothing but human predators. They were aiders and abettors to Madoff. They were part of the scheme.
MARKOPOLOS ON WHERE IS THE MONEY:
MARY THOMPSON: What is the question that you are asked most frequently?
HARRY MARKOPOLOS: Easy.
FRANK CASEY: Yeah.
HARRY MARKOPOLOS: Where'd, where'd the money go?
MARY THOMPSON: Where did it go?
FRANK CASEY: It gets redistributed.
HARRY MARKOPOLOS: You're robbing Peter to pay Paul. So, the people that got in early and that were taking the 12 percent income distributions, they made out like fat cats. You know, they put in a million, they may get back several million. The people that come in late or invest for capital gains, they get wiped out.
FRANK CASEY: Pyramid or a Ponzi scheme.
MARY THOMPSON: But if you, if you look at it right now, they've only recovered a couple of billion, I think.You don't think he stashed any anywhere else?
HARRY MARKOPOLOS: He has money off-shore. It's easy. That's was what London existed for, was to launder money. And it's very easy. You make it look like a losing trade and you're paying for a losing trade. There was no trade. It was just a fake trade ticket.
MARY THOMPSON: Any chance of recovering that money?
HARRY MARKOPOLOS: No. I'll tell you what happens to it. You're an off-shore banker. You have the Madoff account. Madoff's in prison for life. He's not coming out any time soon. His family members disavow any knowledge of the scheme. So, they can't show up, either. So, guess what? It's now my money.
MARY THOMPSON: Do you think that investigators here in the U.S. will ever be able to access that? Is that possible?
HARRY MARKOPOLOS: No, there's too many layers of bank secrecy laws in between where the- he wired the money through a series of off-short accounts. They'll never find it. Unless someone in the family did know something and they confess. That's the only way you're find it.
MARKOPOLOS ON WHO ELSE KNEW ABOUT BERNIE:
MARY: In the ten years that you were investigating Madoff, between the two of you, how many people on Wall Street, professionals who had an idea that his strategy could not possibly have delivered these types of returns, how many people told you, "Oh yeah, we know Madoff is a fraud?"
HARRY MARKOPOLOS: Many dozens. We warned many people. If you look at who the victims were not, in Boston and in New York, in the financial center, it was the big firms in our two cities.
FRANK CASEY: You know, everyone I met on Wall Street that was senior or would have had, would have been a risk manager or had a responsibility of due diligence on a manager like a Bernie Madoff I would ask the question eventually, "What do you know about Bernie?" You never had to use the man's last name. Everybody knew exactly what you were talking about.
And so and they would always say, "Well, what do you know about Bernie?" Because they wanted more information than they were going to give you. And so, I would say, "Well, seems like a lot of people who understand risk analysis say this is not a market-driven rate of return. It doesn't come from the stock market. Therefore, it's coming from something else."
And then you would see the wink-wink, nod-nod. And it would be, "Well, he's probably front-running and trading against his book, using the capital as to finance and leverage up his broker-dealer or whatever, as a market maker." And then they would just say, "But not my problem."
MARY THOMPSON: Do you think they're to blame, too? I mean, in your book, you lay the blame fairly squarely at the feet of the S.E.C. But does the prof, the Wall Street community have a responsibility here?
HARRY MARKOPOLOS: They should have gone to the regulators and reinforced our story. People were afraid of Madoff.
FRANK CASEY: Sure.
HARRY MARKOPOLOS: We had career risk and possibly more risk than that. He had plenty of people making excuses for him, whether they were his clients or his friends or whatever
FRANK CASEY: Apologists. Uh-huh.
MARY THOMPSON: what was the most ridiculous explanation that you heard from someone, trying to explain how Bernie got his returns?
HARRY MARKOPOLOS: Oh, that's easy.
FRANK CASEY: Yeah.
HARRY MARKOPOLOS: He has perfect foreknowledge of the capital markets, because he sees his order flows and he knows exactly which stocks are gonna go up and when before they go up and same for down. And that's beyond ridiculous. Sure, he had five to ten percent of the daily volume on the New York Stock Exchange. But still, he doesn't know what the other 90 to 95 percent of the customers are doing.
He has no perfect foreknowledge. That was the dumbest excuse that I've ever heard in my life. I can't believe people are that naive. And they hold themselves out as fiduciaries with long-standing experience, conducting extensive due diligence. It was nothing but lies. None of that due diligence was ever conducted. These people were nothing but human predators. They were aiders and abettors to Madoff. They were part of the scheme.
MARY THOMPSON: You know, during your investigation, you actually went up to someone or an aide of someone who you thought really had the fight in them, that being the former governor of New York, the former attorney general of New York, Eliot Spitzer. And at that moment, he was presenting in Boston. And you put the documents that you had given to the S.E.C. in an envelope in another envelope.
Then you took one of your biggest overcoats, you put on gloves and you presented it to an aide. You took out your name, everything. And you said, "Please give this to Mr. Spitzer." And retrospect, should you have gone up to him in person?
HARRY MARKOPOLOS: I had twin boys about to be born a few months later, and I was so worried for my safety. I have regrets. I wished I had confronted Mr. Spitzer personally, told him, "I'm president for the Security Analysts Society. I've got 4,000 members. I'm highly respected in this investment community. These are my documents. I have proof that Madoff's a fraud, meet with me. It's the, it's the biggest case in history, it'll make your career." If I had said that, this case could have turned out far differently. That's a big regret for me.
MARKOPOLOS ON FIGURING OUT A FRAUD:
MARY THOMPSON: What'd he tell you, Harry, when he came back from this meeting in New York?
HARRY MARKOPOLOS: This guy's great. He had perfect market timing ability. Let me show this one-page marketing tear sheet. It had four parts to it. I looked at it, spent five minutes with it. I saw the 45 degree angle of the return stream. I read the strategy description. I looked at the performance numbers and I said, "Frank, this guy's a fraud. These numbers don't exist in finance. And he says, "Harry, come on, a fraud? No. He has perfect market information. He's a market maker. He might be front-running." And I said, "Well, that could be explanation, front-running." So, I spend a few hours, about four hours, modeling the returns. And I came back. I said, "Frank, this is either front-running, or it's a Ponzi scheme." So, we had to fraud theories. We didn't know which was correct at that time. We didn't have enough information.
MARY THOMPSON: And you didn't always agree about what he was doing, did you?
FRANK CASEY: No, no, no, I always thought he was front-running. I always thought he was using the money, raising $3, $5 billion, putting it in his back pocket and then committing it in a market to back up his own trades and, and, and maybe block trades or whatever and, and providing liquidity to the marketplace.
MARY THOMPSON: when did you decide, Harry, this was a Ponzi scheme and nothing else?
HARRY MARKOPOLOS: I equally weighted the probability 50-50 in the absence of proof one way or the other. I didn't get the proof for the Ponzi until mid-2002 when I went to Europe and met 14 of his feeder funds. And at that point, you knew, because at every meeting, they would say, "I have Bernie Madoff and I have a special relationship with Bernie. He takes my money and only my money. He's closed to new investors except through me." When you hear it the first time, you believe it. When you hear it the second time, you get suspicious. When you've heard it 14 times, you know it's a Ponzi scheme.
MARY THOMPSON: During that trip to Europe, I thought it was interesting, because you were traveling with Mr. de la Velochet at that time. And he kept introducing you to the people, that the clients that he was meeting as, "This guy's just like Bernie Madoff." I mean, every time you heard that what was going through your head?
HARRY MARKOPOLOS: I want to get up and jump through the ceiling and say, "His returns are so great because he's a fraud, he's a Ponzi scheme. Don't you understand?" But if I knew if I said that, the word would get back to Bernie and I was a dead man. And so, I didn't. I just used it as an opportunity to collect information. I turned that information over to the United States government. They turned it over to the French and Swiss authorities, who have been busy doing not much of any investigation whatsoever
MARY THOMPSON: Why not?
HARRY MARKOPOLOS: Those authorities do not want to know. They're willfully blind, because they know they will implicate their royal families and the high-borns and the nouveau rich, their top citizens, the most politically powerful individuals in those countries were investing in Bernie Madoff.
And they were doing it with dirty money, untaxed money that they never declared to their host nation tax authorities. And so by stepping forward and raising their voice, telling the world that they're victims, they're filing a CIPIC claim here in the United States, would open them to civil and criminal tax liability.
MARKOPOLOS ON SEC’s INCOMPETENCE:
HARRY MARKOPOLOS: Two of my closest friends that had helped me on the case and had warned people away from Madoff were calling, notifying me that Madoff was under arrest, in federal custody, for running a big Ponzi scheme.
And that the markets were gonna take it hard, that the futures were selling off. It's the biggest thing. "Harry, you were right. You were right. It's over." And they congratulated me, hurriedly. And then I fainted. You're immediate reaction after that was to say, "How am I going to protect myself and make sure that the second monster," that being the S.E.C.," is implicated in this?"
HARRY MARKOPOLOS: They had a lot of hide, and I knew that immediately. Madoff wasn't gonna kill me. But that didn't mean the S.E.C. wasn't gonna come in and take my computers and my documents and destroy them. And so, I had to rush home and doc- safeguard those documents. I had to get them out of the house as best I could, to safeguard my family. I have three young boys at home. I didn't want anybody getting hurt in a raid. And I had to take precautions, which I did.
During those nine years, when you tried repeatedly to go to them and tell them, inform them about Madoff, what would you say was, I don't want to describe it as a highlight, but the worst example of the S.E.C. at its worst, during that time?
HARRY MARKOPOLOS: I'm calling the S.E.C. branch chief in New York, Megan Chung, saying, "I've inches and inches of documents. I have dozens of phone numbers with contact information of witnesses that you can call about this case and get to the bottom of it very quickly." She never made one call.
MARY THOMPSON: Let's go back to the day where you, Harry, went down to the S.E.C. and there was a very emotional reaction by one of the S.E.C. staffers, when you described to them if you had, if you had caught this when I sent my first submission, to the time, how much the Ponzi scheme had grown, to the time when Bernie finally confessed. What happened that day?
HARRY MARKOPOLOS: She took it personally. She's the deputy inspector general, a very committed and very talented lawyer, a seeker of the truth. She asked the toughest question she could ask me. And when I gave her my answer, that the S.E.C. was responsible for over $40 billion in additional losses by their failure to act, she collapsed.
She just fell to the table with a thud. It had to hurt. And she started crying her eyes out. I didn't know what to do. My lawyer said, "I'm taking my client out for a sidebar now." She grabbed me by the shoulder and, and dragged me out of the conference room. We didn't come back for another 25 minutes.
MARY THOMPSON: Did you find others at the S.E.C. showing the same kind of emotion or regret when you met with them? Or were they stone-faced?
HARRY MARKOPOLOS: I would say they were in a cover-up mode. When I got the warning phone call, the day after Madoff turned himself in, 8:00 A.M., sharp, I get a phone call from a trusted source high-up in the S.E.C. called me out of the blue and said, "Harry, we're being told we don't know you. We've never met with you. It's clear that operation cover-up has begun here, watch your back."
And then I knew I was wise to have stayed up all night the previous night producing documents, sending them to my lawyers in Boston, New York and Washington and sending a CD-ROM with my wife in the Boston's financial district the next morning, that she took into Chinatown. She gave it to the trusted friend who his that CD-ROM. I knew that if they came in and took my computers and took my documents, everything was already out of the house, it would just incriminate them even further. And I felt very safe.
MARKOPOLOS ON LIVING UNDER A DEATH SENTENCE:
MARY THOMPSON: actually had a plan to go down and kill Madoff yourself.
HARRY MARKOPOLOS: I did and rightfully so. Speaking to the FBI, they told me, "For that kind of money, a lot of bad things happen to people.
MARY THOMPSON: when did you come up with this plan?
HARRY MARKOPOLOS: 2005, as soon as I turned the stock into the S.E.C. with 30 red flags.
MARY THOMPSON: Document number?
HARRY MARKOPOLOS: There were so many documents, I couldn't number them all. But the, this, these
MARY THOMPSON: This was your third submission to the S.E.C., is that right?
HARRY MARKOPOLOS: My third submission to the S.E.C.
FRANK CASEY: October of, yeah.
HARRY MARKOPOLOS: They had my name in New York. I it was in Madoff's back yard. If the S.E.C. exam team was corrupt and they took the money and turned over my documents to him, I knew I was a dead man. And the S.E.C.'s investigation was off-course on day one. It was so ineptly run, and I knew that from speaking to them, that I was scared for my life. I went into local law enforcement. I told Sergeant Bates.
He told me, "You gotta take precautions or else you're not gonna make it to the other side." He gave me a lot of confidence. He said, "But don't worry, we'll help you. I'm here to help you."
I had my wife take shooting lessons, get her her gun license early on in the case. And she had a pre-position plan at the top of the second-floor stairway. I was gonna go down with the 12-gauge and take care of business down there. If I failed, she was last line of defense between me- between my family, my kids. I mean, that was it.
FRANK CASEY: Harry used to vent his apprehensions, his fears. And we understood this. I mean, he would say, "Frank, if I get lead poisoning of the high-velocity nature make sure that this piece of information gets out to the press immediately." And so, we would h- store files of his, as backup.
In retrospect, we know that he was basically an organized crime chieftain. It's pretty obvious. He kept it in the family, veils of secrecy. He took the fall without speaking. He didn't cooperate with the government. He had his capos that were raising money for him that were clearly in on it, getting 300 and 150 percent annual returns. And he was preying on other organized crime families, the Russian mob and the drug cartels. So, who does that? Only organized crime does that.
MARY THOMPSON: But what's your proof that he, you know some of his clients were the Russian mob and- and drug cartels.
HARRY MARKOPOLOS: It's so obvious when you see the off-shore feeder funds. There's nothing legitimate about an off-shore feeder fund. They're one step or one-half step removed from organized crime. The best thing you can say about investor and organ- and off-shore feeder funds is they're tax chiefs in their home nations. And then you go downhill from there. Very attractive to organized crime, easy to launder money. And everybody was attracted to his investment returns.
MARY THOMPSON: One of the things that you said in the book when Madoff confessed, you said, "I had been living under a death sentence for the last ten years." And I'm assuming it was because of- Madoff's connections. First of all, tell us some of the things that you did to protect yourself during this time period.
HARRY MARKOPOLOS: I'd carry heavy or light. On my light carry days, it'd be a Smith and Wesson air- air-weight. On my heavy-carry days, it'd be a Wather P-99, with extra ammunition. I'd always check underneath my vehicle and around my vehicle for bombs before I got in it, every time. I had grew eyes in the back of my head.
MARY THOMPSON: Knowing what you all know, do you think that Harry took the right precautions? Or do you think he was
FRANK CASEY: No, I don't
MARY THOMPSON: being excessive?
FRANK CASEY: I don't think it's an exaggerated move. You have to believe that there is a large amount of money that's floating off-shore that's probably ill-gotten. Otherwise, we wouldn't be so concerned with it, with the anti money laundering, AML. And the training that we get on Wall Street is AML. This is a way of financing terrorism and the like.
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