Whistle-blower Harry Markopolos disheartened by Bernie Madoff probe in documentary

IF WE END the wars in Iraq and Afghanistan, we might be able to repatriate leaders who could reduce the courage deficit and the numskullsurplus in Washington.

This occurred to me as I watched "Chasing Madoff," a profile of Ponzi-scheme whistle-blowers who tried, for a decade, to interest the U.S. Securities and Exchange Commission in Bernie Madoff's transparent and ruinous fraud scheme.

Front and center in the documentary is Harry Markopolos, a former Catholic-school kid and Army veteran who says in "Chasing Madoff" that he took seriously his service oath to protect his country from enemies foreign and domestic.

Markopolos became an investment portfolio manager who in the early 1990s was asked to look at the business model of a competitor, Bernie Madoff. After looking at Madoff's business model for "about five minutes," he saw what looked very much like a domestic enemy - a destructive fraud, massive in scale, abetted by feeder funds that surely knew what Madoff was doing (we hear Madoff on tape telling one fund what to say when the SEC came knocking).

Madoff was showing prospective investors a return, purportedly derived from stock options, that rose 15 percent every year, regardless of what the market at large was doing. The first of many red flags. Another: Although his scheme would have made Madoff the largest equity options trader on Wall Street, nobody there had ever traded stock options with him.

Markopolos, like a good soldier, took his concerns to the SEC. An associate said they gave the SEC a "handbook on how to look at Madoff" and confirm his fraud. It would be a compliment to the SEC to say that it did nothing. It did worse than nothing. The agency investigated Madoff, and gave him the de facto all clear - a signal to his many investors (charities and retirees) that their money was safe.

How is this possible? How could the SEC walk into the offices of Madoff, who positioned himself as the country's largest equity options trader, and fail to notice that he had no equity options trading apparatus?

"Chasing Madoff" (short on proprietary investigation, long on theatrics) doesn't track down any SEC staffers, and is satisfied to use footage from congressional hearings during which politicians berate various agency Tweedledees and dums. Markopolos has his own theories - SEC staffers are lawyers who don't understand mathematics, and many hope one day to get a job working for an unincarcerated version of Madoff.

Markopolos' experience with Madoff, the blind-eyed SEC and the disinterested financial press (the Wall Street Journal was not interested) has soured him on Wall Street, which he sees as subverting and perverting true capitalism.

"Wall Street is so corrupt, I want to be on the other side of this industry. I want to go against these guys." Markopolos now uses his math skills to spot large-scale investment fraud, and bring the numbers to civil litigators who go after corporate malfeasance.

And he does not feel vindicated. He feels rotten about the Madoff affair (uncovered only when the market collapsed completely), about the 10-year foot-dragging delay that suckered so many more investors.

"We didn't save anybody," he says.