It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud.–Harry Markopolos on Bernie Madoff’s Ponzi scheme

If you only see one story this week, make sure it’s Steve Kroft’s interview with Harry Markopolos, the financial analyst and fraud investigator who, on seven different occasions between May 2000 and April 2008, tried to convince the S.E.C. that Bernie Madoff was a crook.

Produced by Andy Court and Keith Sharman, the 60 Minutes piece leaves no doubt that the SEC is guilty of criminal malfeasance in this case. Here are some of the highlights:

• “In 2000, it was more theoretical. In 2001, it was a little bit more real. By 2005, I had 29 red flags that you just couldn’t miss on. By 2005, the degree of certainty was approaching 100 percent.”

• With some simple math calculations, Markopolos concluded that for Madoff to execute the trading strategy he said he was using, he would have had to buy more options on the Chicago Board Options Exchange than actually existed. Yet he says no one he spoke to there remembered making a single trade with Bernard Madoff’s fund.

• “I would say that hundreds of people suspected something was amiss with the Madoff operation. If you look at who the victims were not, you’ll notice that the major firms on Wall Street had no money with Mr. Madoff.”

• [From one of Markopolos’s letters to the SEC] “Red flag number 20. ‘Madoff is suspected of being a fraud by some of the world’s largest, most sophisticated financial services firms.’ And then you list some of the firms,” Kroft said. “The biggest firms on Wall Street. And conversations with people high up in those firms.”

“That is correct. And the SEC ignored that,” Markopolos replied. “All the SEC had to do was pick up the phone. They never did.”

Why didn’t any of those Wall Street executives go to the SEC? “Because people in glass houses don’t throw stones. And self regulation on Wall Street doesn’t work,” Markopolos explained.

Finally, five and a half years after Markopolos’s first letter to the SEC, the New York office opened a case file to examine his charges. “Despite uncovering evidence that Madoff had misled them about his investment activities, the SEC closed the case 11 months later without ever opening a formal investigation. The staff said there was ‘no evidence of fraud.’”

Then there’s the proof that Madoff really is a psychopath. At a meeting in 2007 of a non-profit group, he declared, “In today’s regulatory environment, it’s virtually impossible to violate rules. This is something that the public really doesn’t understand. But it’s impossible for a violation to go undetected, certainly not for a considerable period of time.” The same year, Madoff also said this: “I’m very close with the regulators so I’m not trying to say that what they do is bad. As a matter of fact, my niece just married one.” The SEC has said the husband of Madoff’s niece, no longer with the agency, is not guilty of any wrongdoing.

The one thing Kroft omits is the main reason Markopolos thinks the New York office of the SEC never took him seriously. Markopolos told the House Financial Services Committee that the chief of the Boston office of the SEC had warned him, “relations between the New York and Boston regional offices were about as warm and friendly as the Yankees-Red Sox rivalry…New York does not like to receive tips from Boston. Truer words were never spoken.”

Kroft’s piece does include footage of Madoff victims forced to sell their homes after losing their life savings. Which leaves FCP with just one more question: Why on earth has federal magistrate Ronald Ellis rebuffed every effort by federal prosecutors to evict Madoff from his penthouse apartment in Manhattan, so that he can be housed in the federal prison where he so obviously belongs?

Meanwhile, over at CNBC, the network has been upholding all the highest standards of the cable news business by trying to portray Rick Santelli’s idiotic rant against the Obama administration’s plan to limit the massive damage of the mortgage crisis as a great moment in American journalism. At least over at sister network MSNBC, Chris Mathews correctly identified the CNBC correspondent’s claptrap as the “Ebenzer Scrooge–Rick Santelli position”—and got the CNBC reporter to admit that he was a John McCain supporter.

Charles Kaiser is the author of The Gay Metropolis and 1968 in America. He has been media editor for Newsweek, a member of the metro staff of The New York Times, and a reporter for The Wall Street Journal, where he covered the press and book publishing. To learn more, visit