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We Read Markopolos So SEC, You, Don't Have To

As mentioned in our Opening Bell (we love the safe-cracking picture of Geithner, can you tell?) Harry Markopolos fired both barrels into the SEC with this week's testimony on the (alleged) fraud by Bernie Madoff and (alleged) pals. With his verbal testimony, he issued over 300 pages of written testimony which the Journal has so kindly attached to their article on the subject.
So, in addition to our continuing coverage of the hearings (in progress now!) we thought we'd review the written stuff. We just knew it was going to be good once we saw:

Year 2005:
Email Exchange to Meaghan "Sniffles" Ka-Cheung (11/4/05).

(Ok, so we made up the nickname).
One thing that emerges is the varied and deep level of due diligence that Markopolos describes, careful to share credit with his "There Is No I In Team" team. (For the record, we would like to point out that while there is no "I" in "Team" there is an "M" and an "E"). As it happens, however, there is quite a bit of grandstanding in the testimony as well. A thick streak of arrogance (well deserved in our opinion, but still arrogance) shows through.

My army special operations background trained me to build intelligence networks, collect intelligence reports from field operatives, devise lists of additional questions to fill in the blanks....

Ok, so you have to admit, he is kind of a stud.

My team and I surmised that if Mr. Madoff gained knowledge of our activities, he may feel threatened enough to seek to stifle us. If Mr. Madoff was already facing life in prison, there was little to no downside for him to remove any such threat.

Bernie Madoff. Hitman? Murder for hire offender? Markopolos may claim he doesn't want a movie made, but he sure writes with a pulp sound that is going to draw Hollywood producers like flies to ointment. experiences with other SEC officials proved to be a systematic disappointment, and lead me to conclude that the SEC securities' lawyers if only through their investigative ineptitude and financial illiteracy colluded to maintain large frauds such as the one to which Madoff later confessed.

This is rough, and well deserved stuff.
On the WSJ:

Unfortunately, as eager as Mr. Wilke was to investigate the Madoff story, it appeared that the Wall Street Journal's editors never gave their approval for him to start investigating.

On Ka-Cheung:

When I mentioned that my derivatives expertise would be needed to break the case open, she dismissed me by saying that the SEC's Washington Headquarters had Ph.D.'s in an economics analysis unit with derivatives expertise. When I pointed out that the SEC likely didn't have any Ph.D.'s on staff with derivatives trading experience who truly understood how these financial instruments worked because a true derivatives expert couldn't afford to work for SEC pay, she ignored me.

That's laying it on a little thick, of course, but his point stands out.
On Bernie c. 2007:

The interesting thing about the [April 2007 performance data from Fairfield Greenwich Group] was that [Bernie Madoff] was noticeably stepping down his stated returns... a clear sign that he needed to cut back on the payouts to old investors in order to conserve cash and keep the scheme going.

On the withering effect of Ka-Cheung (this is the shining gem of the document):

Every phone call to Meaghan Cheung made me feel diminished as a person....

Wow. We will release the second half of our "analysis" this afternoon.