Finance & Business World

Harry Markopolos spent nine years fruitlessly trying to convince the Securities & Exchange Commission that Bernard Madoff’s investment operation was a scam.

Markopolos, a former derivatives fund manager turned fraud investigator, became an instant star after Madoff’s fund imploded, emerging as one of the few sympathetic figures of the financial crisis. A self-described quant, Markopolos contends it took him five minutes to realize that Madoff’s vaunted returns were impossible.

These days, Markopolos hunts fraud at major corporations. He looks for whistleblowers at places like trade shows and bars near corporate offices and convinces them to file lawsuits under the False Claim Act. He gets a piece of any settlement.

Markopolos is still waiting for his big payday, but next week marks the debut of his book, "No One Would Listen: A True Financial Thriller," the story of his quest to expose Madoff and his Ponzi scheme.

James Bandler caught up with Markopolos in Boston recently to discuss the book, and how he’s doing with his life as an agent for whistleblowers. Edited excerpts are below:

Since Madoff, I would imagine every whistleblower in America would want to talk to you.

I’ve gotten a lot of interesting evidence mailed to me and some of it has been borderline lunacy, like, who killed Kennedy type of thing. Others have been grounded probably in a good set of facts, but they’re not my cases. The negatives are that my undercover days are over. I can’t be anonymous. I don’t want to be recognized with whistleblowers, because it would be harmful to their careers. I have to wear disguises more.

What do you have, wigs?

I don’t want to go into it, because that would be stupid. That’s operational security.

You were a whistleblower and you work with them now. What is the profile of the whistleblower’s personality?

If you don’t have a strong belief system, you’re not going to be a whistleblower. You have to be crazy-brave. The risks are all weighted to the downside.

Crazy-brave?

Yes. You cannot have self-doubt. You just have to go forward and say I believe in this country. I believe in these core values. I know if I get outed and get caught, I’ve committed economic suicide for myself and my family. I’m going to be on the industry blacklist easy payday loans.

You write that you were afraid that Madoff or shady gangster clients would try to kill you if they fingered you as the whistleblower. You took to checking under your car for bombs and you carried a gun everywhere with you.

I didn’t know if I was going to live through it.

You were so afraid of being identified by Madoff that you wore gloves (in 2002) when you handed a packet of information to an aide of Eliot Spitzer so that your fingerprints would not be on the documents. Were you being overly paranoid?

I had twin boys that were going to be born three months later, and I wanted to make sure that they would have a father. I knew that Spitzer came from a very wealthy family and that it was possible that he was a Madoff investor. (In fact, Spitzer’s family real estate company did lose money in the scandal.)

What would’ve you done differently?

I can think of two things that would’ve influenced the action and hopefully brought this to a successful resolution. One is approach Spitzer in the open. Take the risk. Shake his hand, look him in the eye, say, ‘I’m Harry Markopolos, I’m president of the 4,000-member Boston Security Analysts Society. I’m a derivatives expert and this is what I know about Bernie Madoff. He’s a fraud.’

I wish I had confronted Mr. Spitzer to his face. Or I should have gone to (Massachusetts Secretary of the Commonwealth) Bill Galvin. He’d taken on Wall Street titans like Spitzer had. He was a hometown boy like me.

In your book, you write that when Madoff was interviewed by the SEC inspector general and asked about you, he dismissed you as a "joke in the industry." What would you tell Madoff if you met him?

I wouldn’t want to meet him. I think he’s a pathological liar and a predator. I think he’s mentally twisted, and I know a lot more about him than he knows about me. He hunted at funerals and weddings. He’s the lowest form of scum. I don’t want to meet him or his family. I don’t want anything to do with him. I don’t want to be that close to evil.

Read more of James Bandler’s interview with Markopolos 

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Australia’s economy has less scope than previously expected for “robust” growth that doesn’t stoke inflation, central bank Governor Glenn Stevens said.

“Monetary policy must therefore be careful not to overstay a very expansionary setting,” Stevens told lawmakers at a parliamentary committee hearing in Canberra today.

Policy makers said this week their decision to unexpectedly keep interest rates unchanged this month was “finely balanced” amid concern that European sovereign-debt risks may weaken the global economic recovery. Stevens said borrowing costs in Australia are still between 50 and 100 basis points below what the central bank considers “normal.”

“Stevens is quite bullish on domestic growth, but whether that translates into a March hike is another matter,” said Adam Carr, an economist at ICAP Australia Ltd. in Sydney. “I don’t know what more they need to see to hike again — it should already be very clear cut.”

The Australian dollar traded at 89.25 U.S. cents at 9:56 a.m. in Sydney from 89.38 cents before the governor’s testimony began. The yield on two-year government bonds rose six basis points, or 0.06 percentage point, to 4.31 percent from 4.25 yesterday. A basis point is 0.01 percentage point.

Stevens was the first central banker in the world to raise borrowing costs three times last year, taking the cash rate target to 3.75 percent in December from 3 percent at the start of October.

‘Further Adjustments’

“If economic conditions evolve roughly as we expect, further adjustments to monetary policy will probably be needed over time to ensure that inflation remains consistent” with the bank’s target range of 2 percent to 3 percent, Stevens said.

Stevens’s testimony today came after the Federal Reserve Board raised the discount rate charged to banks for direct loans by a quarter point to 0.75 percent, another step in the U.S. central bank’s gradual retreat from its unprecedented actions to halt the deepest financial crisis since the Great Depression. The Fed left the benchmark overnight lending rate in a range of zero to 0.25 percent at its meeting on Jan. 27.

Traders are betting there is a 38 percent chance of a quarter- percentage-point rate increase when the Reserve Bank of Australia next meets on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 10:02 a.m. Prior to today’s testimony, chances of a move stood at 40 percent.

Below Normal

“We’re still below normal, I would say, which hitherto has been the appropriate place to be,” Stevens said. “There’s a little distance to go before you could characterize interest rates as normal.”

Stevens said unemployment has peaked at less than 6 percent, “much lower than we or most others forecast.”

Australia is experiencing its biggest jobs boom in five years. Employers added 194,600 workers in the five months through January, cutting the unemployment rate to an 11-month low of 5.3 percent, almost half European Union and U.S. levels.

The jobs surge should help spur the economy, one of the few to skirt last year’s global recession after Prime Minister Kevin Rudd distributed more than A$20 billion ($18 billion) in cash to households and began spending another A$22 billion on roads, railways and schools.

The central bank forecast on Feb. 5 that gross domestic product will rise at an annual pace of 3.25 percent in the three months through December 2010, up from 2 percent in the final quarter of 2009.

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A Greek government inquiry uncovered a series of swaps agreements with securities firms that may have allowed it to mask its growing debts.

Greece used the swaps to defer interest repayments by several years, according to a Feb. 1 report commissioned by the Finance Ministry in Athens. The document didn’t identify the securities firms Greece used. The government turned to Goldman Sachs Group Inc. in 2002 to obtain $1 billion through a swap agreement, Christoforos Sardelis, head of Greece’s Public Debt Management Agency between 1999 and 2004, said in an interview last week.

“While swaps should be strictly limited to those that lead to a permanent reduction in interest spending, some of these agreements have been made to move interest from the present year to the future, with long-term damage to the Greek state,” the Finance Ministry report said. The 106-page dossier is now being examined by lawmakers.

European Union leaders last week ordered Greece to get its deficit under control and vowed “determined” action to staunch the worst crisis in the euro’s 11-year history. Standard & Poor’s and Fitch Ratings are questioning Greece over its use of the swap agreements, said two people with direct knowledge of the situation, who declined to be identified because the talks are private.

“Greece used accounting tricks to hide its deficit and this is a huge problem,” Wolfgang Gerke, president of the Bavarian Center of Finance in Munich and Honorary Professor at the European Business School, said in an interview. “The rating agencies are doing the right thing, but it may be too little too late. The EU slept through this.”

Euro Criteria

Lucas van Praag, a spokesman for New York-based Goldman Sachs, the most profitable securities firm in Wall Street history, didn’t respond to e-mails seeking comment.

Greece, whose burgeoning budget deficit caused it to fail the criteria for joining the single European currency in 1999, joined the Euro in 2001. Member nations had to reduce their budget deficit to less than 3 percent of gross domestic product and trim national debt to less than 60 percent of GDP.

Greek Prime Minister George Papandreou, who came to power in October after defeating two-term incumbent Kostas Karamanlis, more than tripled the 2009 deficit estimate to 12.7 percent. Greek officials last month pledged to provide more reliable statistics after the EU complained of “severe irregularities” in the nation’s economic figures free business cards.

‘Political Interference’

The Finance Ministry report blamed “political interference” for the collapse of credibility in Greece’s statistics. There were “serious weaknesses” in data collection, especially with spending figures, as information often came from second-hand sources, the report found.

The Goldman Sachs transaction consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, Sardelis said. That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion of funding for that year, he said. Eurostat, the EU’s Luxembourg-based statistics office, and the rating companies were both aware of the plan, he said.

Officials for Eurostat couldn’t be reached for comment. Officials for Fitch, Moody’s and Standard & Poor’s didn’t return calls seeking comment outside regular office hours yesterday.

‘Deal Restructured’

Sardelis said the agreement was restructured “a couple” of times while he was still in office. He left in 2004 and joined Banca IMI, the investment-banking unit of Italy’s Intesa Sanpaolo SpA’s. He said the fees, or the spread that Goldman Sachs was paid on the contract, were “reasonable.” The New York-based firm made about $300 million from the agreement, the New York Times reported Feb. 14.

Goldman Sachs bankers including President Gary Cohn traveled to Athens in November to pitch a deal that would push debt from the country’s health-care services into the future, the newspaper reported, citing two people briefed on the meeting. Greece rejected the offer, the New York Times said.

The government met with major international banks over the last month in order to explore options and discuss their involvement in financing Greek national debt, said an official at the Greek finance ministry who declined to be identified. Debt-financing operations are conducted transparently in order to be fully Eurostat-compliant, the official said.

Goldman Earnings

Goldman Sachs reported net income of $13.4 billion in 2009’s fiscal year, outpacing the $11.6 billion profit in 2007, its next-best year. The shares doubled last year to $168.84.

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Former Federal Reserve Chairman Alan Greenspan said a U.S. economic recovery is “going to be a slow, trudging thing,” and that he “would get very concerned” if stock prices continue to fall.

A drop in stock prices is “more than a warning sign,” Greenspan said yesterday on NBC’s “Meet the Press” program. “It’s important to remember that equity values, stock prices, are not just paper profits. They actually have a profoundly important impact on economic activity.”

U.S. stocks on Feb. 5 finished a fourth consecutive weekly decline, the longest such stretch since July. The Dow Jones Industrial Average through Feb. 5 had fallen 4 percent in 2010.

Unemployment likely will stay around 9 or 10 percent for most of this year, Greenspan said. “It’s very difficult to make the case that unemployment is coming down any time soon,” the former Fed chief said.

The U.S. has lost 8.4 million jobs since the recession, the deepest since the Great Depression of the 1930s, began more than two years ago. Unemployment topped 10 percent in October — the first time that’s happened in a quarter century — before retreating to 9.7 percent in January, according to Labor Department statistics.

Greenspan, who served as Fed chairman from 1987 until 2006, said the most useful step Congress could take to create jobs at this point would be to enact tax cuts for small businesses.

“They are the big creator of jobs,” he said. “But they won’t hire anybody if they don’t have any business.”

Economic Growth

Greenspan said the fourth-quarter’s economic growth rate was helped by inventory rebuilding, suggesting the U.S. economy “shot our ammunition” at the end of 2009. That means economic growth now “doesn’t have the strong momentum I hoped it would have,” Greenspan said.

The economy grew at a 5.7 percent annual rate during the last three months of 2009, the fastest pace in six years, according to Commerce Department data. That was the second quarterly increase in gross domestic product following four consecutive declines, the longest stretch of losses since records began in 1947.

In the residential property market, Greenspan said home prices are “bottoming out.” The housing market was the epicenter of the recession, and foreclosures are projected to set a record this year, according to private forecasts.

Regarding the federal budget deficit, which the Obama administration projects at more than $1 trillion for the second consecutive year, Greenspan said a tax increase will be needed and that the budget shortfall threatens the country’s standing in financial markets.

Tax Increase

“I have no doubt that we have to raise taxes in order to close this huge deficit, but we cannot do it wholly on the tax side, because that would significantly erode the rate of growth in the economy and the tax base, and the revenues that would be achieved would be far less” than one would expect, Greenspan said.

On Feb. 4, Congress approved increasing the federal debt limit by $1.9 trillion, to $14.3 trillion, enough to prevent lawmakers from having to raise it again before November’s midterm elections. The increase was more than twice the size of any of the four previous debt increases approved in the past two years.

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Man doth not live by financial capital alone but also by human capital. And, of course, Warren Buffett had a lot to say about that, too, when he took Phil DeMuth and me to dinner a couple of weeks ago in bitterly cold, snowy Omaha.

"It’s vital to be able to communicate well," he said. "Just being able to communicate with others on the job adds at least 50% to your value." Apt words indeed from the man whose annual report (I would guess) is read by more people than all of the other annual reports in the world combined, and whose words have probably saved more lives than any book except the Bible.

"It’s also incredibly important to get along with people," Buffett also said. He talked at length about his early days working with Ben Graham’s firm and how he made it a point to not only work very hard but to get along well with everyone he worked with, and still makes it a point. He spoke highly of an old standard, Dale Carnegie’s "How To Win Friends and Influence People" — a book that still teaches me and one that I consult almost every day.

I asked him about the problems of having a significant part of the labor force that has little intellectual aptitude and learns very little in schools. "For some of them," he said, "there will be better and better tools, tools that allow even people with modest skills to do useful work."

But when I pressed him about the segment of the population that does not really care to learn at all, such as members of violent gangs or others who just refused to learn, he sighed and said that the government would have to come up with some make-work projects for them, projects that paid a modest wage and allowed such people to have some feeling of self-esteem. (I wonder whether they would rather do those jobs than what they are doing….)

But what about people who refused to learn how to do work that is a way to convert human capital into financial capital, i instant payday loans completely online.e., people who refuse to learn to do value investing? He threw up his hands. "I learned it right away when Ben Graham said it," he said. "It was like a vaccination that just took right away. Some people can get the same shot and it doesn’t take at all. Some do get it right away." (I am paraphrasing.)

He was kind enough to sign a copy of his famous article, "The Superinvestors of Graham-and-Doddsville," about value investing compared with other forms of investment, "To Ben Stein, who understood this a long time ago," and I only wish it were true.

In my case, the vaccination only works sporadically. (Buffett has also famously said that in any card game there’s always one sucker and if you don’t know who it is, it’s probably you. I do know who it is, and it’s definitely usually little me…except when it isn’t.)

The overall vibe I get from Warren Buffett, besides his astonishing kindness, mind-boggling intelligence, and perfect, self-deprecating humor, is a reminiscence of something once said by a childhood neighbor who knew Ted Williams. The great baseball player, said my neighbor, had vision so good he could see the stitches on a fastball zooming towards him. No matter how much he might try to explain to you how to do it, if you did not have the natural talent to do it, you couldn’t do it.

But what if you could have made a wager on how many home runs Williams would hit? Or what if, for a few dollars, you could have gotten a share of Ted Williams endorsements? That’s what astute people could have done with Buffett, and it was a rare opportunity.

In the meantime, value investing starts at home, with building up your own value as an earner, enough so that you can some day be a Superinvestor of your ownville. 

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The groundbreaking deal that will see Time Warner Cable Inc. pay News Corp. for over-the-air television programming illustrates the differences between the broadcasting models in Canada and the United States, observers say.

Time Warner and News Corp. agreed on a distribution deal Jan. 1, though details were not disclosed. Other broadcasters, such as CBS Corp., have also said they may seek payment for programming that is currently free.

News Corp. demanded to be paid for the rights to shows on Fox Networks, home of The Simpsons and American Idol as well as sports programming such as college and NFL football games.

If other networks seek similar terms, cable operators may have to fork out as much as $5 billion (U.S.) a year and would likely pass the cost on to subscribers, said Craig Moffet, an analyst at Sanford C. Bernstein in New York.

"The broadcast networks are really struggling to find a viable business mode," Moffett said. "They’re looking at the cable networks that make money both on advertising and the money that the cable operators pay them and saying, `We need a dual revenue stream to survive, too.’"

These battles are playing out just as the television industry is coping with the wrenching changes brought on by new competition from the Internet.

In Canada, the Canadian Radio-television and Telecommunications Commission has embarked on a sweeping review of the cable and satellite television industry business

BAGHDAD–A consortium led by Russia's private oil giant Lukoil on Tuesday signed an initial deal with Iraq to develop one of its biggest oilfields, an agreement key to the war-ravaged nation's efforts to boost the output of a resource crucial to its postwar reconstruction efforts.

Lukoil had partnered with Norway's Statoil ASA to bid to develop the 12.88 billion barrel West Qurna Phase 2 field, the crown jewel of the 15 fields offered during Iraq's second postwar oil licensing round held earlier this month.

Under the 20-year deal which is slated to be presented Thursday to Iraq's Cabinet, the companies plan to produce 1.8 million barrels per day in 13 years and will be paid $1.15 (U.S.) per barrel of crude they produce from the southern field.

Lukoil's vice president of strategy and business development, Dmitry A. Timoshenko, hailed the signing as an important step forward in its work with the Iraqi government.

"Now we are waiting for the other legal procedures to be completed," Timoshenko said. "We hope that these procedures will be concluded soon so that we can start our work as soon as possible.''

For Iraq, the deal marks a crucial step forward in the country's sofar faltering bid to raise oil output.

Although it sits atop the world's third largest proven reserves of conventional crude oil, Iraq produces about 2.5 million barrels per day, of which about 1.9 million barrels a day are exported.

Decades of neglect of the fields have been compounded by the effects of the fighting and sabotage in the wake of the 2003 U.S.-led war to oust Saddam. That violence has meant that Iraq has been unable to even reach its pre-war output levels of oil. Crude oil sales account for roughly 90 per cent of the government's budget.

The oil auction held earlier this month was crucial for Iraq, during which seven deals were awarded. At the first round of bidding in June, only one deals was signed on the spot.

At that auction, six oil and two gas fields were offered, but interest was only on the safest and cheapest fields to develop, with companies shrinking away from fields in restive regions where violence is a key concern as U.S. troops prepare to withdraw from Iraq. Two other deals were subsequently struck.

The second auction saw more deals done – a total of seven. But most of the interest was again focused on fields in the relatively calm and stable Shiite heartland in the south and the U.S. supermajors like Exxon Mobil failed to even bid, let alone win, any of the fields.

Oil Minister Hussain al-Shahristani ambitiously projected that with these fields, along with others Iraq will develop independently, output could climb to 12 million barrels per day within six years. Analysts say those expectations will fall far short of the reality.

Senior Deputy Oil Minister Abdul-Karim Elaibi said all the deals awarded during the second auction will be submitted to the Cabinet on Thursday for approval.

The deal was a coup for Lukoil, which had been granted the rights to develop the field in 1997 by Saddam Hussein only to see the dictator rescind the $3.7 billion contract five years later.

Lukoil had been trying to revive the deal since 2003 after Moscow wrote off most of Iraq's $12.9 billion in debts. Iraqi officials, however, eager to make sure that the reopening of the country's oil sector to the world was as transparent as possible, shrugged off the Russian calls and insisted on putting the field up for bids.

Lukoil and Statoil beat out three other consortiums led by Britain's BP PLC, France's Total SA and Malaysia's state-run Petronas to nab the rights to develop the mammoth field. Although discovered in August 1973, it has been only partially developed, with a total of 13 wells drilled, so far.

The field lies next to the West Qurna Phase 1 field, which has 8.6 billion-barrel and was part of three deals awarded in Iraq's first bidding round.

A consortium grouping U.S. and European oil giants Exxon Mobil and Royal Dutch Shell PLC won the rights to develop West Qurna Phase 1 field for $1.9 per barrel produced and signed an initial deal. It also still waiting the Cabinet's final approval.

Four other deals emerging from the second auction were initialed last week. Those included fields won by consortiums led by European giant Royal Dutch Shell PLC, Petronas, China's CNPC and Russia's Gazprom.

The last two deals – with Angola's Sonangol – will be initialed Wednesday.

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Bakers Footwear Group Inc., a St. Louis-based women’s footwear retailer, announced Friday that it no longer meets the minimum stockholders’ equity requirement needed to remain listed on the Nasdaq Capital Market.

For the quarter ended Oct. 31, Bakers reported a shareholders’ deficit of $3.5 million. The retailer said it intends to submit to Nasdaq by Dec. 29 a plan explaining how it will turn the deficit into equity and reach the minimum requirement of $2 poor credit personal loans.5 million this quarter. If the plan isn’t accepted by Nasdaq or if the plan fails, the company faces delisting from the stock exchange.

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San Francisco brokerage Charles Schwab said Monday that fourth-quarter earnings will come in lower than the third quarter.

The firm said earnings per share will be 2 cents to 4 cents lower than the prior quarter due to lower interest rates and slower trading in recent weeks.

Schwab (NASDAQ: SCHW) also said Monday that it plans to waive $108 million in fees on its money market funds, an 8 percent increase from the firm’s earlier forecast.

The earnings warning indicates Schwab expects to earn 13 cents to 15 cents per share in the current quarter, down from 17 cents in the third quarter and 27 cents per share in last year’s fourth quarter Payday advance.

November’s daily average trading — a key performance measure at Schwab — was down 11 percent from October and down 27 percent from November 2008, when financial markets were in a tailspin.

“Continued declines in the rate environment have led to heightened revenue pressures … and client trading volumes have slowed in recent weeks,” said Joe Martinetto, Schwab’s chief financial officer.

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The Translational Genomics Research Institute and Scottsdale Healthcare are testing an Italian pharmaceutical firm’s new drug for thymic cancer.

Scottsdale Healthcare is the world’s first site for the Phase I trial of a new oral drug, being called NMS-1286937. The hospital had conducted a Phase II trial for another of the Italian company’s drugs, called PHA-848125ac for advanced thymic cancer. This new research is based on the earlier promising results of PHA.

The thymus is a small organ near the lungs and heart that is a key part to the body’s immune system during fetal and childhood development.

The Italian company, called Nerviano Medical Sciences, is working in conjunction with TGen and SHC on both the thymic cancer drugs. The goal is to quickly turn these discoveries into targeted therapies at SHC’s Virginia G paydayloans. Piper Cancer Center in Scottsdale.

Mark Slater, senior vice president of research at Scottsdale Healthcare, said while SHC is the only U.S. site for the study, France and Italy also are conducting studies.

“Our partnership with TGen has allowed us to bring in novel therapies, really cutting-edge treatments that have addressed new mechanisms for rare cancers and cancers that have not responded well to standard therapy,” Slater said. “Our approach is to target our therapies using advanced molecular diagnostics.”

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