Book Harry Markopolos to speak at your next event. Contact APB Speakers for bio, videos, topics, and to inquire about speaking fees and availability. Harry Markopolos, the investigator who exposed the Bernie Madoff Ponzi scheme, has uncovered a new fraud. The unfunded status of the. Timeline of Harry Markopolos’ Investigation of Madoff Investment Scheme. Nov Frank Casey, colleague at Rampart. Inv. Mgmt., “discovers” BM*. Nov .

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Authored by Robert Huebscher via Advisor Perspectives. Harry Markopolos, the investigator who exposed the Bernie Madoff Ponzi scheme, has uncovered a new fraud.

Bernie Madoff Whistleblower: 3 New Ponzi Schemes Happening | Money

The unfunded status of a pension fund is the market value of the assets minus the present value of the liabilities, discounted at an actuarially determined interest rate. For most public pension plans, this number is negative; the liabilities exceed the assets and it is underfunded.

Northfield is a provider of advanced analytics to institutional investment managers and wealth managers. The problems began with failed investments in two hedge funds and culminated in the more widespread problems that Markopolos uncovered.

It was nothing more than a Ponzi scheme. What made the Fletcher loss so galling, according to Markopolos, was that its chief investment officer, Karl White, had been the executive director of the MBTA pension fund.

Mxrkopolos one point, Fletcher reported harru of positive returns without a down month; it later revised this to show 14 down months. The board had one person with an MBA and a couple of lawyers, who Markopolos said were not experts in investing. Markopolos said in that Galanis bought shares in Penthouse magazine, filed a false 10Q with forged signature, and had caused its auditor, Deloitte, to resign.


All this happened before the MBTA made its investment in Galanis, Markopolos said, would look for struggling RIAs. He would overpay for an ownership interest in firm, with the stipulation that its minority interest not be disclosed on harty form ADV which is illegal. He would then raid those funds to pay Ponzi-style interest, Markopolos said. Markopolos warned that fraudulent schemes to buy struggling RIAs are ongoing. The most alarming aspect in those years was the outperformance of its public equity large-cap, small-cap and emerging markets and fixed-income holdings.

Equities outperformed their benchmark by 6. That degree of outperformance is highly unusual, since the MBTA was using multiple asset managers markooplos both its equity and fixed-income allocations. Across all asset classes, it used 71 asset managers. The investigation is ongoing as to how the MBTA was able to report such spectacular results.

Madoff Whistleblower Warns of 3 New Ponzi Schemes, 1 Bigger than Bernie’s

Most likely, it was markpoolos to accounting manipulations. It may also have used provisions which allows pension plans to report performance smoothed over a five-year period to inflate its numbers.

Markopolos questioned the due diligence procedures that led to such poor investments and why those managers had not been fired after achieving such poor results. The MBTA used actuarial tables from to determine the expected lifetimes garry its employees. This resulted in shorter lifetimes than the rest of the pension industry, which was using tables from By assuming its employees would have shorter lifetimes, it was able to artificially reduce its projected liabilities and underfunded status.

The use of unreasonable discount rates is well-known and its impact widely estimated. The plans justify the use of an unreasonably high rate by claiming adherence to an actuarial standard; in reality, the economically appropriate discount rate — markopopos which reflects the riskiness of the liabilities — is much lower.


Markopolos said it should be about 4. The more troubling problems uncovered by Markopolos are driven by other factors, such mxrkopolos poor due diligence on its investments, overstating of returns, overstating of asset values and faulty life-expectancy estimates. These problems appear to be driven by a pension board that, at best, was unable or unwilling to scrutinize its investments or, at worst, willingly investing its assets with known criminals and past employees.

The MBTA falls into the category of multi-employer public pension plans, which are among the smaller state-run plans. KPMG should have found the discrepancies. The investigation into the MBTA plan will continue.

But if the plan fails — as Markopolos warned — it will surely have an impact on the municipal market. If the state of Massachusetts needs to bail out the plan, it will need to raise money through the bond market. It would be politically unpopular to let the plan fail, since the blue-collar MBTA workers are unwitting victims of the fraud and incompetence.

If problems like this are endemic among multi-employer state pension plans, it will mean higher rates for municipal bonds.

Sort by Relevance Newest Oldest. Nobody knows how widespread problems like these are.