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Regulators paid too little attention to warnings of Frank Casey and Harry Markopolos about Madoff Ponzi.

09/29/09 - From concerns about retaliation if Bernard Madoff learned of their efforts, to his partner's Parisian tour with a now-dead French nobleman, Frank Casey told the riveting story Tuesday of a nearly 10-year crusade to expose the Madoff Ponzi scheme.

About 250 people filled a Pfister Hotel ballroom to hear the story of Casey and his partners' dogged effort to expose Madoff - an effort that that fell on regulators' deaf ears.

"It was probably the closest thing to a Shakespearean tragedy I've seen," said Casey, who was marketing vice president at Rampart Investment Management, a Boston firm that specializes in options trading.

The Pfister crowd gathered for a lunch sponsored by the M&I Marshall & Ilsley Center for Business Ethics at the University of Wisconsin-Milwaukee's Lubar School of Business.

It was the biggest group Casey has spoken to so far in his campaign to shake up the U.S. Securities and Exchange Commission and prevent a fraud the magnitude of Madoff's from happening again, he said.

His fix: The SEC needs to actively work to prevent fraud, not just make sure financial companies' business practices comply with federal regulations. The agency, drenched with lawyers, also should create a whistleblowers Web site whose information is reviewed by committees of financial industry veterans who are near retirement and eager to keep the business clean, Casey said.

When frauds are discovered, committee members should receive 10% to 15% of the awards, and the whistleblowers should receive 5%, he said. The system would encourage fraud reporting from young employees at financial companies who want to retire early, he said.

Casey and his partners - Harry Markopolos, a Rampart portfolio manager, and Neil Chelo, his top assistant - repeatedly tried to bring Madoff's scheme to the attention of regulators, Casey said.

But over and over, beginning with the initial eight-page report they provided to the director of enforcement in the SEC's Boston office and continuing with communications suggesting Madoff was running the world's biggest Ponzi scheme, they were ignored, Casey said.

They learned over the years that many big banks and others in the financial industry seemed to be aware that something was wrong with Madoff's numbers, he said.

Markopolos became convinced in early 2000 that it was mathematically impossible for Madoff to be achieving his purported returns after just a four-hour analysis, Casey said.

He said they initially tried to figure out what Madoff was doing in order to compete with him, and perhaps get some business from Rene-Thierry Magon de la Villehuchet. The French aristocrat and professional investor, who put at least $1.4 billion of his and his investors' funds into Madoff's company, killed himself shortly after Madoff's scheme unraveled.

Casey and his partners had formed a joint venture with de la Villehuchet, and Markopolos traveled to France with him.

When it became clear Madoff's scheme was a giant Ponzi scheme, Casey and his friends' motivations shifted to "duty, honor, country and keeping the business clean."

"We wanted to get rid of this cancer," said Casey, now the North American president for a British hedge fund advisory firm.

http://www.jsonline.com/business/62768412.html