2009: The Year of the Ponzi Scheme

Since the Great Recession hit I have developed an interest in economics and been devouring documentaries and movies on the subject. I suppose for an autodidact and a film-buff it’s the perfect way to learn! In 2009 two major American fraudsters, who used Ponzi schemes to con people out of a combined $18,400,000,000 (that’s eighteen billion four hundred million dollars) were arrested and ultimately imprisoned. The most famous of these is Bernie Madoff, a man now serving 150 years in prison for his crimes, but if it weren’t for Madoff, Marc Dreier would have been the Ponzi King of 2009.

Chasing Madoff is a documentary which focusses on Harry Markopolos, the whistleblower in the Madoff case. Markopolos was working at a company called Rampart as a portfolio manager when he was asked to take a look at Madoff’s incredible returns and asked if he could design a product that could compete. When Markopolos looked at the details he realised that a return stream like the one Madoff claimed to generate “simply doesn’t exist in finance.”

Markopolos investigated Madoff over a ten year period and he alerted the Securities and Exchange Commission three times in 2000, 2001, and 2005, providing supporting documentation each time to back up his claims that Madoff was a conducting a multi-billion dollar fraud. Each time the SEC did nothing. When the fraud was eventually uncovered in 2008, the SEC were taken to task by Congress for their failure to properly regulate Madoff and the scenes where the outraged senators are berating the SEC employees are some of the best in the film.

Chasing Madoff is a fascinating documentary which gives some insight into Madoff’s madness, but also paints a bigger picture of the lax regulations, unbelievable greed and insane risk-taking that characterised the boom before the bust. Harry Markopolos is deservedly the star of the film. He investigated Madoff at great personal risk to his own safety and without any compensation, financial or otherwise. He simply did it because it was the right thing to do and he was prepared to stand up and fight for justice. He’s honorable, noble and thoroughly likeable; a rare breed in the world of finance.

 

 

Unraveled is a profile of Marc Dreier which takes place during his sixty day house arrest before his sentencing. Dreier conned twenty-six individuals and hedge funds out of four hundred million dollars, ostensibly to invest the money in his own law firm. The film is largely made up of interviews with Dreier in his house, plus footage of him meeting his lawyers and spending time with his family before he goes to prison.

Dreier is one of the most repugnant people I have ever seen onscreen. He appears to be repentant only because he got caught, not because he has any real sympathy for the people he defrauded and the hundreds of staff members that were let go from his law firm when his fraud was uncovered. He doesn’t understand why people applaud bank robbers in the movies but then take a different attitude when it happens in “so called real life”. He is apprehensive about prison but only because he’s worried about being in a dorm with a guy who snores, getting bad food and having to work for eight hours a day in the prison kitchen. In short he comes across as completely delusional and very detached from reality.

Dreier believes that most people would do what he did if they knew they wouldn’t get caught. He seems not to understand that some people’s moral code or sense of justice would prevail. In a very telling scene with his lawyers, he attempts to minimise what he did, stating that he was not as bad as Madoff because he only defrauded “twenty-six victims…not widows and orphans…”. In fact he swindled the Ontario Teachers’ Pension Fund out of forty million dollars, the impact of which seems to have escaped him.

It has been said before that people with psychopathic traits often do well in the corporate world. They have what it takes to succeed in business; ruthlessness, monstrous ego, absolute self-interest, inability to feel compassion or empathy. Dreier fits this profile and in my opinion, no matter how long he spends in prison, he’ll never be fully rehabilitated because he’s simply not capable of feeling real remorse.

 

 

Both documentaries are available to watch on Netflix and I’d highly recommend them.