Question 2

Markopolos realized Madoff was running a Ponzi scheme nearly a decade ago, when he was working as an options trader at a Boston financial firm that was losing customers to Madoff's more profitable strategy. His boss asked him to replicate Madoff's strategy, but Markopolos couldn't, because it wasn't real.

"It's hard to compete with a Ponzi scammer, because all he has to do is type his performance returns into the computer," Markopolos says. "He doesn't have to manage his returns according to the market, whereas I had to."

Markopolos and his team analyzed publicly available information about Madoff's network of "feeder funds" from offshore companies. The team pretended they wanted to invest in these funds. Markopolos says he knew he was dealing with a fraud within minutes of examining

the materials.

"I read his strategy statement, and it was so poorly put together," Markopolos recalls. "His strategy as depicted would have trouble beating a zero return, and his performance chart went up at a 45-degree line: that line doesn't exist in finance, it only exists in geometry classes." But, Markopolos says, his bosses were taken in by Madoff's reputation.

"They bought into the story. They bought into his patina of respectability that he was a market makerone of the largest on the street," Markopolos recalls. "They thought he was a Wall Street titan, and they had no reason to doubt him. But they didn't know that math like I did."

Markopolos offers a ruthless depiction of Madoff, claiming he was taking money from organized crime. He says Madoff would have had him killed had he known the financial analyst was on his trail rather than let organized crime groups find out their money was going into a Ponzi scheme.

Despite spending a decade nearly obsessed by Madoff, Markopolos has never met the man and says he doesn't want to.

"I think he is a pathological liar," Markopolos says. "Why would I want to sit there and be lied to?"

(Harry Markopolos, Madoff Whistle Blower)

Required:

Distinguish the issue of corporate governance from the case given above thoroughly with a corporate governance code and ethical point of view.