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NEW YORK (Fortune) -- 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.

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

The man who hunted Madoff

By James Bandler February 25, 2010: 4:38 PM ET
NEW YORK (Fortune) -- James Bandler caught up with Harry Markopolos in Boston recently to discuss his upcoming book, No One Would Listen: A True Financial Thriller, and how he's doing with his life as an agent for whistleblowers. Edited excerpts from the extended interview:
What should your readers take away from your book?

The SEC was nonfunctional and still is nonfunctional. They'd have to improve several-hundred-fold to become functional. It is run by lawyers without any industry experience. They've never sat at a trading desk, never managed money. What chance do they have against Wall Street sharks?

How would you assess SEC Chairman Mary Schapiro's performance thus far?
She has done a lot (to educate her staff). Chartered Financial Analyst training, Certified Fraud Examiner training. I give her A+'s there. I'd say she's done a good job reorganizing the enforcement unit by specialty, making them subject-matter experts. She's done a good job of eliminating silos. They're putting economics and finance people in with the lawyers, because lawyers left to their own devices will never be capable of doing cases, because they just don't have the finance background to understand. She has some good people from Wall Street. She got Richard Bookstaber who's probably one of the best, if not the best, risk manager on Wall Street.

How would you reform the SEC?
They need to test the existing staff. Anybody who doesn't have a working knowledge of finance, they need to eliminate. There are plenty of qualified people that were laid off of Wall Street that would take those jobs. You give them a base of $150,000 to $200,000, and you turn it into an eat-when-you-kill type of compensation scheme like Wall Street has. You bring in a $100 million case. They give (you) a $10 or $15 million bonus.

Where should the SEC focus its investigative resources?
I'd say the entire over-the-counter derivatives market. That's where the cockroaches go to play on Wall Street -- to structured products (financially engineered security/derivatives). It's the 99% of the structured products that are bad that give the good 1% a bad name.

How is your fraud-fighting business going? You must have had some lean years pre-Madoff.
I went in with the expectation that I'd be cash-flow positive in a year and I was an overnight success three and a half years later. Fortunately for me, I had a Wall Street job. I was well compensated. My wife had a Wall Street job and was well compensated. I live well below my means.

What kinds of fraud are you investigating now?
No one was hunting the large fraudster. The big game's not worried. They've never been hunted before. So I started hunting large corporations. I only do cases where someone's cheating the public. I'll do cases where the pension accounts of our firemen, our teachers, public officials, government-elected officials, are being defrauded. I'll do cases where Medicare or Medicaid is being defrauded and I'll also do cases where the Department of Defense has been defrauded.

How do you do it?
I don't want to go into the methodologies, except to say that a lot of people focus on the footnotes, and I tend to focus on the CEO's shareholders' letter. I look at the balance sheet and the income statement and I can piece it together. I'm really good at connecting the dots. My math ability has certainly helped.

Walk me through a case.
Numbers 2 and 3 in an industry have settled civil and criminal complaints with the Department of Justice for cheating Medicare. The Number 1 company with market share had to be doing it, but somehow they escaped the dragnet and weren't brought to justice, so I simply questioned their employees. Sure enough, it turns out they were involved in a fraud too.

How do you find the employees?
I go where their employees are. It could be a professional industries conference. It could be a bar near corporate headquarters. It could be other locations. I like the fieldwork the best.
You like it even more than the numbers?
Yes, I would say that. Human intelligence is way underrated, human intelligence and gathering techniques. Everybody likes to do the computer stuff, and I feel that if something's in a corporate database or any kind of database that you can buy, that it's successful to the masses and you're not going to get real intelligence there. You have to go out and hunt for it, so I am the antithesis of artificial or computer intelligence.

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.

Are you long or short on the United States over the next ten years?
Short. I don't think you can recover until you've hit rock bottom. And to think that we've chastised the Japanese banks for the past two decades for not owning up to the zombie banks and forcing them to admit to their losses and closing them.

And what are we doing? We're allowing the money-center banks to extend and pretend on their balance sheets, keep stuff off balance sheet, not mark-to-market. We're not forcing the banks to own up because, for some reason, we want to bail out the shareholders and the bondholders of those institutions instead of making them feel the pain.

Harry Markopolos and his team of financial sleuths discuss first-hand how they cracked the Madoff Ponzi scheme
No One Would Listen is the exclusive story of the Harry Markopolos-lead investigation into Bernie Madoff and his $65 billion Ponzi scheme. While a lot has been written about Madoff's scam, few actually know how Markopolos and his team-affectionately called "The Fox Hounds" by Markopolos himself, uncovered what Madoff was doing years before this financial disaster reached its pinnacle. Unfortunately, no one listened, until the damage of the world's largest financial fraud ever was irreversible.
Since that time, Markopolos openly has testified and questioned the enforcement and fraud investigation capabilities of the Securities and Exchange Commission (SEC), shared a sliver of this page-turning story with 60 Minutes, and become perhaps the world's most visible and insightful whistleblower on fraud and conflicts of interest in financial markets.
Throughout the book, Markopolos and his Fox Hounds tell their first-hand story of investigating Madoff-with the help of bestselling author David Fisher. They explain how they discovered the fraud, and then how they provided credible and detailed evidence to major newspapers and the Securities and Exchange Commission (SEC) many times between 2000 and 2008, only to have his warnings ignored repeatedly by the SEC.
Provides a firsthand account of how Markopolos uncovered Madoff's scam years before it actually fell apart
Discusses how the SEC missed the red flags raised by Markopolos
Describes how Madoff was enabled by investors and fiduciaries alike
The only book to tell the story of Madoff's scam and the SEC's failings by those who saw both first hand
Despite repeated written and verbal warnings to the SEC by Harry Markopolos, Bernie Madoff was allowed to continue his operations. No One Would Listen paints a vivid portrait of Markopolos and his determined team of financial sleuths, and what impact they will have on financial markets and financial regulation for decades to come.

A Timeline of a Take-DownAmazon-exclusive content from author Harry Markopolos
How long did it take to uncover and expose a $40 billion crook? Ten years.
1998-1999• 1998: My Firm “discovers” Bernie Madoff• Late 1999: I am asked to reverse engineer Madoff’s returns
2000• I knew he was a fraudster in 5 minutes• May: Submission to SEC Boston Regional Office’s Director of Enforcement with 12 Red Flags
2001• January: Team Member Frank Casey recruits MAR Hedge investigative journalist Michael Ocrant onto the team during a chance meeting in Barcelona, Spain• March: My 2nd SEC Submission on how I think Madoff is running the scheme and his investment process• I offer to go undercover to assist the SEC• Apr: Michael Ocrant interviews Madoff• May: MAR Hedge publishes Madoff expose, “Madoff Tops Charts; skeptics ask how”; Barron’s publishes, “Don’t Ask, Don’t Tell: Bernie Madoff is so secretive, he even asks investors to keep mum”
2002• Jun: Key trip to UK, France & Switzerland; met with 20 Fund of Funds & Private Client Banks: 14 have Madoff and report “special access to Madoff”; two have admitted Madoff losses – Dexia Asset Management and Fix Family Office; 12 have not admitted Madoff losses and all 12 were turned into SEC Chairwoman on Feb. 5, 2009; off-Shore funds attract three types of investors who won’t report losses or file SIPC claims with the US government
2003-2004• E-mail records of investigation lost; attempting to recover data from non-functioning hard drives
2005• Jun: Frank Casey discovers Madoff attempting to borrow money from European banks (first sign that Madoff scheme is in trouble)• Oct: Boston SEC’s Ed Manion arranges for 3rd SEC Submission• Oct: Meeting with Boston SEC Branch Chief Mike Garrity, who quickly investigates, finds irregularities, and forwards my submission to SEC’s New York Office• Nov: Boston Whistleblower calls NYC Branch Chief Meaghen Cheung and reveals his identity• Nov: 29 Red Flags submitted • Dec: I doubt NYC SEC’s ability, fear for my life, and contact Wall Street Journal and go to local law enforcement for protection
2006• Jan: Integral Partners’ $40 million derivatives Ponzi Scheme goes to trial five years and five months after discovery, causing us to further doubt SEC competence• Sep: Chicago Board Options Exchange VP tells me that several OEX option traders also think Madoff is a fraudster; if SEC had called the CBOE’s marketing office, they would have cooperated
2007• Feb 28: Neil Chelo obtains a Madoff portfolio which shows zero ability to earn a return• Jun: Casey obtains Wickford Fund LP prospectus showing Madoff is short of cash and offering a 3:1 leverage via bank loans, another clear warning sign that Madoff is running short of cash• Jul: Chelo obtains Fairfield Greenwich Sentry LP financial statements for 2004 – 2006 and discovers three year-end audits with three different auditors in three different countries!• Aug: Chelo conducts a 45 minute telephone interview with Fairfield Greenwich’s head of risk management; hedge funds all lose money except for Madoff!
2008• Apr 2: Undelivered e-mail to Sokobin, SEC’s Director of Risk Assessment, entitled, “$30 Billion Equity Derivatives Hedge Fund Fraud in New York”• Dec 11: Madoff runs out of money, turns himself in• Dec 12: SEC insider calls me and warns “watch your back, Operation Cover-up has begun.”
2009• Feb 4: My U.S. House testimony followed by SEC’s senior staff and FINRA acting CEO• Sep 4: 477-page SEC IG Report on the Madoff Fiasco released• Sep 10: I testify before US Senate Banking Committee with SEC IG
Product Description
Harry Markopolos and his team of financial sleuths discuss first-hand how they cracked the Madoff Ponzi scheme
No One Would Listen is the exclusive story of the Harry Markopolos-lead investigation into Bernie Madoff and his $65 billion Ponzi scheme. While a lot has been written about Madoff's scam, few actually know how Markopolos and his team-affectionately called "The Fox Hounds" by Markopolos himself, uncovered what Madoff was doing years before this financial disaster reached its pinnacle. Unfortunately, no one listened, until the damage of the world's largest financial fraud ever was irreversible.
Since that time, Markopolos openly has testified and questioned the enforcement and fraud investigation capabilities of the Securities and Exchange Commission (SEC), shared a sliver of this page-turning story with 60 Minutes, and become perhaps the world's most visible and insightful whistleblower on fraud and conflicts of interest in financial markets.
Throughout the book, Markopolos and his Fox Hounds tell their first-hand story of investigating Madoff-with the help of bestselling author David Fisher. They explain how they discovered the fraud, and then how they provided credible and detailed evidence to major newspapers and the Securities and Exchange Commission (SEC) many times between 2000 and 2008, only to have his warnings ignored repeatedly by the SEC.
Provides a firsthand account of how Markopolos uncovered Madoff's scam years before it actually fell apart
Discusses how the SEC missed the red flags raised by Markopolos
Describes how Madoff was enabled by investors and fiduciaries alike
The only book to tell the story of Madoff's scam and the SEC's failings by those who saw both first hand
Despite repeated written and verbal warnings to the SEC by Harry Markopolos, Bernie Madoff was allowed to continue his operations. No One Would Listen paints a vivid portrait of Markopolos and his determined team of financial sleuths, and what impact they will have on financial markets and financial regulation for decades to come. --This text refers to the Kindle Edition edition.

Free First Chapter: No One Would Listen: A True Financial Thriller
Unabridged
By
Harry Markopolos
Narrated by
Scott Brick

Publisher's Summary
This is the first chapter of No One Would Listen: A True Financial Thriller. The complete audiobook will be available on March 2, 2010.
No One Would Listen: A True Financial Thriller is exactly what the title promises. This is more than another book about the Bernie Madoff scandal, this is a fast-paced, blow-by-blow, true-crime story that you have to hear to believe. In a true David and Goliath tale, the underdog number cruncher uncovers the largest financial fraud in history, and has to fight everything and everyone in the system to bring it down. Harry Markopolos and his team of financial sleuths tell first-hand how they cracked Madoff's $65 billion Ponzi scheme yet, amazingly, the Securities and Exchange Commission (SEC) refused to hear the truth for nearly 10 years. Told from the perspective of the ultimate whistleblower in modern corporate memory, No One Would Listen is bound to be the definitive narrative of this scandal.
This special edition includes an exclusive 10th chapter available only in audio, featuring testimony from three victims of the Madoff scheme who came in to the Audible studios to share their shocking and heartbreaking stories. In addition, David Kotz, the Inspector General of the SEC, speaks candidly about his investigation. Throughout the audiobook, you'll also hear scathing commentary from congressional leaders on the blatant failures of the commission. No One Would Listen is more than an audiobook. It's a lasting audio testament to the largest white-collar crime in history.
SEC DisclaimerThe Securities and Exchange Commission disclaims responsibility for any private publication or statement of any SEC employee or Commissioner. This audiobook expresses the author's views and does not necessarily reflect those of the Commission, the Commissioners, or other members of the staff.
©2010 Harry Markopolos; (P)2010 Audible, Inc.

On Wall Street, a quant is an expert in quantitative finance. The term has been popularized in the title to the book, My Life as a Quant, by Emanuel Derman. Derman epitomizes the quant. He trained in theoretical physics at Columbia then went on to work as a quant on Wall Street. Derman is best known as one of the namesakes in the landmark US treasury yield curve model, the Black-Derman-Toy model. Collaborator Fischer Black of Black Sholes option pricing model fame is certainly a quant, too. Not every quant is so famous as these two, but every quant is expected to know some advanced mathematics. Typical quant areas of expertise include stochastic calculus and time series analysis. The term quant has a connotation of computer programming excellence, too, since the numerical methods for pricing securities must be programmed into efficient algorithms for computers to perform real time valuation.