In the midst of a scandal like the Madoff story, we need to on guard for a lot of people saying they saw it coming all along even though that’s the furthest thing from the truth. But there’s enough information out there to suggest that within the small and parochial community of people with the technical knowledge to understand this stuff Madoff’s fall from grace did not come as a big surprise.
Though I can’t give many details of the identity of the person since the industry is so small, a known reader passes on word from a hedge-fund analyst at one of the big (remaining) financial services powerhouses who says that Madoff was always on their short list of people he and his colleagues thought were crooks.
A bit more concretely, let’s go back to Harry Markopolos, the money manager and financial fraud investigator who’d been blowing whistles on Madoff for almost a decade. In the report he submitted to the SEC in 2005, in addition to complex mathematical analyses showing that Madoff’s system couldn’t work, he said that “I have also spoken to the heads of various Wall Street equity derivative trading desks and every single one of the senior managers I spoke with told me that Bernie Madoff was a fraud.”
Again, people say a lot of things, and hindsight is 20/20. But I’m seeing enough stuff like this to make me think that for a lot of people this was no surprise at all.