Pursuer of Madoff blew a whistle for nine years

— -- Executives at Rampart Investment Management huddled nine years ago when Frank Casey, the firm's marketing vice president, obtained marketing documents for a little-known financial firm that reported unusually steady returns.

Harry Markopolos, a Rampart portfolio manager, and Neil Chelo, his top assistant, examined the numbers with surprise. Regardless of market conditions, the returns resembled a line heading straight up, at a 45-degree angle.

"It seemed impossible. The guy had perfect market timing for years," recalls Chelo. "Our bosses looked at it and said, 'Why don't you guys reproduce this strategy, and we'll get into this business?' "

About four hours later, Markopolos finished a series of financial calculations and announced his conclusion: The reported results were bogus, and the company was a fraud.

Only those in the room knew it at the time, but a Markopolos-led campaign to stop Bernard Madoff — now accused as the architect of what may be the largest Ponzi scheme ever — was about to begin.

It was a crusade that involved nine years of warnings to the Securities and Exchange Commission and efforts to publicize investment community skepticism about Madoff's operations.

It was a crusade that Markopolos, 52, says made him fear for his life as he secretly blew the whistle on the renowned former Nasdaq Stock Exchange chairman and founder of a top firm that electronically matches stock buyers with sellers.

And it was a crusade that ultimately failed.

It took the deepest recession in generations to topple Madoff, whose company collapsed in December amid billions of dollars in redemption requests, victimizing celebrities, charities, hedge funds, banks and average investors worldwide in a still unfolding financial shock.

"It's really sad, because he could have been stopped," says Casey, now the North American president for a British hedge fund advisory firm. "Harry was like the preacher in The Beatles song Eleanor Rigby, 'writing the words to a sermon that no one will hear.' "

And, adds Casey, still quoting the lyrics, "No one was saved."

Details of the crusade, pieced together from Markopolos' recent 375-page congressional testimony, interviews with three teammates who assisted him and a review of court and government records, show the effort began in 2000 at Rampart, a Boston-based firm that specializes in options trading.

Markopolos studied the strategy Madoff purportedly used to produce almost uniformly positive returns. Known as split-strike conversion, it is a limited-risk, limited-reward tactic in which a trader invests in stocks from a benchmark index while buying and selling options against those stocks.