After years of research, but well before law enforcement had a clue, Neil Chelo’93, MSF ’00 made an assessment of into Bernie Madoff and the notorious investor’s team: “I am convinced more than ever that these guys are a fraud.”
“I did an interview with one of the Madoff guys and summarized the phone call that way,” says Chelo, a finance professional who spoke with numerous Madoff colleagues and investors while collecting evidence of the fraud.
An Early Lead
He and Harry Markopolos discovered the scam when they were colleagues at Boston-based Rampart Investment Management. When their own analysis showed that no one could honestly deliver the financial returns that Madoff was producing, the two began a tenacious effort to prove the case with federal officials.
The initial response to their evidence provided a title for the book that he and Markopolos would later write: No One Would Listen.
“It was amazing,” observes Chelo. “The SEC just blew us off.”
Vindication for Whistleblowers
Amid shock, frustration and disbelief, the pair persevered in bringing the truth to light. Their vindication came with Madoff’s arrest, in December 2008, for running a $50 billion Ponzi scheme.
“I feel very proud of what we did,” says Chelo, now director of research at Benchmark Plus Management in Tacoma, Wash. “We not only highlighted a bad person who eventually got caught, but there were real changes in the law that are beneficial for everybody.”
He points specifically to the U.S. Securities and Exchange Commission’s whistleblower program. Created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, it establishes a formal process for people to report tips and submit evidence of wrongdoing; moreover, the SEC can provide financial reward to those who step forward.
As the need for this legislation suggests, the whistleblower role can be fraught with danger. Bringing individuals to justice may come at a huge personal and professional cost. Not so for the 44-year-old Chelo.
“For me, [the role] was really good, reputation wise,” he says. “People remember that I said Madoff was a fraud long before his arrest. When the scandal broke, I got a bunch of phone calls and emails saying, ‘I remember you telling me this story over dinner years ago.’”
Building a Career
Chelo never sought the “whistleblower” mantel, nor does he tout the role in his LinkedIn profile or online corporate bio. His reflections on the experience suggest that identifying fraud comes with the territory of a career in finance — an ambition he developed as a teenager.
Chelo grew up in Barrington, R.I., where his father and three uncles owned restaurants. The family business heightened his interest in investments and financial markets, which he followed to Bentley in 1989. 
Heading into his senior year, the Finance major pursued an internship at Rampart Investment Management. His supervisor, Markopolos, assigned lots of reading as Chelo helped prepare statements, confirm trades and handle other back-office tasks.
The intense learning experience “solidified my wanting to be in this business,” reports the alumnus, who joined the Boston Company as a trust supervisor upon earning his degree.
He returned to Rampart Investment Management in 1995 as a portfolio manager and found himself again working with Markopolos. The pair co-managed billions in equity derivatives and quantitative equity strategies.
That impressive figure notwithstanding, Chelo and Markopolos felt pressure to deliver more. In 1999, Frank Casey, Rampart’s senior vice president of marketing, approached the pair asking about Madoff. Chelo remembers Casey citing Madoff’s consistently impressive returns, ending with a question: Why can’t you guys do this?
Chelo and Markopolos ran all sorts of models, but could not replicate the results that Madoff produced. Initially, Chelo thought that Madoff was genuinely making money, just not in the way he claimed. Markopolos, on the other hand, quickly suspected fraud.
"He was quicker to the punch than I was,” says Chelo, who came to the same conclusion before long. “I really have to tip my hat to Harry. He was the one who said, ‘I’m going to take this to the SEC and do something about it.’”
Chelo returned to Bentley to earn a Master of Finance degree in 2000. He credits the research he did during that time, on market microstructure and payment for order flow, as helping expose the flaws in Madoff’s reported returns.
Following Madoff
With Markopolos leading the charge, Chelo chased evidence that detailed Madoff’s $50 billion Ponzi scheme. So did Casey and, later, industry reporter Michael Ocrant. For the next six years, they talked with industry colleagues and investors. Even after heading west to join Benchmark in 2003, Chelo continued to follow leads and gather facts, relaying the information back to Markopolos.
Looking back, Chelo acknowledges the threats that existed as they tried to bring the truth to light.
“I was very naïve to the potential danger. Harry was the polar opposite of me, maybe because he was an Army guy,” he says, noting that Markopolos talked openly about carrying a gun to protect himself and his family. “Now that I’m older and wiser, if this occurred again, I would probably be cautious like Harry.”
Why did their mounting evidence fail to spur SEC action?
Chelo speculates that investors’ awe of Madoff — the man’s one-time sterling reputation on Wall Street — undermined the kind of due diligence that would have turned up problems in Madoff’s operation. Or maybe his investors, seeing good returns on their statements, didn’t want to rock the boat by questioning too much.
Concerning the government, Chelo is not so generous. As he once charged: “Someone at the SEC was likely paid to look the other way.”
A Small Price to Pay
March 2009 saw Madoff in court, pleading guilty to nearly a dozen federal charges. Markopolos gave blistering testimony against the SEC before a House Financial Services subcommittee and wrote the book No One WouldListen, published in 2010. The documentary Chasing Madoff, based on the book, appeared the same year. This past February, television took up the story with a miniseries on ABC.
Although Chelo kept a lower profile as Markopolos led the investigation, he garnered a fair share of attention after Madoff’s arrest and the uproar about the SEC’s failure to act sooner. Chelo appears on camera, as himself, in the documentary. The movie credit earned him an entry in the online entertainment database IMDb.
Today, he continues his work in money management. According to Bloomberg, Benchmark’s flagship equity fund has beaten the S&P in 17 of the past 18 years. His sharp eye is mostly trained on money managers with whom to invest — and his reputation for thorough vetting inspires some trepidation.
“Some people may see my background and say, ‘This is going to be a nosebleed in the due-diligence process to deal with this guy,’” he says with a smile, calling such expectation “a small price to pay.”
“I’ll still take action when I see the opportunity to put bad guys behind bars,” he adds. “At the end of the day, my parents raised me right. It was just about right and wrong.”
Duly Diligent
Help scam-proof your investments with this advice from Neil Chelo.
For Any Investor
- Go with the known.
Stick with well-recognized, brand-name investment management companies. The average investor generally doesn’t have the clout, experience or expertise to access and review the information needed for a thorough vetting.
- Look at losses.
Review the investment’s history to see when it lost value and how the loss correlates to the general market. It’s a red flag if the product is out of step with overall market trends.
- Heed history.
Embrace the adage “If it sounds too good to be true, it probably is.” Madoff promised steady 12 to 16 percent returns — nothing crazy, but still unrealistically positive.
For Investment Professionals
- Verify.
Ask if the adviser is registered with the SEC — and verify the answer with the SEC itself. The SEC can alert you to any formal issues against the individual and provide the adviser’s Form ADV for your review.
- Read.
Request SEC deficiency letters. These can reveal small, routine issues (a common occurrence) or identify major problems.
- Investigate.
Review audits for limited partnerships. Ask to see an adviser’s tax returns, which can help corroborate the money manager’s claims. Use LinkedIn to find colleagues who can give unbiased references about your prospective money manager.