How The Wall Street Journal Missed The Madoff Story


It wasn’t just the Securities & Exchange Commission that dropped the ball on the Bernie Madoff story. The Wall Street Journal also failed to follow up on a number of tips from Harry Markopolis.

In his Capitol Hill testimony today, Markopolis revealed that he contact a WSJ reporter in December of 2005. The reporter seemed interested in the story but his editors never greenlighted an investigation, Markopolis says.

“I believe that senior editors of the Journal respected and feared Mr. Madoff,” Markopolis said when questioned about why he thought the WSJ didn’t follow up on the story.

That’s possible. It wouldn’t be the first time a newspaper spiked a story because it painted a respected figure in a bad light. But we seriously doubt that this was the problem at the Journal. Madoff wouldn’t intimidate the Journal. As a matter of fact, he might entice them. The Journal’s editors and reporters then and now have been very good about going after powerful people.

So what went wrong? We have a theory of our own: we blame backdating.

Around the time that Markopolis was talking with the WSJ, the paper was gearing up to launch its ground-breaking investigation into a scandal involving the misdating of options grants. That story got played up big time in the Journal, picked up by both the SEC and journalists across America, and eventually won the Journal a Pulitzer Prize. Of course, it quickly fizzled out as regulators came to realise that it wasn’t quite the big deal almost every one thought it was. It became obvious that, far from uncovering the financial crime of the century, the WSJ had uncovered some minor accounting errors that had become common practice in the tech community.

Meanwhile, the WSJ was missing the actual financial crime of the century. They were so convinced that corporate CEO pay was somehow criminal that they missed the real criminality even after it was delivered to them on a silver platter. No one would expect that the Madoff story, which is basically about a fraud at a little known securities firm,  would garner anyone a Pulitzer.

(Thanks to Gary Weiss for pointing out the WSJ angle on the story.)