Asked how long it took him to figure out something was wrong, Markopolos said, "It took me five minutes to know that it was a fraud. It took me another almost four hours of mathematical modeling to prove that it was a fraud. "
You can find everything you want to know about this here (and in a very readable and easily reproducible form):
From the abstract:
Markopolos’ writings neither described nor included any specific backtests of the strike conversion strategy. Fortunately, a backtest is relatively easy to implement, using just a few, free data series found online, a single spreadsheet, and the Black-Scholes formula. I developed a disguised, simplified backtest as a home assignment for undergrads students, and extended it into a longer, more realistic paper assignment for another student. Based on those experiences, I describe herein a suitable backtest methodology and questions that may be answered through it.