No One Would Listen: A True Financial Thriller (2 page)
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Authors: Harry Markopolos
BOOK: No One Would Listen: A True Financial Thriller
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George Devoe, CFA, Chief Investment Officer, Rampart Investment Management Company
Elaine Drosos and family, owners of the Venus Cafe in Whitman, Massachusetts
Dave Fraley, managing partner, Rampart Investment Management Company
Scott Franzblau, Principal, Benchmark Plus
Bud Haslett, CFA, Chief Option Strategist, Miller Tabak Securities
Dave Henry, CFA, Chief Investment Officer, DKH Investments in Boston, Massachusetts
Chuck Hill, CFA, succeeded Markopolos as president of the Boston Security Analysts Society
Daniel E. Holland III, Managing Director, Goldman Sachs in Boston
Debbi Hootman, Darien Capital Management
Greg Hryb, CFA, Darien Capital Management
Louie Markopolos, Harry’s younger brother
Matt Moran, Vice President of Marketing, Chicago Board Options Exchange
Peter Scannell, Putnam Investments’ Quincy employee who filed a claim with the Securities and Exchange Commission
Rudi Schadt, PhD, Director of Risk Management, Oppenheimer Funds
Diane Schulman, False Claims Act fraud investigator
Jeb White, President, Taxpayers Against Fraud
Burt Winnick, Managing Partner, McCarter & English in Boston
Bill Zucker, attorney, McCarter & English
Erin Arvedlund,
Barron’s
magazine reporter
Barron’s
magazine reporter
Reuben Heyman-Kantor,
60 Minutes
60 Minutes
Andy Court,
60 Minutes
60 Minutes
John “Front Page” Wilke,
Wall Street Journal
reporter
Wall Street Journal
reporter
Greg Zuckerman,
Wall Street Journal
reporter
Wall Street Journal
reporter
Securities and Exchange Commission (SEC)
David Becker, General Counsel
Steve Cohen, attorney
Christopher Cox, former Chairman
David Fielder, Assistant Inspector General
Noelle Frangipane, Deputy Inspector General
Robert Khuzami, current Director of Enforcement
David Kotz, Inspector General
Lori Richards, former Director, Office of Compliance, Inspections and Examinations
Mary Schapiro, current Chairman
Jonathan Sokobin, Deputy Chief Economist, Office of Economic Analysis, and Director of Risk Management
Heidi Steiber, Senior Counsel
Linda Thomsen, former Director of Enforcement
Andrew Vollmer, former Acting General Counsel
John Walsh, Chief Counsel, Office of Compliance, Inspections and Examinations
Chris Wilson, Senior Counsel
David Witherspoon, Senior Counsel
Boston Regional Office
Jim Adelman, former senior enforcement attorney
David Bergers, former New England Regional Director of Enforcement, who replaced Grant Ward, current Regional Administrator
Michael Garrity, Assistant Regional Director
Edward Manion, Senior Staff Accountant
Juan Marcelino, former Regional Administrator
Joseph Mick, Assistant Regional Director
Walter Ricciardi, former Regional Administrator
Grant Ward, former New England Regional Director of Enforcement
Northeast Regional Office in New York
Doria Bachenheimer, Assistant Director of Enforcement
Meaghan Cheung, Branch Chief
Peter Lamoure
Simona Suh, enforcement attorney
Senate
Jeff Merkley (D-OR)
Chuck Schumer (D-NY)
House of Representatives
Gary Ackerman (D-NY)
Shelly Capito (R-WV)
Joe Donnelly (D-IN)
Barney Frank (D-MA), Chairman of the House Financial Services Committee
Scott Garrett (R-NJ), Ranking Member, House Capital Markets Subcommittee
Al Green (D-TX)
Paul Kanjorski (D-PA), Chairman of the House Capital Markets Subcommittee
Carolyn Maloney (D-NY)
James Segel, Special Counsel to the House Financial Services Committee
Brad Sherman (D-CA)
Other
Andrew Cuomo, current New York State Attorney General
William Galvin, Massachusetts Secretary of the Commonwealth
Eliot Spitzer, former New York State Attorney General
Kathleen Teahan (D, Plymouth), Markopolos’s former local Massachusetts state representative
Introduction
On the rainy afternoon of June 17, 2009, David Kotz sat patiently in a small room with a single barred window at the Metropolitan Correction Center, a prison in lower Manhattan, waiting to interview Bernard Madoff, the mastermind behind the greatest financial crime in history. Kotz, the Securities and Exchange Commission (SEC) inspector general, was investigating the total failure of his agency to expose Madoff’s $65 billion Ponzi scheme—even after I’d warned the SEC about it in five separate submissions over a nine-year period.
Kotz and his deputy, Noelle Frangipane, sat across from an empty chair, and on either side of it sat Madoff’s two attorneys, Ira Lee Sorkin and Nicole DeBello. Eventually Madoff was escorted into the room by a guard, who carefully unlocked and removed his handcuffs. Bernie Madoff had been a king of the financial industry, the widely respected cofounder and former chairman of NASDAQ, the owner of one of Wall Street’s most successful broker-dealers, and a prominent New York philanthropist. Now, wearing a bright orange prison jumpsuit that glared against the drab gray walls of the room, he sat down between his impeccably dressed lawyers.
Madoff had agreed to this interview with the single stipulation that it not be taped or transcribed. Kotz began by explaining to Madoff that he had a legal obligation to tell the truth. The fact that he was to be sentenced a week later may have influenced his decision to talk openly to Kotz. Or it may simply have been his ego making a last grasp for attention. When it comes to assigning motives to Madoff’s actions, who can really say? His motives make him an enigma, even to this day.
As Kotz later recalled, Madoff was overly polite and seemed forthcoming. “I guess we were concerned that all the answers to our questions would be one or two words or he wouldn’t provide much information or his lawyer would cut him off every time he tried to say something, but there was none of that. He answered all of our questions expansively. It seemed like he didn’t hold anything back.”
Over a three-hour period, Kotz and Frangipane took copious, nearly verbatim notes as Madoff revealed for the first time the whole story of his Ponzi scheme, claiming it had been started almost by accident and that he admittedly was astonished that he hadn’t been caught by the SEC. He was extremely critical of that agency, calling its investigators idiots, assholes, and blowhards. Kotz noted how frequently Madoff boasted of his connections in the financial industry. “He claimed to know so many important people—‘I knew this one,’ that one ‘was a good friend,’ this one he ‘knows very well,’ that one he ‘had a special relationship with.”’
But it was about halfway through this interview, when Kotz asked him about me, that his attitude changed. “So let me ask you,” Kotz said, consulting his notepad, “How much do you know about Harry Markopolos?”
Madoff immediately waved his arm dismissively. He bristled. I was nothing, he told Kotz. “This guy is getting all this press, all this attention. He thinks he’s some kind of seer. But believe me, it’s all overblown. You know what? He’s really a joke in the industry.”
Madoff continued, explaining that I was “a guy who was just jealous” of his business success. As Kotz listened to him, he began to realize that Madoff considered me a competitor and appeared to be bothered by the fact that I was getting attention that rightfully belonged to him. He wouldn’t let it go. Later in the interview he defended his investment strategy, which I had ripped apart, telling Kotz, “All you have to do is look at the type of people I was doing this for to know it was a credible strategy. They knew the strategy was doable. They knew a lot more than this guy Harry.”
No, they didn’t. They just saw the money. And they could not see through the dangerously charming exterior of a man who labeled me a “joke.”
Let me say first that I take no pride in having the last laugh. I’m Harry Markopolos, and this is the true account of my first case as a whistleblower to the SEC.
How did I become a whistleblower? It all began in 1999 when my friend Frank Casey first brought Madoff to my attention. I was confounded by the Wall Street mogul’s financial successes, and had to know more. I tried but couldn’t replicate his results. I later concluded it was impossible. One red flag led to another, until there were simply too many to ignore.
In May 2000, I turned over everything I knew to the SEC. Five times I reported my concerns, and no one would listen until it was far too late. I was a whistleblower taking on one of the most powerful men on Wall Street, and at some points through the nightmarish journey, I feared for both my safety and that of my family. I was convinced the crime he was committing was going to be the worst in market history. Ten years later, Madoff is now behind bars and we all know why.
My investigation team, as it came to be known, was comprised of four honest people with the shared belief that good ethics demands action. The four of us were the last and unfortunately only functioning line of defense between Madoff, his global organization of feeder funds, and their victims. We tried mightily to stop what we knew was wrong. As a result of our work the SEC—if it continues to exist—will be a different agency, and the way we police and regulate our markets will have been changed completely.
This is our story.
Chapter 1
A Red Wagon in a Field of Snow
On the morning of December 11, 2008, a New York real estate developer on a JetBlue flight from New York to Los Angeles was watching CNBC on the small seat-back television. A crawl across the bottom of the screen reported that Bernard Madoff, a legendary Wall Street figure and the former chairman of NASDAQ had been arrested for running the largest Ponzi scheme in history. The developer sat silently for several seconds, absorbing that news.
No, that couldn’t be right,
he thought, but the message streamed across the screen again. Turning to his wife, he said that he knew that she wasn’t going to believe what he was about to tell her, but apparently Bernie Madoff was a crook and the millions of dollars that they had invested with him were lost. He was right—she didn’t believe him. Instead, she waved off the thought. “That’s not possible,” she said, and returned to the magazine she was reading.
No, that couldn’t be right,
he thought, but the message streamed across the screen again. Turning to his wife, he said that he knew that she wasn’t going to believe what he was about to tell her, but apparently Bernie Madoff was a crook and the millions of dollars that they had invested with him were lost. He was right—she didn’t believe him. Instead, she waved off the thought. “That’s not possible,” she said, and returned to the magazine she was reading.
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