No One Would Listen: A True Financial Thriller (26 page)

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Authors: Harry Markopolos

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Ah, that was just me being an optimist again.
 
The two names Garrity gave me were New York Branch Chief Meaghan Cheung and Assistant Director Doria Bachenheimer. I had never heard either name before. Meaghan Cheung was the New York equivalent of Mike Garrity, but as it turned out that was in title only. As Garrity had suggested, in early November I called Meaghan Cheung and identified myself as the Boston whistleblower. I guess I expected some kind of reaction from her, even something as obvious as “I read your report and I have a couple of questions.”
 
Instead, the most she would acknowledge was that she had read the report. She didn’t ask me a single question about it. Not one. The strongest impression that I got from her was that I was bothering her. There was no excitement, no enthusiasm, no recognition that I had just put in her hands the biggest case she would ever have in her career. I had to draw every sentence out of her. When I asked her if she had any questions about my report or if there was anything in it she didn’t understand, she acted as if I were insulting her intelligence. I remember asking her, “Well, do you understand derivatives?”
 
She responded, as if answering my question, “I did the Adelphia case.”
 
When I pointed out that the Adelphia case was basically a $3 billion accounting fraud case, a case in which executives cooked the books to loot the company for their personal use, and that this was many times bigger and substantially more complicated, she seemed offended. I told her that a derivatives fraud required a much higher level of financial sophistication than an accounting fraud. It wasn’t necessary for her to understand derivatives, she said, telling me that the SEC’s Office of Economic Analysis in Washington, D.C., was staffed with PhD’s who were capable of understanding derivatives.
 
When this conversation began I was hoping we would have a collaborative relationship; instead it was turning confrontational. I explained to her that the formulas used by PhD’s in academia were completely different from those used in the industry. I wasn’t trying to be insulting; I was just trying to explain to her that the math was different and the way it was used in practice was very different than in academic institutions. I spent the previous decade of my career taking these financial instruments apart backward and forward. I’d done it so often I could do it in my sleep. Those people working in her Office of Economic Analysis just wouldn’t have that experience.
 
The point I was trying to make was that I could help her; the point she was trying to make was that she didn’t want my help. That was the way our relationship progressed. Over the next few months I would call her or e-mail her from time to time. She would always take my call, but she never initiated a conversation or followed up a discussion. She seemed totally disinterested in speaking with me. No matter what questions I asked, she remained noncommittal. “What’s the status of the investigation?”
 
“I can’t tell you.”
 
“Has it gone to a formal investigation yet?”—meaning that the SEC has decided to issue subpoenas to get the information it needs.
 
“No.”
 
“Can you tell me anything about what’s going on?”
 
“No.”
 
“Is there anything you need from me?”
 
“If we do, we’ll call you.”
 
I tried everything I could think of to convince her to investigate Madoff. I told her that I had a list of 47 respected professionals in the industry who would speak with her if she called and every one of them could confirm everything I said. Among the people on that list were Citibank’s head of global equity derivatives research, Leon Gross; Bud Haslet, who was the chief option strategist at Miller Tabak Securities; and Mike Ocrant. As far as I know, she never called anyone.
 
Poor Ed Manion. He was the really good guy through all of this. At least once a week I’d call him and let all my frustration out on him. “Your agency sucks!” I told him. “Your people are beyond incompetent. I don’t think they’re capable of catching a cold in the winter. I can’t even believe some of these people get dressed by themselves in the morning. I mean, most of your staff barely respond to heat and light.
 
“Believe me, Ed, this Meaghan Cheung is no Mike Garrity. I’m handing her the biggest case of her life and she treats me like I’m bothering her. There’s no way she’s the slightest bit interested in this case. I’m telling you, the next question she asks’ll be the first one. What kind of agency are you people running?”
 
Ed felt as terrible about it as I did, but there was nothing he could do about it. He reminded me that Boston and New York had a competitive relationship. If a referral came to New York from Boston, the New Yorkers were more likely to think Boston was trying to dump a crap case on them rather than respecting policy. Probably the last thing they believed was that Boston had a career-making case and was handing it over because it was the right thing to do. It was like the Red Sox trading Babe Ruth to the Yankees.
 
I was furious with Meaghan Cheung, but I understood that none of this was really her fault. She was simply a product of the system. She had all the training that the SEC required; she had all the resources that were available to someone on her level; and it wasn’t nearly enough. The SEC’s capital markets work experience requirements were way too low, the exam quality standards were abysmally low, and that started at a level much higher than Meaghan Cheung. As an employee she was no better and no worse than most employees of the agency. In fact, we later found out that none of these people, Cheung, Bachenheimer, or their assistant, enforcement attorney Simona Suh, had ever investigated a Ponzi scheme. They wouldn’t have known what to look for, and as part of the bureaucracy they didn’t want to look unqualified or unprepared by asking someone like me for assistance. It’s the Ed Manions and Mike Garritys who are the exceptions, whereas she was typical.
 
While this was going on, Cheung and the other executives in her office spent their time investigating minor frauds and getting an occasional conviction and headline. They were going after the fleas instead of the elephant, which is what they had been trained to do, and there was no incentive for them to do anything beyond that. In the world of the SEC, a case is a case, and going after a hard target like Madoff counts the same as going after some tiny retail broker. There are no bonuses for doing the big cases that require a tremendous amount of work; in fact, that may create problems because those big guys, the sacred cows, are often major political donors. I was told by a government agency, for example, that at some point New York Senator Chuck Schumer called the SEC to inquire about the Madoff investigation. There is absolutely no evidence of any wrongdoing on Schumer’s part at all, zero, and no suggestion that there was any intent on his part to interfere. Senator Schumer apparently made the call on behalf of his constituents. The problem is that the SEC is funded by Congress, so its employees are particularly sensitive to congressional inquiries. So for a middle-level SEC employee with ambitions, any case in which an important politician is involved is a case he or she wants to stay far away from. It’s a lot safer to go after small potatoes.
 
As the weeks passed, it became obvious to me not only that Cheung wasn’t going to do anything to stop Madoff, but that she didn’t seem to appreciate the danger I was in. What was really frightening to me was the fact that she knew my identity. It was clear to me that she was incompetent for this type of case. It was possible she was corrupt—although I had no evidence of that, but it would not have surprised me if she was also careless enough to allow my name to get out. The more I considered the potential danger, the more anxious I got. I began wondering if I had raised my head too much. It seemed like every time we peeled another layer of the onion it became a little more frightening because we found another layer. From the large but local fraud we originally discovered this had grown paper by paper into a massive international scheme spread across several continents and involving the rich, European royalty, and probably some of the most dangerous men in the world.
 
I was boxed in: I was trying to alert the government about how big this thing was, but because it was so big the government refused to take me seriously. Basically, their attitude was nothing could be that big without being discovered, so they wouldn’t take the actions necessary to discover it. To the SEC, I suspect, I was simply crying wolf, and it seemed like every time they ignored me that wolf got bigger, which made it less likely there actually was a wolf.
 
The fear was growing inside me. I’d experienced something like it before. In September 1985 the army had sent my National Guard infantry brigade’s command group to Germany for training and we had been targeted by the Red Army Faction terrorist group then waging a bombing campaign in Frankfurt. We’d been put through a pretty good training course that taught us how to protect ourselves, which included checking vehicles for bombs and what to do if we were taken hostage. The enemy then had been a well-organized terrorist cell that had prepared a hit list; they were gunning for us. But this was different. This time the enemy was a grandfatherly philanthropist, the most respected man in his community, perhaps the very last person anyone would suspect of violence. But we already knew that his reputation was his disguise, and that in fact he was a world-class criminal. What nobody could predict was how far he would go to protect himself—and what the consequences would be to anyone in his path. If it did reach that point, I was nothing more than an inconvenience to him.
 
Looking over my shoulder when I walked down the street or checking underneath the chassis and in the wheel wells of my car before I turned the key no longer seemed like enough protection. I had started carrying an airweight Model 642 Smith and Wesson everywhere I went. Finally I decided it was time to get some outside help.
 
I knew the only people I could depend on to be there for me and my family 24 hours a day were the officers of the Whitman, Massachusetts, police department. I trusted my local police department far more than any federal agency. I’d spent years being disappointed by the federal government. To the Massachusetts state police, or even the Plymouth County sheriff’s department, I was simply another citizen living in their jurisdiction. That left the local cops, whose station was only a few blocks from my house.
 
Whitman is a typical New England small town, with a population under 15,000. We have a long history and a small town center, which has always been a good place for neighbors to meet. Some of our houses date to before the Revolution, and it’s possible to determine on which side of that fight the residents were by looking at their chimneys—loyalists to the crown had a black stripe around the top, which in some cases is still there. Later Whitman became the home of Toll House cookies. Faith and I had lived there happily for almost seven years, but suddenly I began to see the most familiar places in a different kind of way. Would that corner be a good place for an ambush? Or who was that person sitting across from us having a slice of pizza in the Venus? It was odd; Bernie Madoff had become a central figure in my life—and my fervent hope was that he didn’t even know I existed.
 
Whitman measures only 6.97 square miles, meaning it would take a police car about a minute to get to my house from anywhere in the town. And no one cares about the citizens of the town of Whitman more than our local police department.
 
When Faith and I had moved to Whitman, I had gone to the local precinct to apply for a firearms permit. I had met Sergeant Harry Bates that day and since then I had often seen him around our town center. It was always pleasant, always calm, so when I came barging into his office one afternoon pale as a ghost, sweating profusely, he knew that whatever was bothering me was serious. “I need to talk to you,” I told him, “in your office.”
 
Truthfully I don’t remember exactly what it was that had set off my panic button. It might have been something as simple as a hang-up call or a car that stopped in front of my house and sat there too long. Maybe it was something I read, a seemingly innocent comment somebody made, or two pieces of information that didn’t fit together easily. But whatever it was, it pushed all my buttons. I realized suddenly that I had to make sure somebody was going to come running when I yelled for help. Somebody with firepower.

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