No One Would Listen: A True Financial Thriller
I am going to do something I never do: Recommend a book I have yet to read. Harry Markopolos’ No One Would Listen: A True Financial Thriller.
I met Harry several times — a quiet, studious guy. Very serious. The sort of guy you want doing your taxes.
That he discovered the Madoff fraud isn’t very surprising; That he could not get anyone to listen is amazing.
I spoke with two people who are each halfway thru the book — one I cannot reveal, because she will be reviewing it for a major media outlet (Hi C!) But she grabbed me in the hallway today to wax enthusiastic about it: “A real potboiler page turner! And surprisingly funny, too. You must read this.”
Mine should arrive by tomorrow, and I expect to finish it quickly.
Timeline of Fraud discovery below:
~~~~
How long did it take to uncover and expose a $40 billion crook? Ten years.
1998-1999
• 1998: My Firm “discovers” Bernie Madoff
• Late 1999: I am asked to reverse engineer Madoff’s returns
2000
• I knew he was a fraudster in 5 minutes
• May: Submission to SEC Boston Regional Office’s Director of Enforcement with 12 Red Flags
2001
• January: Team Member Frank Casey recruits MAR Hedge investigative journalist Michael Ocrant onto the team during a chance meeting in Barcelona, Spain
• March: My 2nd SEC Submission on how I think Madoff is running the scheme and his investment process
• I offer to go undercover to assist the SEC
• Apr: Michael Ocrant interviews Madoff
• May: MAR Hedge publishes Madoff expose, “Madoff Tops Charts; skeptics ask how”; Barron’s publishes, “Don’t Ask, Don’t Tell: Bernie Madoff is so secretive, he even asks investors to keep mum”
2002
• Jun: Key trip to UK, France & Switzerland; met with 20 Fund of Funds & Private Client Banks: 14 have Madoff and report “special access to Madoff”; two have admitted Madoff losses – Dexia Asset Management and Fix Family Office; 12 have not admitted Madoff losses and all 12 were turned into SEC Chairwoman on Feb. 5, 2009; off-Shore funds attract three types of investors who won’t report losses or file SIPC claims with the US government
2003-2004
• E-mail records of investigation lost; attempting to recover data from non-functioning hard drives
2005
• Jun: Frank Casey discovers Madoff attempting to borrow money from European banks (first sign that Madoff scheme is in trouble)
• Oct: Boston SEC’s Ed Manion arranges for 3rd SEC Submission
• Oct: Meeting with Boston SEC Branch Chief Mike Garrity, who quickly investigates, finds irregularities, and forwards my submission to SEC’s New York Office
• Nov: Boston Whistleblower calls NYC Branch Chief Meaghen Cheung and reveals his identity
• Nov: 29 Red Flags submitted
• Dec: I doubt NYC SEC’s ability, fear for my life, and contact Wall Street Journal and go to local law enforcement for protection
2006
• Jan: Integral Partners’ $40 million derivatives Ponzi Scheme goes to trial five years and five months after discovery, causing us to further doubt SEC competence
• Sep: Chicago Board Options Exchange VP tells me that several OEX option traders also think Madoff is a fraudster; if SEC had called the CBOE’s marketing office, they would have cooperated
2007
• Feb 28: Neil Chelo obtains a Madoff portfolio which shows zero ability to earn a return
• Jun: Casey obtains Wickford Fund LP prospectus showing Madoff is short of cash and offering a 3:1 leverage via bank loans, another clear warning sign that Madoff is running short of cash
• Jul: Chelo obtains Fairfield Greenwich Sentry LP financial statements for 2004 – 2006 and discovers three year-end audits with three different auditors in three different countries!
• Aug: Chelo conducts a 45 minute telephone interview with Fairfield Greenwich’s head of risk management; hedge funds all lose money except for Madoff!
2008
• Apr 2: Undelivered e-mail to Sokobin, SEC’s Director of Risk Assessment, entitled, “$30 Billion Equity Derivatives Hedge Fund Fraud in New York”
• Dec 11: Madoff runs out of money, turns himself in
• Dec 12: SEC insider calls me and warns “watch your back, Operation Cover-up has begun.”
2009
• Feb 4: My U.S. House testimony followed by SEC’s senior staff and FINRA acting CEO
• Sep 4: 477-page SEC IG Report on the Madoff Fiasco released
• Sep 10: I testify before US Senate Banking Committee with SEC IG
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March 5th, 2010 at 10:02 am
Amazing that anything gets done with so much red tape flying around.
March 5th, 2010 at 5:19 pm
Should be pretty obvious to all the SEC is a fraud and a sham.
March 5th, 2010 at 5:41 pm
Markopolous’ main problem is/was his assertation that “returns like Madoff’s are impossible”. Things like, “I knew it was a fraud in 5 minutes”. That stuff made him seem less credible, even jealous.
The problem with these statements is they are WRONG. Similar returns are quite POSSIBLE. In fact, one of the main drivers of ponzi schemes is that great investments DO EXIST. The top 2 hedge funds have 0/30 down years and 1/18 down years. They each have 60-80% annualized gross returns. (As an aside – Run 75% gross compound returns for 30 years… what does $1 accumulate to?) They both have VERY FEW down months. In fact, over one 7-year strech the very famous #2 hedge fund had only 5 down months. The worst month? Down 2%. With 92% avg gross annual returns over that period.
Now Markopolous’ other main point as to why Madoff was obviously a fraud are awsome:
- no one works there?
- no one says they trade with him
- family at the top
- BS, po-dunk auditors
- Why would he want more equity finance, if he was this good? (Both of the “top 2″ I mentioned… are mainly “house money”. They charged extremely high fees (3/50 and 5/40) and quickly earned enough to capitalize there own “equity”. So they sent all the money back.)
- Why would he be using “feeder funds” and allowing them to collect 1/10 or 2/20 fees on his work?
The fact that rich investors did not catch these are classic and tragic to the point of hilarity. They are so simple to spot. Caveat Empetor?
March 5th, 2010 at 5:50 pm
I wrote the SEC re. fraud at Adelphia a year before they went under. Given the flags in SEC filings, would expect that others contacted SEC too. No reply.
I wrote SEC in early 2002 re. fraud at Actrade (ACRT). Again, no reply.
Emailed some of my work in Jan 2002 to Herb Greenberg, who expressed a certain skepticism, saying: “interesting…u dig this up by yourself….. “, and did not cover the story.
Shorted ACRT and made a decent score.
http://securities.stanford.edu/1023/ACRT02-01/
http://www.law360.com/registrations/user_registration?article_id=145505&concurrency_check=false
I’ve given up trying to expose any fraud. Better to just try to get the timing right on the short.
March 5th, 2010 at 5:51 pm
My puzzle is:
1. Did WE (society including all the participants) learn anything since Harry M. spoke?
In my view, it is NOTHING! Just business as usual like after the S&L crisis and LTCM bailout
2. Ms. Brooksly Born pointed out the need for regulation of ‘derivatives’ precursor to CDS & CDOs. But unceremoniously she was marginalized by the trio – Greenspan,Rubin and Summers. PBS broadcast Frontline ‘First Warning’ chronicled those years. Apparently there were 14 Banksters in Summers’s office by his own words when he telephoned her to back off. Did we learn anything? ZILCH
3. As of today top 6 major banks control/influence 63% of our GDP (from 17% in ’60s) – mind boggling!
(nakedcapitalism.com)
4. 90% of MSM is controlled by 4 or 5 mega Corps vs 90+ in ’60-’70s!
WE all are marching/herded like lemmings towards the CLIFF and then into ABYSS!
March 5th, 2010 at 7:54 pm
Harry was on Fox Business this week. His comments sound much like what you wrote. I’m still reading the Quants but might consider Harrys book later.
Did anyone catch Barney Frank on CNBC today. Even Bartiromo had a hard time understanding what he was saying. But then Barney is so full of it.
March 6th, 2010 at 6:57 am
I was just coming back to add the C-Span link to the video of his 2/4/2009 testimony to add some more “straight from the horses mouth” substantiation to why BR could recommend his book without reading it first only to find that blog actually *pulled* and had I not seen it myself I wouldn’t have been able to add to it.
http://www.c-spanvideo.org/program/283836-1
I recorded this testimony myself for my own archives because it saves me the cost of ordering the DVD and allowed me to view it at a convenient time. Yeah , my one really guilty vice is having a personal C-Span/CNBC/ Lou Dobbs “Moneyline”/PBS “Frontline” library going back over 20 years ; CSpan since the “Iran Contra Hearings” as ell as such beauties as the “S & L Debacle” & the “BCCI Investigative Hearings” along with the debate to go to war in Iraq * the first time*.
What can I say , I’m an unapologetic news junkie and have followed economic news like others follow sports.
Just another John Q. Public making good use of the C-Span resources we are all already paying for with each and every cable bill. This means absolutely *NO* tax dollars paid for this national treasure archive.
March 6th, 2010 at 10:09 am
The notion that returns like Madoff’s are entirely possible while comparing them to successful hedge funds is inaccurate and misleading thinking.
That Madoff’s returns were what Madoff stated in the context of what he *claimed* was his investing methodology – that’s easy to spot in five minutes. If someone says that they’re getting the consistency of returns Madoff claimed whilst playing options on either side of his positions on the SP100 — through the 90′s and the subsequent volatility in ’97 and ’98 – that is easy to spot.
If someone comes to me and says that they’ve had 0 down years in 30 years, regardless of their claimed gains in that time – I want to immediately see their methods and trading methodology, because they’re a huge statistical outlier. If they won’t reveal what their methodology is, then there’s no way that I’d invest my money with them.
March 6th, 2010 at 12:02 pm
GregP — Interesting! And damn!!!! Another one to be added to the missed opportunities! And being on the private research side now I know how frustrating it is when you know something and nobody cares. (Though we do not go to the press with our ideas; only to our subscribers.)
But that’s life when you are writing a daily stocks column. Truth be told: I have zero memory of our exchange. When you’re on the side I was on you’re inundated with so much that you pick and choose based on what you find interesting on any given day. (Human nature!) You literally hear from hundreds of people.
As a daily stocks columnist, I always viewed ideas like planes on a runway ready to take off. You get interested with one idea, and it goes to the front of the line. You start doing work on it. Then a better one that takes more time comes along and gets fit into the mix. Meanwhile, another goes in the penalty box and gets delayed indefinitely and forgotten about until it’s way too late.
It’s hardly perfect and I missed my share of great ideas. (Of course I snared quite a few, too!) But when you’re one guy — that happens and the readers who share ideas generally don’t understand the lack of interest. It’s a total juggling act that, in the end, is based on the ability to quickly ferret out the information in public documents and deeper reporting. And then there are the editors and lawyers as the story moves up the line. The more controversial, the more hands get involved. And meanwhile the daily deadline looms. That’s why I always asked anybody with a good idea: “Where is it in the documents?” So many good ideas were and are buried in public documents, earnings calls and, of course, the numbers.
There’s also something else at work: Many people can short, buy or sell stocks based on information that a journalist can never prove. As a result, the information can’t be printed no matter HOW good it is. I’ve found that many people who have great ideas simply don’t understand that concept. So when you’re limited to around 700 words, it gets tricky and a lot of the good ones get away. Or as Doug Kass always reminds me: You can’t kiss all the pretty girls. No excuses here; it’s just reality.
Sounds like it worked out very well for you, though. Nice call.
PS: Back when I was writing my Saturday column for the WSJ I did a piece on looming trouble at ETrade — how its results were propped up on Real Estate steroids. Received the single worst death threat in my career. For good reason: Nobody wanted to see that story written. Onward…
March 6th, 2010 at 2:56 pm
BR,
if you get an early-release, you may consider sending a Copy to http://toomeyforsenate.com/
I’m sure Pat would put it to good use while unseating Sen. ‘Magic Bullet’..
http://clusty.com/search?input-form=clusty-simple&v%3Asources=webplus&query=Senator+Arlen+Specter+single+bullet+theory
Committee on the Judiciary
[ judiciary.senate.gov ]
- Administrative Oversight and the Courts
http://specter.senate.gov/public/index.cfm?FuseAction=AboutArlenSpecter.CommitteeAssignments
flippin’ Nero has nothing over on this guy..
http://specter.senate.gov/public/index.cfm?FuseAction=IssuesLegislation.SponsoredLegislation
March 11th, 2010 at 10:19 pm
To Herb Greenberg:
That was good of you to mention the death threat. Some people are trying to say Markopolos must be a nut if he was in fear of his personal safety while trying to expose Madoff.
To Taliesyn:
I second your recommendation to watch the testimony. Everything Markopolos said about reforming enforcement made perfect sense to me, and none of it has been acted upon. Maybe that will change if he has success with the book.
Here’s a link to an hour-long podcast with Markopolos and his partner Frank Casey, from Tom Ashley’s “On Point” at Boston’s NPR station WBUR.
http://www.onpointradio.org/2010/03/markopolos-no-one-would-listen
March 12th, 2010 at 10:31 am
I wish we could get this guy in a job high up in the SEC! But I’ll bet some politicians would drag their feet about okaying him.
March 24th, 2010 at 8:53 pm
I just finished the book; interesting but HM seems a bit of a nut/paranoid. But that doesn’t make him wrong. A lot of hacks should get fired/prosecuted.
April 12th, 2010 at 11:33 am
“I wish we could get this guy in a job high up in the SEC! But I’ll bet some politicians would drag their feet about okaying him.”
Drag their feet? You’re kind! They would claim he would be an (GASP!!!) “activist” enforcer.
Can’t have that, can’t we? CONgress gotta keep the contribution moolah flowing their way.