No One Would Listen: A True Financial Thriller by Harry Markopolos (rainbow fish read aloud .txt) 📗

The whole situation was unusual. The other senators had left after the first session and Schumer carefully controlled this panel. I’m sure he had his reasons. One question Senator Schumer did ask me was what my two strongest recommendations would be for the improvement of the SEC.

After explaining that in our investigation we saw only incompetence and no evidence of corruption, I replied, “The best tool that the SEC could use, in my opinion, is the pink slip. It’s a piece of paper that every employee could understand. There need to be a number of them; I suspect about half the staff, perhaps more. The pink slip is when you get called into account and when you get fired for doing a bad job or not being competent on the job. I think many of these examiners and many of these enforcement attorneys lack competence at the basic skill level. There needs to be a skill inventory, a reduction of the staff. They need to take multiple-choice exams, and those who don’t cut the mustard—let them go. Everybody’s performance needs to be closely reviewed, and they basically need to start weeding out staff.”

There. That seemed to me to be a pretty strong recommendation. Fire half the staff, more than 1,700 people. And if that didn’t make the SEC a more effective force, there was still another half left to replace. Naturally the two SEC representatives appearing next to me disagreed. Naturally.

I actually had fun in the remaining few minutes of this hearing. Trying to make a long point in a brief statement, I resorted to the use of very descriptive metaphors, which everybody not working for the SEC seemed to enjoy. In response to the director’s defense of the agency and its employees, for example, I pointed out, “It’s very hard to soar like an eagle when you’re surrounded by turkeys, and there’re a lot of turkeys that need to be let go.” When Schumer asked me to elaborate, I added, “Most of these attorneys at the SEC—I don’t think they could find steak in an Outback.”

As I left the hearing that day, all in all I thought it was probably a good thing that at that moment I was not going over to the SEC Building.

Officially, at least, that was it for me and Bernie. Madoff was in jail for the next 150 years, with good behavior perhaps 140 years; Thierry was dead; and the tens of thousands of people who had lost their savings will recover only a portion of it at best. The Madoff story was far from done, though, as a large posse of lawyers had ridden into town, armed with loaded briefcases. The litigation has barely even started as those lawyers try to figure out which people and what organizations may bear some responsibility for these losses. There certainly will be more civil cases filed, more criminal indictments, and even more deaths like that of Thierry de la Villehuchet and that of Jeffrey Picower, who had received $7 billion from Madoff and was found on the bottom of his swimming pool in late October 2009. The SEC already has made substantial changes in the way it does business, and there will be many more changes to come if it intends to survive as an independent agency. The federal government will also be instituting new regulations and procedures for overseeing government financial institutions. Some of those industries—unregulated hedge funds, for example—undoubtedly will be trying to police themselves in an effort to keep the government out. And Gaytri has become very active in helping establish the first international financial court through the Global Alliance to deal with cross-border financial claims.

And unfortunately, other financial frauds will be uncovered. Soon after the story of our investigation became public, each member of the team began receiving letters and tips offering evidence of other financial frauds, including several Ponzi schemes. I’ve gotten a large pile of them that allege frauds in a variety of industries. Unfortunately, I’m so busy with active cases that I don’t have time to even look at the mail that comes my way.

What has become apparent to me and to Frank and Neil and Mike and Gaytri is that there is an overwhelming desire among the majority of people in the financial industry to clean up the mess. Most people who work in the industry actually are proud to be part of it, and a scandal like this one taints all of them. While a few people make money, scandals make the business harder for everyone else. So there is widespread support for these suggested changes. For Neil’s efficient markets theory to function, it is essential.

On October 20, 2009, five years after I became a full-time fraud investigator, the very first whistleblower case that I developed became the first of my cases to be unsealed. California’s attorney general, Jerry Brown, charged the State Street Corporation with a $56.6 million fraud against the state’s two largest pension funds, announcing that he hoped to receive $200 million in overcharges and penalties. Brown said, “State Street bankers committed unconscionable fraud by misappropriating millions of dollars that rightfully belonged to California’s public pension funds.”

This amount was only the tip of what my team and I believe was nothing more than a fraudulent iceberg. Basically, our complaint alleged that the bank has executed more than $35 billion in currency trades for the pension systems since 2001, and what foreign exchange traders were doing was falsely claiming that buy trade orders were made at or near the highest exchange rates of that particular day while sell orders were executed at or near the lowest exchange rates of the day, allowing the bank to pocket the difference. It remains to be seen whether the bank will choose to go to a jury trial to prove its innocence or will settle the matter before it goes to trial.

Two days after Brown unsealed the lawsuit, the