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

People who don’t bring in quality cases that settle eventually will be asked to leave to make room for other people who can produce solid cases and generate bonus revenue.

Fifth, relocate the SEC headquarters to New York City. New York, New York, it’s a wonderful town. I love Boston, but the single thing the SEC can do to quickly upgrade the agency’s talent pool is move its headquarters to New York City. Currently the SEC headquarters are in Washington, D.C., and Washington, D.C., is the place where you’ll find a lot of politicians, but not very many qualified finance professionals. As New York is the world’s largest financial center and Boston is the world’s fourth largest financial center, moving the SEC to New York City or elsewhere in the New York-New England corridor makes a lot of sense. Put the SEC headquarters in the center of the financial industry, a place with easy access to New York and Boston. Go where the best people are instead of trying to lure the best people to where the politicians are.

Sixth, book ‘em. If you walk into any substantial investment industry firm, you’ll find a library stocked with professional publications for its staff to use as an important resource. Among those publications would be the Journal of Accounting, Journal of Portfolio Management, Financial Analysts Journal, Journal of Investing, Journal of Indexing, Journal of Financial Economics, even the Wall Street Journal. But if you walk into an SEC office, you probably won’t see any of these publications—and you won’t find an investment library. So where do SEC staffers actually go to research an investment strategy, or find out which formulas to use to calculate investment performance, or even figure out what a CDO-squared is? Apparently the SEC staff uses Google and Wikipedia—because both of them are free. Good luck to a man or woman attempting to figure out a complex financial instrument using free Web resources. The SEC makes sure its staff will remain uneducated—by not providing the educational tools they need.

Seventh, card ’em. Perhaps the easiest change the SEC can make is to supply every employee with business cards. If SEC employees want their own business cards, they have to pay for the cards themselves. It’s very difficult to get a call back from someone you’ve met at an industry conference—assuming you are permitted to attend an industry conference—or from an employee of a firm who you’ve just suggested should “Call me if you run across a securities fraud” if you can’t hand the employee your business card. If private industry provides business cards for its employees, then so should the SEC. It’s common sense.

These business cards should include the list of professional credentials each SEC staffer has obtained. Credentials such as CAIA, CFA, CFE, CFP, CIA, CISA, CPA, FRM, JD, PhD, and any other initials earned should appear prominently on all business cards. And maybe at the bottom of each card the words “To report a securities fraud, call me” could appear. This would send the message that each SEC staff member is a fraud fighter first. And business cards should be given to secretaries and clerks, too, as a way of building internal pride in the agency as well as advertising that the SEC is in the fraud-fighting business.

When these staffers do receive that call reporting a potential fraud, they should immediately forward it to the proper person under the SEC’s new standard operating procedure for handling whistleblower tips.

Eighth, go to events. The SEC should encourage its staff to participate in industry events. The thinking in not encouraging this, I assume, is to keep the staff away from the people they regulate. I believe the most important thing the SEC can do to increase the opportunities for uncovering fraud is to encourage staff members to socialize with industry professionals wherever and whenever possible. Interacting with industry professionals before and after industry functions is a great way to keep up to date with what’s happening in the industry and obtain tips on possible frauds—especially when they are just beginning.

New York, Boston, and other major cities with robust financial centers have numerous financial analyst societies, CPA societies, securities traders associations, and economic clubs, which frequently hold the type of educational meetings the SEC staff needs; but the SEC generally doesn’t allow its staff time off to attend these meetings, nor does it reimburse its staff for attending this type of industry meeting. It’s rare to see SEC staff at these educational events—and we know that isn’t because they already know everything—and they would be welcomed.

Ninth, establish a lessons learned database. The very first thing the SEC employees who received my submission should have done is gone directly to the SEC database on their computers to see if the red flags I raised were comparable to information learned about other Ponzi schemes. Unfortunately, that would have been impossible because there is no existing SEC database like that. The SEC should build a strong online knowledge center for its staff. In this case when staffers keyed in “Ponzi” they would have been able to find diagnoses of past Ponzi schemes and several checklists teaching them what to look for, what questions to ask, and how to most efficiently solve such cases. A Ponzi scheme is actually one of the easiest fraud schemes to detect because there is no underlying investment product and no trading, while the assets are being diverted to pay offinvestors. Yet this case was assigned to SEC staffers who had absolutely no experience and little knowledge of Ponzi schemes, and they really had no place within the SEC to go to learn about them.

To further increase the SEC’s auditing effectiveness, I would create a Center for All Lessons Learned, a CALL center, similar to a database that has been used with great effectiveness for decades by the U.S. Army. CALL would collate and sort through every fraud uncovered by the SEC. These frauds would be analyzed to find both the common and