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

“If I’m wrong, Frank,” he said, “then I’m a dead man.”

Frank forced a smile. “You don’t mean that literally?”

Thierry didn’t answer directly. “I’m totally committed to him. I’ve done my own form of due diligence. I’m comfortable with it. He comes with an impeccable reputation. I mean, my God, he’s one of the biggest market makers in the U.S.” He paused and then said softly, “I’ve got all my money in it. I’ve got most of my family’s money in it. I’ve got all my friends—the wealthy families of Europe—they’re all with Madoff. I’ve got every private banker that I’ve ever dealt with in this damn thing.”

As Frank remembered this conversation later, he couldn’t be certain that Thierry mentioned royalty. But several months later we would confirm that among Madoff’s European investors were the rich, the royal, and the noble. We did know that Prince Charles had been approached by his distant cousin, Prince Michel of Yugoslavia.

When Thierry insisted, “You just don’t have all the facts,” Frank backed off. He never mentioned it to Thierry again.

Thierry remained excited about the potential of the new coventure. The agreement was that Rampart would run the trading operation and Access would raise the capital. To get it started, the two companies each put up $125,000. Then we began seeking other investors. Several risk managers from a major international bank flew into Boston for a presentation. They were intrigued by the trader’s explanation—although they weren’t sure it actually could be done the way he described it. They wanted to see several trades done, and if it worked as well in practice as it did in the presentation, they offered to leverage it at 7:1 the first day and after two to three months they would go up to 10:1. They wanted in.

While less than a complete vote of confidence, it was a strong indication of enthusiasm. That’s a tremendous leverage potential. What made the deal so appealing was that the risk was controlled and the potential profit was tremendous. Frank was hoping for a return in the high teens. I was thrilled, of course, because it took the pressure off me. This was a product that would give funds an alternative to Madoff.

Rampart and Access moved the trader to Boston. But the more time Frank spent with him, the less he liked him. I think his precise words were: “This guy is an arrogant son of a bitch with an ugly personality.” And Rampart was about to place a sizable aspect of its business in his hands—without giving Neil and myself a legitimate chance to review the nuts and bolts of the strategy.

Nobody on Wall Street has ever let a poor personality stand in the way of profit, but Frank just didn’t trust this guy. So he decided to conduct his own investigation. This trader had shown up at a dinner one night wearing an Olympic team jacket. When Frank asked him about it, the trader revealed that he had sailed with legendary star class yachtsman Paul Cayard on the Olympic squad. Well, to a man who loves sailing like Frank does, that was impressive—even if he didn’t quite believe it. When he began his investigation he contacted the Olympic sailing committee. They had never heard of the trader, although they suggested he might have been a volunteer worker. But he was never a member of any Olympic team.

Frank remembered a conversation they’d had about bike racing. Hanging in the trader’s office was an impressive photograph of him racing around a track wearing an aerodynamic helmet. When Frank asked about it, the trader claimed that he’d won a Masters race—a racing division for competitors over 30 years old. So Frank called the Bicycling Hall of Fame in Newport, Rhode Island. After some research they reported that the trader had indeed competed in a Masters race—but he hadn’t placed.

Now Frank had caught him in two lies. He reported that to two principals at Rampart. Remember, this is the financial industry; they didn’t care if his nose grew every time he opened his mouth, as long as his product could generate profits.

In fact, the management at Rampart basically considered Frank, Neil, and me the wet blankets, pessimists always trying to stomp on their best ideas.

To Frank’s credit, he continued to try to stop them from making this deal. He told Thierry about his discoveries. Thierry then had his own compliance manager investigate—and when he found nothing negative about the trader on the Internet he reported that he was clean. Thierry then asked the trader and Frank to submit handwriting samples for Access’s graphologist in France to examine. Both men did, and both men passed.

But Thierry also hired a well-known private detective to conduct an in-depth investigation. And he discovered that this trader had been convicted of interstate wire fraud, had worn a wire in an FBI sting operation, and was still on probation and not supposed to be traveling outside the state of California to places like Boston, for example.

Thierry, Rampart management, and Frank confronted the trader. He admitted that he had been convicted, but claimed he had fallen on his sword to protect his employees. In fact, what he was doing was taking licensed software, duplicating it, and selling it retail. He was fired before he walked out of the room—but he challenged Access and Rampart to sue him. Both companies decided the negative publicity wouldn’t be worth the potential recovery, so the trader walked away with more than $100,000.

Neil and I remained curious about his strategy, though. We continued talking about it, trying to find the fallacy in it. We explained it roughly to a lot of brokers, each of whom had an opinion about it. Some of them did think it would work. But a broker whom I consider one of the best options traders in the world, Jeff Fritz at Oxford Trading Associates, finally put it in perspective, telling us, “Yeah, maybe he can do that once or twice,