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

pay a reward for information. Ed Manion called me to ask if I knew about people market-timing in Boston, telling me, “If you have any cases for us, we do have this bounty program. We can pay you up to 10 percent and triple damages.”

I had known a little about the bounty program. I knew, for example, that Madoff wasn’t front-running, so it didn’t apply to him; but Ed described it in detail. “This definitely applies,” he said. “There’s money in this one. Bring us a big case and you can make millions of dollars.”

Over the next few days I started thinking about that. Millions of dollars? I now had a wife and two children, and I was bogged down in a job that was no longer very interesting to me. Millions of dollars? Maybe this is something I’d really enjoy doing, I thought. I began learning a lot more about the world of whistleblowers. I ordered several books about whistleblowers and fraud investigation from Amazon and quickly read through them. I was right—I was fascinated by these stories. Then I ordered several more books and raced through them. I can do this, I thought, and it would be a hell of a lot more interesting than what I’m doing right now.

Market timing is not at all unusual. The world markets are open 24 hours a day. The trading day begins in Asia, moves through Europe, and ends in the United States at the close of business. The European and Asian markets generally follow the U.S. markets; if we go up in the afternoon, then generally those markets will rise the next day. But the prices of stocks on those markets do not reflect the results of the U.S. trading day, which leaves four hours to arbitrage. Market timers buy international mutual funds, take out their gains right away and leave long-term mutual fund holders saddled with all the trading costs. Basically, market timers are picking the pockets of long-term investors. What was illegal about it was that the mutual funds claimed they did not allow it, when in fact they did allow certain large, favored customers to market-time their funds at will. They allowed their high-dollar clients to participate while they were telling their smaller investors it wasn’t going on. They were committing fraud against their fund shareholders.

As past president of the Boston Security Analysts Society, I knew people in the industry throughout the country who would be in a position to know about market timing. I’d met most of them at Chartered Financial Analyst conferences. I began making phone calls at night, just dipping my toes in the investigative waters. I told those people that the SEC was desperate for market-timing cases and had a bounty program that would pay up to 30 percent of the ill-gotten gains or losses avoided. “It’s a ticket out of the industry,” I said flatly, offering, “If we do a case together I’ll split it with you.” Over months I began building an investigative organization. I found a legal team that would handle the cases on a contingency basis and I learned how to protect the identity of anyone working with me. Investigating market-timing cases became my second job. I’d come home at night and practically rush up to my attic office to go to work. Doing this work excited the hell out of me. These companies were cheating their clients, and I was helping to catch them—and maybe I was going to make a few million bucks doing it. I worked endless hours, nights and through the weekends, completely erasing any boundaries between my work and my personal life. I had to find cases of fraud, recruit my whistleblowers, and document those cases so my legal team could prepare a submission. I had to teach my whistleblowers what to look for and what the legal boundaries were, as well as continually providing the emotional reinforcement they required.

Being a whistleblower is an extraordinarily lonely existence. You’re putting your livelihood at risk, maybe your life, and you can’t tell anyone about it. You have to go through every workday as if everything is normal, when in fact you’ve made a conscious decision to expose illegal actions your company is taking, and you’re doing it with the knowledge that the people you work with are going to suffer because of that, and some of them may even go to jail. It’s incredibly tough. So I became an adviser and a confessor to many of my people.

And the only person who knew I was doing this was my wife, Faith.

I had to teach myself an entirely new business. After I had found several strong cases, I called the smartest securities lawyer I knew and told him what I had. His firm couldn’t handle those cases, he explained. It was a defense firm; it represented the companies the SEC would be suing, large corporations that paid his firm by the hour. I needed a plaintiffs’ firm, which are generally smaller firms that file these cases and work on a contingency basis, meaning they take their fees from the proceeds—if they win. “It’s in our interest that plaintiffs’ firms file these cases—so we can defend them,” he explained, just before giving me the phone numbers of several good plaintiffs’ firms.

Which is how I found a legal firm to work with me.

Over an extended period I was able to identify 20 cases of market timing in which investors had been defrauded out of at least $20 billion. The companies participating in this included some very large mutual funds and foundations. Twenty billion dollars. Finding them was not especially difficult, although obviously you never see a CEO admit in his annual report to investors, “Fraud was up 25 percent this year. We had a great year in fraud; it’s our highest-margin product. My expectation for fraud is that we intend to grow it 25 percent a year to infinity. I have a really good fraud team; we believe we