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

Neil gave them a quant’s point of view of the financial industry, providing a considerable amount of information that wasn’t in our documents, including best practices and, unfortunately, the commonly seen worst practices. He discussed in far more detail than I had the numerous interviews he’d conducted with fund managers, in particular his long interview with Fairfield Greenwich’s chief risk officer, Amit Vijayvergiya, and how he had validated my theories and discovered additional red flags. Just as I had done, Neil emphasized the fact that there are no incentives for people inside the industry to report unethical or illegal activities. In fact, there are disincentives. Many of the large institutional investors in Madoff were also Neil’s competition. Neil was actually better off watching his competition make the horrendous mistake of investing in a Ponzi scheme. But for Neil, exposing Madoff was simply the right thing to do.

As Gaytri walked out of the session, she noticed a tall, lanky man waiting in the reception area. He turned out to be Grant Ward, the SEC’s former New England director of enforcement—the person I’d sent my first submission to in 2000. It was ironic; the investigation had finally come full circle. Incredibly, during his sworn testimony that afternoon Ward told Kotz’s investigators that he did not remember meeting me in 2000—a statement that later was directly contradicted by Juan Marcelino, the former regional administrator of the SEC’s Boston office. Marcelino testified that he had spoken with Grant the day after I had appeared in front of Kanjorski’s subcommittee, and Grant had told him he “remembered meeting with Markopolos but didn’t feel he had done anything wrong.” David Kotz eventually concluded that “Ward’s testimony was not credible,” and that he had “told Manion that he had referred the complaint to NERO [the SEC’s Northeast Regional Office in New York] but never did.”

Mike Ocrant was interviewed in New York by Kotz and Senior Counsel Heidi Steiber. He provided the reporter’s point of view, telling them how meeting Frank in a Barcelona taxi led to his interview with Madoff, but he also told them about his many conversations with other knowledgeable people in the industry. It seemed to be the general consensus in the industry, he explained, that SEC investigative teams too rigidly followed a checklist in their search for paper violations, rather than digging deep and actually trying to figure out what was going on. A primary reason for that, he suggested, was that the investigators lacked experience and real knowledge of brokerage operations. Additionally, he pointed out that it was well known in the industry that the greatest desire of many, if not most, SEC employees was to obtain a job inside the securities industry. A stint at the SEC was simply an important addition to their resumes before moving on to join the industry that they were supposed to regulate.

Between the three of them, they provided a clear picture of the way the financial industry is supposed to function, the level of awareness inside the industry of Madoff’s operations, and why almost no one other than us felt compelled to try to expose him.

Kotz’s investigation would continue for several more months. On occasion he would call Gaytri or me with a specific question. It certainly looked like he was doing a Herculean job. I know that eventually he conducted 140 interviews—including a jailhouse interview with Madoff—and examined more than 3.7 million e-mails. This was to be the definitive report on what went wrong and how to correct it, and we all waited patiently to see what conclusions Kotz would reach. The inspector general’s team knew they were writing a report not only to Congress and the victims but also for the history books. It was obvious even back in February that this would be the most widely read inspector general’s report in many years.

I wasn’t done telling my story. In early March I was invited to meet with the new head of the SEC, Mary Schapiro. Actually, Gaytri had set up this meeting. She had contacted Schapiro’s office to see if the SEC wanted to participate and support the ideas of the Global Financial Alliance that were being formed to discuss how markets could better be regulated through international cooperation. During that conversation she asked Schapiro’s assistant if she wanted to meet with me. I think we would have understood if that meeting was not exactly a priority for her, but in fact she responded enthusiastically.

Mary Schapiro had been in charge of the SEC for less than two months when we met. Prior to that she had had a long career in financial industry regulation. Under President Clinton she had served briefly as acting chairperson of the SEC. In 1996 she’d been appointed president of NASD Regulation, and in 2006 she became chairman and CEO of that organization, which had become the Financial Industry Regulatory Authority (FINRA). I hadn’t been impressed by her leadership; at FINRA she had earned a reputation for avoiding big cases and failing to find fraud, and I hadn’t found any reason to disagree with that reputation. My opinion was that FINRA served the needs of the industry rather than protecting investors from the predatory practices of the industry.

It promised to be an uncomfortable meeting. After my participation in the Madoff investigation became widely known, a considerable number of people in the media suggested that President-elect Obama name me the new head of the SEC. In the congressional hearings I had been asked if I would head an SEC whistleblowers division if it were created. My answer had consistently been thank you very much, but no thanks. I had a number of whistleblower teams taking risks in too many cases to even consider accepting any other job. They were owed my loyalty, and I couldn’t leave them exposed without support. But the thought was out there and it certainly was possible it would make Mary Schapiro