No One Would Listen: A True Financial Thriller by Harry Markopolos (i wanna iguana read aloud .txt) 📕

additional evidence against Madoff. He knew Bernie was polluting his pool, and he wanted him out. I like to think Scott was typical of managers in the industry in this regard, but I’m not certain that’s so. Unfortunately, there were too few bosses like Scott encouraging their employees to do the right thing. Too many others discovered that Madoff was a fraud and kept that information to themselves.

In his position at Benchmark, Neil met and spoke to literally thousands of managers working at hundreds of different funds, among them Fairfield Greenwich and Oppenheimer’s mutual fund, Tremont, which we later learned had invested $3.3 billion with Madoff. Because Neil had hundreds of millions of dollars to distribute, these funds were happy to open their kimonos for him, giving him more access to information than we had ever gotten before. He was collecting year-end financial statements and copies of model portfolios; these managers were thrilled to answer every question he asked. Because Neil had the mathematical background that Frank lacked, he was able to gather far more detailed information than we’d ever gotten before.

Because I had left the industry, I was no longer able to gather information. Instead I would regularly collect all the new material sent to me by Frank, Neil, and Mike, then spend hours in my office integrating it with what we already had. I was analyzing everything, writing the reports, and, finally, contacting the government. By choice, I was the point man, the only one visible to the enemy—or enemies. I’d long ago given up any hope of ever earning any money from this work—we all had—but it had to be done and we were doing it. If we didn’t do it, who would? Way back in 2000, I’d thought we had more than enough to nail Madoff, but since that time we had uncovered so much more information.

As a result of hundreds of conversations, pouring through thousands of pages of documents, and even my trip to Europe, we had identified more than 17 new red flags since that first submission. Probably the most glaring was the fact that Madoff was voluntarily giving up huge profits. Nobody any of us ever knew in the industry voluntarily left money on the table—except for Bernie. Had Madoff been operating as a hedge fund, he would have been charging 1 percent management fees and 20 percent of the profit, which in his case would have been about 4 percent annually on the amount of assets he managed. Instead he was supposedly happy receiving only commissions for the trading he claimed he had conducted. He was earning less than the funds that were doing nothing but handing him money. That made no sense. Who knew Bernie was such a giving soul? But it turned out that was the core of his scheme. By giving the funds the lion’s share of the fees, he got them to continue raising money for him. The nice way of describing it is that he was overcompensating them; the less nice way is that he bought their souls.

Although, this being Wall Street, you have to question the assumption that they had souls.

In fact, when we examined the financial structure of his operation, there seemed to be no logical reason for him to be in business. Running his fund actually was costing him a fortune, in addition to the immense time and effort it required to keep it going. Bernie needed money to invest. Assuming the profits he returned to his investors were his cost of getting that money, it would have been substantially less expensive for him simply to borrow the money from short-term credit markets.

This red flag would have been waving in the face of anyone with a financial background or enough fingers and toes to figure out the difference between the average 12 percent annual return investors received and the smaller interest rate at which Bernie could have borrowed the money. Why would a sane person go to all the trouble of running a complicated business that actually cost him money? Particularly considering the fact that he was already running a major business, his broker-dealer arm.

Then there was the super-duper secret oath that he supposedly made all his clients adhere to. This was perhaps the only successful business in history that not only rejected all publicity, but in fact warned clients that if they revealed any information about their investment with Madoff they risked having their money returned. They would be thrown out of the money club! In an industry where the huge funds boasted about their size as a way of attracting new clients, this was not only unusual; it was absurd. It made no sense at all.

I also had kept a list of the various explanations for these and other generally inexplicable problems that we had gotten from the feeder fund managers. This included the claim that he subsidized the down months from his broker-dealer arm to keep his investors satisfied and that he had perfect market timing ability. Conversely, it was obvious, at least in my opinion, that the largest investment firms either knew or suspected that Madoff was a fraud. None of them—Merrill Lynch, Citigroup, Morgan Stanley—had invested with him. In fact, a managing director at Goldman Sachs’s brokerage operation admitted to me that they didn’t believe Madoff’s returns were legitimate, so they had decided not to do business with him.

The only person at the SEC that I had continued to speak with regularly was Ed Manion. Ed was embarrassed about the agency. He knew what I had and he also knew there was very little he could do to help me, although he continually asked for updates and urged me to keep going. Early in 2005 he began pushing me to put all the material together and make another submission. Grant Ward had been replaced as director of enforcement by David Bergers. A new branch chief, a man named Mike Garrity, had come on board. “You’ll like him,”