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

making false statements to a federal official is supposed to carry a five-year (rarely imposed) maximum sentence; yet they never referred him to the Department of Justice for criminal prosecution. It seems that there is a double standard at the SEC where the big firms don’t get prosecuted for anything other than misdemeanors, but the small firms get shut down for anything more than minor infractions. Trained fraud examiners know to immediately expand the scope of their exam as soon as someone lies to them. That’s the signal to dig in and redouble your efforts, because once you catch them in a lie you know you have them back on their heels. One would think that SEC enforcement lawyers would at least comprehend that making false statements is a criminal offense and have the courage to stand up to a powerful Wall Street figure and send a deterrent message to industry that this sort of behavior will not be tolerated.

I like to tell a joke about the SEC that sometimes gets me into trouble. The difference between a male and female SEC employee, I explain, is that a male employee can count to 21—but only if he takes off his pants. That usually irritates the women, until I add, “But that assumes that he can find it, and unfortunately at the SEC none of them can actually find it. That’s how clueless they are.”

These were the people who knew my identity. And as I also learned later, they hadn’t hesitated to identify me by name in internal e-mails, e-mails that were seen by several people, which was precisely what I had tried so hard to avoid.

While this dubious investigation was taking place, I was regularly in contact with John Wilke at the Wall Street journal. On December 27 the journal ran his front-page investigative piece reporting that legendary mutual fund billionaire Mario Gabelli had set up phony small companies, fronts, to enable him to bid for Federal Communications Commission (FCC) cellular band wave licenses potentially worth hundreds of millions of dollars. This was a False Claims Act case brought by a whistleblower, and Gabelli and his associates eventually agreed to pay a fine of $130 million.

But as soon as I read the story I knew Wilke was about to start working on our story. I even sent an e-mail to the team, alerting them to Wilke’s Gabelli story and informing them, “He’s going to be writing the Madoff story starting in January, but I don’t know how long it will take. The Gabelli story took time and I’m sure this one will too.”

In late January John and I agreed that he would meet me in Boston in mid-February. I made copies of all our material in preparation for this meeting. In addition I made suggestions about how he could bring himself up to date on Madoff. I suggested he speak with five people—Frank, Neil, Mike, Erin Arvedlund, and Matt Moran, the vice president of marketing at the Chicago Board Options Exchange (CBOE). I then provided him with my list of 47 derivatives experts in the financial industry, including Northfield Information Services founder Dan DiBartolomeo, my friend who had first checked my math and agreed that Madoff’s returns couldn’t be derived from the market; Meaghan Cheung; and Goldman Sachs (Boston) Managing Director Daniel E. Holland III. I wanted them to speak with him because “Goldman Sachs is one of the largest traders of equity derivates and if they don’t handle Madoff’s flow or see it in the markets then something’s rotten,” and Citibank’s Leon Gross, whom “I met with in September 2005 when he came right out and said to me, ‘I can’t believe that Madoff hasn’t been shut down by the SEC yet. How can anyone invest in that stupid strategy? It shouldn’t even be able to earn a positive return.’ ”

While I knew most of these people, with the exception of Dan DiBartolomeo, only a few of them knew about my investigation. In fact, I’d guess that about half the people on the list probably didn’t even know that Madoff was running a hedge fund. They were all derivatives experts, and if they were asked the proper questions they would have told Wilke that Madoff could not have achieved his returns with this strategy. The big negative was that many of the people on the list worked for large firms with compliance lawyers on staff who would squash any attempt by an employee to report out to either the SEC or the press without first reporting up through the company and obtaining permission. And naturally these compliance lawyers would never grant permission for fear of rocking the boat, for fear the information might be wrong or that a nasty lawsuit might result from it.

But there were several derivatives experts on this list who knew that Madoff was a fraud, and if the SEC had called their firms and requested interviews with them, they would have been very happy to cooperate—and what they would have said would have toppled Madoff. It wouldn’t have required any legal action to get them to speak. Unfortunately, the SEC didn’t train its investigators to reach out to independent third witnesses for assistance. The SEC staff never picked up the phone to contact even one of my witnesses, nor did they ever express interest in obtaining my comprehensive master list of 47 witnesses even after I offered it to them. The SEC’s employees are not trained as fraud examiners, nor are they trained to call witnesses.

I also suggested two sets of questions for John Wilke to ask everyone he interviewed. If those people he interviewed responded that they were not aware of the strategy used by Madoff, after explaining the strategy he should ask questions such as: Could $20 billion plus be run by a single hedge fund manager using the strategy I just described without you having heard about it? Could this split-strike option conversion strategy be capable of earning average annual gross returns