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

Each of those three statements was done by a different accounting firm. In 2004 Madoff had used a regional firm based in Stamford, Connecticut. In 2005 he had used PricewaterhouseCoopers in Rotterdam, the Netherlands; and a year later he had used PricewaterhouseCoopers in Toronto. Obviously he was auditor shopping. It meant he didn’t want to have an ongoing relationship with an auditor because the auditor knew too much from the previous year’s audit. Using PricewaterhouseCoopers in different countries was pretty clever. Many people looking at these statements would see the PricewaterhouseCoopers name and assume it was PricewaterhouseCoopers U.S., a respected firm. And they’d see that name at least two years in a row, probably more. What many people don’t realize is that PricewaterhouseCoopers is actually a different corporation in different countries. The corporations have the same brand name, but basically they’re franchises. They operate independently under the same name. Very few people know the accounting system or the standards for licensing an accountant in those countries. While it’s the same brand, it may not be the same quality as in the United States. That’s an obvious red flag.

And at least I have to wonder if anyone at these auditing firms ever questioned why a large American hedge fund had picked them out, above all the thousands of qualified accounting firms in the United States, to conduct its year-end audit.

Even more surprising was what we found when we examined these audits. Supposedly Madoff had gone to all cash at the end of each of these three audited years, and was holding Treasury bills. While Madoff had boasted he was invested in the market only six to eight times a year, the fact that he had nothing to audit at the end of the year—no stocks, no options—was much too convenient, and especially because he was in T-bills. In more than two decades of looking at audits, none of us had ever seen this before. It made the audit useless because there was nothing for the auditors to inspect.

The bigger problem was that he claimed to be holding T-bills worth roughly $160 million at those year-ends and had no trading positions. The obvious question that should have been asked was: What happened to the rest of those billions? But the auditors had no way of knowing what wasn’t there. If Madoff claimed all his money was in T-bills, there was nothing else for them to look at. I wrote to Neil that “the audits that show only T-bills worth $160 million or so on a $1.47 billion portfolio have me wondering where did the missing $1.31 billion go? There’s more holes in the Madoff portfolio than all the golf courses in Florida. Why is he in T-bills at year-end? Name a broker that he trades thru?”

If the auditors had only bothered to conduct a simple examination, they, too, would have discovered that this was a fraud. Instead it appears that they just assumed that one of the most powerful men on Wall Street could be trusted to actually own the $160 million in T-bills he claimed. It would have been simple to check. When you buy a T-bill, there has to be a counterparty selling it to you. There are a limited number of places from which you can buy them. Madoff could have bought them from the Federal Reserve Bank of New York directly or from a primary dealer. He even could have bought them in a secondary market, although most people don’t do that. What the accountants could have done was ask him, “Say, Bernie, who’d you buy these things from?” Bernie would have told them something, and then they could have gone to that party and asked, “Did you sell Bernie Madoff a hundred sixty million dollars’ worth of T-bills? Mind if I take a look at the trade confirmations?”

My guess is that the party’s answer would have been “No,” because I doubt that those T-bills ever existed, except on Bernie’s fantasy audits. This raises the question: What good are Big Four accounting firm audits if these accounting firms aren’t checking for fraud? Why pay for an audit if the auditors are not also trained as fraud examiners? What good is a clean audit opinion on a crooked company, anyway? Enron, WorldCom, Global Crossing, Adelphia, HealthSouth, and all the other corporate felons all had clean audit opinions from the most respected accounting firms. Believe me, a lot of the hedge funds of funds had clean audit opinions, and these audits didn’t detect that Madoff was a fraud.

There is one other noninnocent explanation for why Fairfield Greenwich Sentry Fund had three different auditors in three different countries for three consecutive year-ends. Accountants have something called accountant-client privilege, and some states recognize it but usually in a much more limited sense than attorney-client privilege. Shockingly, especially in a profession like accounting where you would at least hope that they held fast to some sort of code of conduct, you’d think that once external auditors discovered accounting fraud they’d immediately go to law enforcement and report it. But you’d be wrong. Instead what most accounting firms do in these situations is “make a noisy withdrawal” by resigning the account but telling nobody why they resigned and, in effect, firing their client. Board members, law enforcement, and investors are supposed to be able to immediately know that whenever accountants resign, the reasons for it are serious and should be delved into. This may or may not be the case with Fairfield Greenwich Sentry’s use of three different auditors, but if it was the case, that says all you need to know about accounting firms and professional ethics. One would hope that this profession would require its members to report criminal activity upon discovery.

Lots of large banks, particularly European banks, ended up in bed with Bernie Madoff—which should give all investors pause when trusting any financial institution with their hard-earned money. In finance, 90 percent of the skullduggery takes place beneath the