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

Frank had sent it to me with the suggestion, “Maybe you should send him an e-mail on Bernie?”

“To Catch a Thief”? I wondered if Doug Reid had the slightest concept of how ironic that title was. I suspected he did. I responded to Frank, “If Doug Reid doesn’t know about Bernie I’d be surprised, since his fund is 2/3rds Bernie and 1/3rd other managers. Besides, what are the odds that Fairfield could pull $8 billion out from Madoff and see any of the money? My bet is BM would fold like a cheap tent if someone made a large cash call.”

I hadn’t given up completely on exposing him, but as I don’t believe in miracles I was realistic about the chances of that ever happening. I’d gone to the SEC in Boston—and gotten no satisfaction. I’d gone to the SEC in New York—and gotten no satisfaction. I’d gone to the SEC in Washington, D.e.-and gotten no satisfaction. I had no place else to go. If Madoff was going to be exposed, his luck was going to have to change. Nothing else seemed capable of stopping him. No matter what was going on in the market, he just kept rolling and rolling. In August 2007, for example, when the market declined, most hedge funds took a beating. Goldman Sachs’s largest hedge fund lost 22.5 percent, JPMorgan’s statistical hedge fund dropped 18 percent, and the $3 billion computer-driven statistical Tewksbury Investment Fund lost 8 percent. Overall, it was the worst month for hedge funds in almost a decade—except for Bernie. Fairfield Sentry still returned a profit! “Bernie’s the best ever!” I wrote Frank. “And to think I thought he’d show a loss just to prove he’s not an alien from outer space with perfect market-timing ability. Geez, the Sci-Fi channel should feature him.”

And then, just as I was about ready to finally give up, the SEC’s new director of risk management, Jonathan Sokobin, contacted me to see what I knew about emerging risks for the capital market. Emerging risks? That’s like worrying if Godzilla had fleas. I had been recommended to Sokobin by Rudi Schadt, the director of risk management at Oppenheimer Funds. Rudi was a friend, and although he did not know about the Madoff investigation, he did know that I had a broad knowledge of risky schemes in the derivatives world. I couldn’t warn him, because Oppenheimer Funds owned Tremont, which was the second largest investor in Madoff.

I had a long conversation with Sokobin in which we discussed several areas of possible concern. Although he had his PhD in finance from the University of Chicago, apparently he didn’t have a lot of industry experience. He didn’t seem to fully grasp the concepts that I was presenting to him. For example, I remember I told him there was a serious potential risk to the stock exchanges with investment banks owning too many seats. (If an investment bank filed for bankruptcy, it could put the entire exchange at risk.) He certainly seemed interested, but I got the feeling this was not what he was looking for.

I don’t remember whether I told him specifically about Madoff during that conversation. When we hung up, though, I knew I had his attention. On April 2, 2008, I sent him an e-mail, attaching to it “a submission I’ve made to the SEC three times in Boston. Each time Boston sent this to New York. Meaghan Cheung, branch chief, in New York actually investigated this but with no result that I am aware of. In my conversations with her, I did not believe that she had the derivatives or mathematical background to understand the violations.

“Interestingly, a former derivatives PM who I know is now Director of Research at an HFOF [this was Neil, but I didn’t identify him] tells me a counterpart at another HFOF pulled his money out of Madoff after asking Madoff to see his trade tickets. He then went to the OPRA [Option Price Reporting Authority] time and sales price feed and discovered that none of the Madoff trade tickets matched any time & sales reports on OPRA. He quickly concluded that Madoff was a fraud and pulled significant assets out of the fund.”

I attached the 2005 submission to the SEC and wrote in the subject line, “$30 Billion Equity Derivative Hedge Fund Fraud in New York.” It literally would have been impossible to provide any more evidence of risk to the director of risk management than I did in this e-mail. I was also handing him a set of directions—try to match Madoff’s trade tickets to the OPRA record of transactions. If he followed these instructions, he would discover they didn’t match. For the detectives at the SEC, that would have been considered a clue!

I also gave him a list of people in the media he might contact to confirm my accusations, finishing my e-mail “Best of luck in your new position.”

While I wasn’t optimistic, I did believe it was at least possible that he was too new to have become part of that entrenched system. Imagine what might have happened if he had followed up, and the first investigation of his career had exposed the biggest crime in financial history? You’ll have to imagine it because it never happened. I never received a response from him. I guess the director of risk management had managed not to take a risk. That was my final contact with the SEC.

There just wasn’t much more we could do to stop Madoff. All we could do was watch and wait for his inevitable downfall. And wait. And continue waiting. I never lost interest; whenever I had the opportunity I’d take a look at his returns—and always shake my head in disbelief. As I finally had to admit to Neil, “I hate to say it, but Bernie’s pulled off the perfect crime. He finds HFOFs that need his return stream to sell their