Table of Contents
Title Page
Copyright Page
Dedication
Foreword
Who’s Who
Investigation Team and Advisers
Madoff and Advisers
Wall Street Feeder Funds
Financial Wizards and Wall Street Brains
Journalists
Government Officials
Introduction
Chapter 1 - A Red Wagon in a Field of Snow
Chapter 2 - The Slot Machine That Kept Coming Up Cherries
Chapter 3 - Falling Down the Rabbit Hole
Chapter 4 - Finding More Peters (to Pay Paul)
Chapter 5 - The Goddess of Justice Wears a Blindfold
Chapter 6 - Didn’t Anyone Want a Pulitzer?
Chapter 7 - More Red Flags Than the Soviet Union
Chapter 8 - Closing the Biggest Barn Door in Wall Street History
Chapter 9 - Soaring Like an Eagle Surrounded by Turkeys
Epilogue
Appendix A - Madoff Tops Charts; Skeptics Ask How
Appendix B - The World’s Largest Hedge Fund Is a Fraud
Appendix C - Online Resource Guide for the Classroom and Beyond
A Note on Sources
About the Author
Acknowledgements
Index
Photo Insert
Copyright © 2010 by Fox Hounds, LLC. All rights reserved.
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Library of Congress Cataloging-in-Publication Data:
Markopolos, Harry.
No one would listen : a true financial thriller / Harry Markopolos.
p. cm.
Includes index.
eISBN : 978-0-470-62575-0
1. Madoff, Bernard L. 2. Ponzi schemes—United States. 3. Investment advisors—Corrupt practices—United States. 4. Hedge funds—United States. 5. Securities fraud—United States—Prevention. 6. United States. Securities and Exchange Commission—Rules and practice. I. Title.
HV6697.M37 2010
364.16’3092—dc22
2009049433
To all the victims—you above all others deserve to know the truth.
Foreword
Harry Markopolos is a hero.
But not for anything he meant to do. He did not stop Bernie Madoff from creating the largest Ponzi scheme of all time; nor did he save Madoff’s investors any money.
What he did do was create a clearly documented record of his warnings so that when Madoff’s scheme eventually toppled under its own weight, the Securities and Exchange Commission (SEC), which was charged with stopping fraud and protecting investors, could not assume an ostrich defense.
Ponzi schemes exist in stable disequilibrium. This means that while they can’t ultimately succeed, they can persist indefinitely—until they don’t. Just the fact that something has gone on for a very long time doesn’t mean it’s legitimate. Madoff’s story shows that investors are attracted to too-good-to-be-true situations despite the red flags. How statistically different was Bernie Madoff’s track record from General Electric’s 100-quarter record of continual earnings growth or Cisco’s 13-quarter record of beating analysts’ quarterly estimates by exactly one penny per share between 1998 and 2001? Madoff’s record was clearly implausible and, therefore, raised the question of what was wrong. The question is: Do we draw the line at Ponzi schemes or do we do something about less clear-cut manipulations as well?
One time I pointed out to a Wall Street analyst that a certain company was cooking the books. The analyst responded that it made him more confident in his bullish recommendation because such a company would never disappoint Wall Street.
For years, I observed and experienced the SEC protecting large perpetrators of abuse at the expense of the investors whom the SEC is supposed to protect. The SEC has been very tough, and usually appropriately so, on small-time cons, promoters, insider traders, and, yes, hedge funds. But when it comes to large corporations and institutionalized Wall Street, the SEC uses kid gloves, imposes meaningless nondeterring fines, and emphasizes relatively unimportant things like record keeping rather than the substance of important things—like investors being swindled.
Bernie Madoff epitomized the problem. When he was legit, Madoff was a large broker-dealer and the former chairman of NASDAQ. He was not famous as a money manager, let alone as a hedge fund manager, because he wasn’t one. After his scheme collapsed and he became known as a crook, he was rechristened as a hedge fund operator—even though, to this day, his was the only so-called hedge fund I’ve heard of that didn’t charge a management fee or an incentive fee. I doubt he would have fooled the SEC had he been known as a hedge fund manager, as the SEC would’ve been predisposed to catch him if they had known him with that title.
Warren Buffett said, “You only find out who is swimming naked when the tide goes out.” The financial crisis of 2008 revealed many, including
