What I’m Reading: No One Would Listen: A True Financial Thriller

No One Would Listen, a 2010 autobiography, is a financial thriller written by the Madoff Ponzi scheme whistleblower, Harry Markopolos. This book gives a first-hand account of the massive fraud investigation into Bernie Madoff, an infamous admitted mastermind of the largest known Ponzi scheme in history, worth an estimated $65 billion. The book details the frustrating efforts Harry and his team made over a decade to notify the government, the industry, and the press about Madoff’s fraud. The Ponzi scheme perpetrated by then-respected financier Madoff was shockingly enabled by many officials who refused to see and/or stop the fraud.

In 1999, an unknown Greek American financial analyst named Harry Markopolos reported to the Securities and Exchange Commision (SEC) that he thought it was legally and mathematically impossible to achieve the gains an investment fund manager named Bernie Madoff seemed to deliver. According to Markopolos, it took him only four minutes to deduce that Madoff’s numbers did not make sense, and another minute to become suspicious they were fraudulent. After only a few hours of failed attempts to replicate Madoff’s numbers, Markopolos believed he had mathematically proven Madoff was a fraud. His findings were ignored by the SEC’s Boston office in 2000 and 2001, as well as by Meaghan Cheung at the SEC’s New York office in 2005 and 2007 when he presented further evidence.

The culmination of Markopolos’s investigation into Bernie Madoff’s Ponzi scheme was a 21-page memo sent in November 2005 to SEC regulators entitled “The World’s Largest Hedge Fund is a Fraud.” This memo summarized his suspicions in detail and invited officials to check his speculations. He listed thirty red flags that he believed proved Madoff’s returns could not be legitimate. His analysis was based on more than a dozen years of Madoff return numbers, during which time Madoff reported only four losing months, an implausible scenario that Markopolos said could be achieved only by fraud. In the document Markopolos states:

Bernie Madoff is running the world’s largest unregistered hedge fund. He’s organized this business as [a] hedge fund of funds privately labeling their own hedge funds, which Bernie Madoff secretly runs for them using a split-strike conversion strategy, getting paid only trading commissions, which are not disclosed.

Although Madoff’s scheme did not collapse until 2008, it was not due to Harry Markopolos’s efforts nor the very federal agencies that were supposed to protect the citizens from fraud. Instead it was due to the 2008 financial crisis which caused many of Madoff’s investors to withdraw their money, leading him to confess to his two sons, who then reported him to the authorities.

Madoff was sentenced to 150 years in prison in 2009, having been found guilty of multiple felonies, including securities fraud and money laundering, which highlighted regulatory oversights.

Markopolos harshly criticized the SEC for ignoring his warnings about Madoff, even testifying before a congressional committee at one point. “Nothing was done. There was an abject failure by the regulatory agencies we entrust as our watchdog,” he said in 65 pages of prepared testimony. He said that his original 2000 complaint gave the SEC enough evidence to stop Madoff when he was supposedly managing as little as $3 billion. Had the authorities listened, it could have prevented huge losses that destroyed the life savings of thousands of investors who had trusted Madoff.

BOTTOM LINE: This financial thriller is an excellent read. It takes the reader on a behind-the-scenes fraud investigation and pursuit of the perpetrator behind the biggest American Ponzi scheme in history. Mr. Markopolos can be viewed as a brave hero who risked his own safety to try to stop the fraud. The irony is that once Mr. Markopolos concluded that Bernie Madoff was a criminal perpetrating a fraud against the American people, he learned that the U.S. government agencies meant to protect Americans from things like this were arguably incompetent and negligent. As the title of his book states, No One Would Listen, at least not until it was nearly too late. The 2008 financial crisis was a gift to Madoff investors in that the truth finally came out so that whatever money was left could be given back. The U.S. Department of Justice has returned about $4.3 billion to nearly 40,930 victims through the Madoff Victim Fund.