By Leah N. Spiro
No One Would Listen: A True Financial Thriller
By Harry Markopolos
John Wiley & Sons
$27.95
If Harry Markopolos had the goods on Bernie Madoff, why wasn’t he taken seriously by the Securities and Exchange Commission? That is just one of the intriguing questions answered by Markopolos’s new book, “No One Would Listen.”
Markopolos tells the story of how old-fashioned gumshoe detective work on the part of himself and three compatriots uncovered Bernard Madoff and his multi-billion dollar Ponzi scheme. The book is also a scathing catalog of the SEC’s dysfunctionality.
Markopolos’s warnings fell on deaf ears for a number of reasons. For one, he was attacking a direct competitor, or so it appeared. Then, when he left finance to became a professional fraud investigator in 2004, it became apparent he is a bit of a kook.
With revealing candor, Markopolos portrays himself as paranoid, hotheaded, emotional, angry and somewhat naive about Washington and the media. He believed that his life and his family’s lives were at stake. A reserve army officer, he says he was ready to kill Madoff if necessary: One concern was that the Russian mafia were Madoff investors. At another point, Markopolos had a loaded 12-gauge pump shotgun and gas mask in case the SEC raided his house.
Yet there is simply no denying that he is a hero, as Greenlight Capital founder David Einhorn says in his foreword: Markopolos had tremendous guts to blow the whistle on the biggest Ponzi scheme in history.
The book begins in 1999 with Markopolos working at Rampart Investment Management, a conservative Boston institutional asset management firm running about $9 billion, mostly for state pension plans. When Rampart’s salesman, Frank Casey, met with René-Thierry Magon de la Villehuchet, a French aristocrat who ran a fund of funds, who bragged of his investment in a manager who made 1% to 2% a month, Rampart hoped to replicate the results. Within five minutes of looking at Madoff’s returns and stated strategy, Markopolos rejected them as a fraud, but the pressure of having to create a competing product led him to look further.
Over the next nine years, Markopolos and three others—Casey, a Rampart intern, and Michael Ocrant, a reporter for now-defunct hedge fund publication MARHedge—dug into Madoff. Markopolos went to the SEC five times, once to Eliot Spitzer and to the Wall Street Journal, to no avail. Spitzer denies receiving his tip. Ocrant’s story in MARHedge is included as an Appendix, and later Barron’s ran a story based on MARHedge’s work.
The scam took cunning advantage of the murky world of hedge fund marketing and operated through feeder funds. Markopolos called Madoff “the world’s largest hedge fund operating underground.”
What comes across is a portrait of the financial world as a series of separate and secretive neighboring tribes: broker-dealers, who avoided Madoff; funds of funds that were making too much money to want to do due diligence; and Jewish investors who dubbed Madoff the “Jewish T-bill.”
This insider’s tour makes the book a must-read for hedge fund investors, analysts, portfolio managers, short sellers and financial journalists. Markopolos’s 2005 memo to the SEC in the appendix lists the Madoff red flags and is a strikingly prescient analysis.
Most enjoyable are a number of highly dramatic scenes, from a truckdriver’s late night help in faxing documents to the Wall Street Journal, to one of the team’s poignant but fruitless efforts to help a stranger break free from Madoff’s spell, to Markopolos’s sobbing when he learned of de la Villehuchet’s suicide because he wondered if he could have prevented it.
Markopolos concludes with a list of 15 suggestions, including relocating the SEC headquarters to New York, establishing a “lessons learned” database and giving SEC staffers access to Bloomberg terminals. With legislators on the cusp of rearranging the regulatory landscape, “No One Would Listen” may finally open ears.
