Monday, October 10, 2011

No One Would Listen: A True Financial Thriller, by Harry Markopolos (author), Scott Brick (reader)

Brilliance Audio, 9781455819119, February 2011

In December 2008, Bernie Madoff, one of the most respected figures on Wall Street, co-founder and former president of NASDAQ, confessed to running the largest Ponzi scheme in history. On the heels of that revelation, we learned that this fraud had been going on for decades, and then that it was international in reach.

We also learned that there had been a whistleblower, who had warned the SEC a decade earlier, and when he was ignored had continued to investigate, and made additional filings, with additional and more complete information, including the growing size of the fraud.

That whistleblower was Harry Markopolos, and this is his story.
Markopolos was working in an investment firm as a quantitative analyst when a colleague mentioned Bernie Madoff and his unusually consistent and profitable returns on investments. They quickly concluded that Madoff's returns were impossible, and the only question was whether he was running a Ponzi scheme or engaging in "front trading"; using the information on stock trading available to him from his stockbroker business to do trades for his money management business beforehand, benefiting from the knowledge of the effect the other trades would have on the market.

Then they began to uncover the number of feeder funds channeling money into Madoff's care and management.  At the time that Markopolos filed his first complaint with the SEC, he and his small crew of friends and helpers estimated the size of his "invested" funds at between three and seven billion dollars--an amount that would have moved the market if Madoff were really making those trades. By the time the 2008 financial crisis forced Madoff's Ponzi scheme into collapse, they estimated the size of his scheme at fifty billion dollars. What they didn't know until more and more of Madoff's victims came forward was that he was also accepting funds directly from individuals, and perhaps as much as $65 billion was involved, and perhaps as many as a million people around the world had suffered major losses, even the loss of everything they owned.

In crisp, clear terms, Markopolos tells the story of how he discovered Madoff's fraud, uncovered the size of it, and repeatedly tried to get the SEC to investigate and shut Madoff down. We see how many people had some understanding that Madoff's returns couldn't be real, but who ignored it because he was so respected, or so big, or, even worse, because his returns were so good. We see Markopolos' growing strain, eventually causing him to leave the financial industry and become a full-time fraud investigator, as well as the effects on the other members of his team. We also see the tragic effects on Madoff's victims and those in the industry who really believed that Madoff couldn't possibly be committing fraud.

Most importantly for the country as a whole, those of us who were not directly affected by Madoff's fraud, we see the incompetence and indolence of the SEC in the face of detailed, compelling, credible information that one of the major players on Wall Street was running a massive fraud. We thought the SEC was protecting us when we invested, and it wasn't. We were utterly without protection. New laws and regulations have been enacted, but there are efforts to roll those back, on the theory that the industry can regulate itself. The Madoff story, taken together with the other frauds, crimes, and reckless gambles that created the 2008 financial crisis and the current Great Recession, prove that it can't.

This is a moving, compelling story, but also an incredibly important one.

Highly recommended.

See the trailer for Chasing Madoff, the documentary based on this book:

I borrowed this book from a friend.