No One Would Listen: A True Financial Thriller Harry Markopolos (the alpha prince and his bride full story free .TXT) đź“–
- Author: Harry Markopolos
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During the next few months, as we all waited patiently for David Kotz’s report to be published, Mary Schapiro began making significant changes to the structure and culture of the SEC. She began by sending over 400 examiners to participate in the Association of Certified Fraud Examiners training and certification program, which teaches them how to recognize the warning signs of fraud and the risk of fraud. In addition, she took steps to ensure that investment advisers be required to hire truly independent firms to provide the necessary oversight; restructured the Enforcement Division by creating specialized units to “help detect patterns, links, trends and motives”; and hired an independent firm to revamp the SEC’s procedures for “collecting, recording, investigating, referring and tracking” the 800,000 tips it receives annually and for using risk analysis techniques to “reveal links, trends, statistical deviations and patterns” that might be noticed when individual complaints are examined.
Maybe even more important, as far as I was concerned, she asked Congress to provide funds to reward whistleblowers; changed the agency’s examination procedures to proactively identify “firms or products that may pose a risk to investors or markets”; and began recruiting new staffers with specialized experience “in areas such as trading, operations, portfolio management, options, compliance, valuation, new instruments, portfolio strategies and forensic accounting,” as well as experts capable of providing “other staffers with new information and perspectives to help them identify emerging issues and understand the way the industry is changing.” She instituted many of the reforms that my team had suggested, including adopting methods to create examination teams in which “people with the right skill sets are assigned to examinations” to ensure that “the examination team includes those most expert in the subject of the examination.”
Obviously, Mary Schapiro realized that the existence of the SEC as an independent agency was at stake. To demonstrate that the SEC was serious about finally fulfilling its responsibility, in the first half of 2009 it filed “more than twice as many emergency temporary restraining orders this year related to Ponzi schemes and other frauds as compared to the same period last year.”
I think it is fair and accurate to claim that this restructuring never would have happened without the work done by my team, without Frank, Neil, Michael, and myself. I’ve gotten most of the credit in public, but in every respect we were a team. These three men used excellent cover stories to push forward the investigation at every opportunity. They warned others away from Madoff and sometimes succeeded. I was very lucky to have this team in the field for that long a period and have them in one piece at the end. Several other like-minded folks in the industry helped us along the way, proving that there are plenty of honest people out there willing to do the right thing. And every single person did it for free, proving that some things are just so important in life that you’ll do something because it is the right thing to do.
Reading about these changes made me cautiously optimistic; on paper the SEC was making substantial changes in an effort to do its job. Of course Bernie Madoff had proved how little value reports on paper actually have in the real world. So it will take a long time to determine if those changes actually translate into an effective SEC.
While we waited through the summer of 2009 for David Kotz’s report to be released I focused on my other cases. One of them, involving a custody bank that was cheating millions of government pension accounts via a currency trading fraud scheme, had been successfully filed as a False Claims Act case more than a year earlier and remained under seal—but we were optimistic the state of California would be intervening and making the case public early in the fall. I’d been waiting several years for my first case to be unsealed. I figured I could wait a few months more.
On Wednesday, September 3, 2009, the greatly abbreviated 22-page Executive Summary of David Kotz’s 457-page report was released. It included staggering evidence of the SEC’s complete and total failure in this case. It was even better than I anticipated it would be, and believe me, I was already expecting a great report. “Embarrassing” doesn’t come close to describing the actions of the SEC investigators.
David Kotz had written a damning document that castigated his own agency. This summary concluded that the SEC’s failure to catch Madoff began as early as 1992, when the agency first discovered that the accounting firm Avellino & Bienes had raised hundreds of millions of dollars for Madoff by guaranteeing 20 percent annual returns. When the firm was unable to provide an audit, the SEC allowed it to pay back all the money—but did nothing to stop Madoff. That was the beginning, and it continued until Madoff successfully caught himself.
In this summary one SEC investigator involved in the 2005 investigation described Madoff as “a wonderful storyteller” and “a captivating speaker,” who claimed to be on “the short list” to become the next chairman of the agency.
But when these investigators politely asked Madoff to produce specific documents he got so angry that “veins were popping out of his neck.” Apparently that proved to be an effective defense because the SEC investigators did not press him and when they reported his response they were “actively discouraged from forcing the issue.”
As an attorney, Gaytri was particularly incensed by the fact that two SEC lawyers were aware that Madoff had lied to them but didn’t know what to do about it. One of them apparently told the other, “I don’t think he’s allowed to lie to us!” She just couldn’t believe that the people in
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