Harry Markopolos was a whistle blower of the largest Ponzi scheme in history. He details his investigative work in his book ‘No one would listen.’ Initially, it was not Markopolos’ intention to portray Madoff’s scheme as a Ponzi scheme. However, he could not comprehend how he continuously made huge returns on customers’ funds. The book begins with the news that the FBI has arrested Bernie Madoff for running a Ponzi scheme.
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The author narrates the story of a man on a plane who upon seeing the streaming news of Madoff’s arrest on HSBC tells his wife that they have lost the money they had invested in Madoff’s financial scheme. His wife cannot believe that they have lost millions of dollars. Soon after the news, the man asks the flight attendant to open the doors as he wanted to leave the plane. This is even though the plane was in mid-flight. This narration captures the desperation of investors upon learning that they had lost the funds they had invested in Madoff’s Ponzi scheme.
The book is a first-person narration by Harry Markopolos, a financial analyst and fraud examiner. Markopolos’ employer, Rampart Investment Management Company, tasked him with the duty of devising a product that was similar to Madoff’s financial product, which had huge returns.
However, after carrying out his investigative work, Markopolos determined that it was impossible to have consistent huge returns. Therefore, Madoff could only engage in illegal financial activities to yield high returns. Markopolos created clear documentation of his efforts to inform the Securities and Exchange Commission (SEC) the illegal activities in Madoff’s financial scheme.
Markopolos had a team of five individuals who conducted investigative work on Madoff’s financial scheme. Members of the group played different roles that helped Markopolos to compile information on the investigation. Frank Casey, Rampart’s marketing representative, introduced Madoff’s financial scheme to Markopolos. Casey claimed that he knew a fund manager who consistently made returns of 1 to 2 percent of the client’s funds monthly.
Casey provided this information to help Markopolos in formulating Rampart’s new financial product. However, Markopolos doubted the ability of any financial product to yield such high returns consistently. Therefore, he launched an investigation into the type of financial scheme that the fund manager used. His investigations revealed several red flags that proved that Madoff engaged in a Ponzi scheme.
The first red flag was the fact that the CEO of Access, a company that produced remarkable returns on clients’ funds, refused to provide the name of the fund manager. The CEO claimed that if he gave Markopolos the name of the manager, he would refuse to do business with the company. Markopolos later discovered that the fund manager was Bernie Madoff.
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Initially, Markopolos was not interested in investigating Madoff’s financial strategy. However, Rampart’s executives kept pressurizing him to determine Madoff’s financial strategy to help the company develop a similar product. After researching Madoff’s financial strategy, he proved that he engaged in illegal financial activities.
Markopolos told Dave Fraley, a managing partner of the company, that Madoff engaged in illegal financial activities as it was impossible to yield the impressive returns consistently. However, Fraley did not accept the fact Madoff, a highly respected man, could engage in illegal financial activities.
Neil Chelo, an information gatherer, and processor, helped Markopolos in carrying out investigation on Madoff financial activities. Their investigation showed that Access had given Madoff full control of more than 200 million dollars. Access was not the only company that had given Madoff the right to manage significant sums of money. Therefore, Markopolos and Chelo projected that Madoff controlled approximately 6 billion dollars.
Revelations of the size of Madoff’s scheme prompted Markopolos to give the SEC a presentation of Madoff’s financial fraud in May 2000. However, the SEC did not investigate the accusations against Madoff. After traveling to Britain in December 2001, Markopolos discovered that Madoff’s financial scheme was much larger than his previous estimates. He met several British firms that had invested huge sums of money in Madoff’s financial scheme.
Therefore, he estimated that British firms had offered Madoff approximately 10 billion dollars. Mike Okrent, MAR-Hedge’s investigative reporter, was also a member of Markopolos team. After a thorough investigation, Ocrant published an article on Madoff’s financial scheme in March 2001. The article showed various flaws in the financial scheme. However, the SEC and the public ignored the article.
In 2003, Markopolos started doing investigations on financial impropriety. A bounty program that promised to reward whistle blowers 10 percent of the recovered damages is the major factor that prompted him to start doing the investigations. He identified several cases that duped investors approximately 20 billion dollars. However, after submitting his findings to the SEC in 2004, the SEC refused to compensate him for his efforts.
During his time as an investigator, Markopolos had discovered more red flags on Madoff’s financial scheme. However, he was reluctant to report his findings to the SEC. In 2005, he presented his findings on the flaws of Madoff’s financial scheme to the SEC. This prompted an investigation, which did not yield much information. Madoff testified personally and proved that he did not engage in illegal financial activities.
Markopolos gave up on the SEC, discovering Madoff’s illegal financial activities. Therefore, he waited for Madoff to self-destruct after some time. In 2006, Madoff stopped accepting new clients. Therefore, he relied on the ability of the current investors to invest more money into his financial scheme. However, in June 2008, Madoff started running out of cash. He leveraged customers’ funds with a certain bank.
This increased the risks that the funds faced. After the collapse of the housing market in 2008, people needed more money to pay their mortgages. Markopolos realized that the exposure of Madoff’s illegal financial activities was imminent. Therefore, he made his final submission to the SEC.
He intended to use a record of the submissions to prove SEC’s incompetence. On December 2008, Madoff confessed to running a Ponzi scheme. If the SEC had acted after Markopolos tipped them in 2000, it would have prevented the loss of more than 40 billion dollars of investors’ funds.
Markopolos is the best character in the book. He wanted to do the right thing by reporting Madoff’s illegal financial activities to the SEC. Initially, he never intended to get any compensation for his efforts. Despite the SEC reluctance to investigate Markopolos’s claims, he continued investigating Madoff. His instincts told that he was right. Therefore, he was certain that the truth would ultimately come to light.
The book shows that people should always trust their instincts. It is a fact that many people suspected that Madoff engaged in illegal financial activities. However, they did not care. Most investors thought they would only lose the interest their funds accrued. They did not expect to lose all their funds after the collapse of the financial scheme. However, after the collapse of Madoff’s Ponzi scheme, many investors lost all their funds.
The book also shows that people should not depend on other people for their protection. In the book, Markopolos depend on only five people to undertake his investigative work on Madoff. Other people were generally naïve or intentionally blind. Dave Fraley, Rampart’s managing partner, portrays the naivety of the public. After Markopolos told him that Madoff engaged in illegal financial activities, Fraley doubted that a highly respected person like Madoff could engage in illegal financial activities.
The book shows that the government cannot efficiently protect its citizen in the financial world. Government agencies that protect citizens in the financial world have a very low level of intelligence compared to the intelligence of people in the business world. Various SEC officials suspected that Madoff engaged in illegal financial activities.
However, they could not do anything to stop him since if they were wrong, the accusations would adversely affect their reputations. Markopolos and his team were the only people who were willing to expose Madoff’s illegal financial activities.
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The book shows that companies always investigate each other. Madoff runs a very successful company. This prompted Rampart’s management to investigate to determine the secrets behind their successful financial products. They intended to develop a product that used various elements of Madoff’s financial products. However, Markopolos’ investigation into Madoff’s financial products made him discover illegal financial activities.
The book appeals in a logical way. It goes to great length to explain how it is hard for any fund manager to yield high returns consistently. The author strives to use layman’s language to explain various concepts. He uses imagery to explain various concepts. The author claims that Madoff was not a genius. He simply knew how to outrun the SEC. Imagery enables one to capture the logic behind the author’s claims. The book may help in learning ethics and business law. I would recommend the book to anyone.