No One Would Listen

By Harry Markopolos Copyright 2010

The author of this book, Harry Markopolos, is the investigator who discovered Bernie Madoff's ponzi scheme many years before it became public knowledge. In this book he tells the story of how he informed the Securities and Exchange Commission (SEC) of his suspicions, long before the ponzi investment fund collapsed. However, the SEC never took Mr. Markopolos or his complaints seriously.

The SEC's handling of Mr. Markopolos' complaint highlights some very severe deficiencies in the SEC's structure and staff competence. Although after reading this book, readers may have some sympathy toward the SEC, because Mr. Markopolos seems a bit eccentric. He seems to enjoy drama and cloak and dagger theatrics. At some points in the story it is rather difficult to take him entirely seriously. There is also the fact that Mr. Markopolos is a "bounty hunter" and was attempting to make a living under the "False Claims Act," which rewards people who report frauds to the government. So Mr. Markopolos had a financial motive, which may have indicated to the SEC an attempt to get them to go on a "fishing expedition" in hopes of uncovering some fraud.

Prior to becoming a fraud investigator, Mr. Markopolos worked for an investment firm that designed complex investments. His superiors had requested he design an investment fund that could duplicate Bernie Madoff's returns. Madoff had delivered consistently good returns to his investors month-after-month and year-after-year and he virtually never lost money.

Mr. Markopolos studied and learned about Madoff's fund, and while doing this research discovered it was impossible to achieve the returns Madoff claimed he was earning. So Mr. Markopolos decided Madoff must be operating a ponzi scheme. He also thought it was possible Madoff might have been using inside information to earn his extraordinary returns. The interesting fact is that some of Mr. Madoff's other investors also apparently suspected that Bernie Madoff was achieving great returns with insider trading, however they were not concerned about it. But only Markopolos seems to have recognized that Madoff was operating a ponzi scheme.

Mr. Markopolos had a friend within the SEC's Boston office who helped him submit his report and meet with SEC investigators. Mr. Markopolos presented his information to the investigators but they obviously didn't understand it. They apparently didn't have the technical skills or curiosity to pursue it very aggressively. In fact some of the SEC investigators visited Madoff's office, but they didn't visit the correct division of the organization. Which is another clue that they didn't understand the complaint.

One of the most interesting aspects of this book is what it reveals about the personality of Harry Markopolos, and how his personality may have affected the SEC's reaction and treatment of his complaint. It is fair to categorize his personality as eccentric and theatrical, which may have caused the SEC to more easily dismiss his complaint as the imaginings of an unreliable person. Even though the technical evidence, if it had been studied and tested, would have proved the credibility of his complaint.

Based on the stories in this book, Mr. Markopolos seems to love adventure, danger, spies, intrigue, David and Goliath situations, and morality tales. He tells how he feared that gangsters had invested with Madoff and they might try to kill anyone who tried to expose the fraud. So Markopolos would check his car for bombs before he would start it, and he carried a gun. Most people would be extremely frightened if they thought someone was trying to kill them, but Markopolos seems to have relished the idea. In addition, he was in the Army Reserves for 17 years as an intelligence officer, which presumably means he enjoys playing war games and wearing a uniform. He also exhibits a strangely exaggerated loyalty to his friends. For example, he defends his friend who works in the SEC's Boston office, but readers will likely suspect the Boston employee could have done more to raise the awareness of the issues being reported.

SEC investigators probably perceived Mr. Markopolos' personality quirks and decided he shouldn't be taken too seriously. Unfortunately they should have taken his complaint seriously because it would have helped avoid a lot of financial turmoil.

Mr. Markopolos is basically a likable character and has an interesting story to tell, which makes this an interesting book. On the negative side, the story is rather long and over dramatic, but on balance this book is worthwhile reading.