No One Would Listen: A True Financial Thriller (44 page)

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Authors: Harry Markopolos

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Between the three of them, they provided a clear picture of the way the financial industry is supposed to function, the level of awareness inside the industry of Madoff’s operations, and why almost no one other than us felt compelled to try to expose him.
 
Kotz’s investigation would continue for several more months. On occasion he would call Gaytri or me with a specific question. It certainly looked like he was doing a Herculean job. I know that eventually he conducted 140 interviews—including a jailhouse interview with Madoff—and examined more than 3.7 million e-mails. This was to be the definitive report on what went wrong and how to correct it, and we all waited patiently to see what conclusions Kotz would reach. The inspector general’s team knew they were writing a report not only to Congress and the victims but also for the history books. It was obvious even back in February that this would be the most widely read inspector general’s report in many years.
 
I wasn’t done telling my story. In early March I was invited to meet with the new head of the SEC, Mary Schapiro. Actually, Gaytri had set up this meeting. She had contacted Schapiro’s office to see if the SEC wanted to participate and support the ideas of the Global Financial Alliance that were being formed to discuss how markets could better be regulated through international cooperation. During that conversation she asked Schapiro’s assistant if she wanted to meet with me. I think we would have understood if that meeting was not exactly a priority for her, but in fact she responded enthusiastically.
 
Mary Schapiro had been in charge of the SEC for less than two months when we met. Prior to that she had had a long career in financial industry regulation. Under President Clinton she had served briefly as acting chairperson of the SEC. In 1996 she’d been appointed president of NASD Regulation, and in 2006 she became chairman and CEO of that organization, which had become the Financial Industry Regulatory Authority (FINRA). I hadn’t been impressed by her leadership; at FINRA she had earned a reputation for avoiding big cases and failing to find fraud, and I hadn’t found any reason to disagree with that reputation. My opinion was that FINRA served the needs of the industry rather than protecting investors from the predatory practices of the industry.
 
It promised to be an uncomfortable meeting. After my participation in the Madoff investigation became widely known, a considerable number of people in the media suggested that President-elect Obama name me the new head of the SEC. In the congressional hearings I had been asked if I would head an SEC whistleblowers division if it were created. My answer had consistently been thank you very much, but no thanks. I had a number of whistleblower teams taking risks in too many cases to even consider accepting any other job. They were owed my loyalty, and I couldn’t leave them exposed without support. But the thought was out there and it certainly was possible it would make Mary Schapiro uneasy.
 
We met in her new office. It was large, comfortably decorated, and brightly lit. Rather than sitting at her desk or around a conference table, we joined Chairman Schapiro, her newly appointed general counsel, David Becker, and another attorney, Steve Cohen, in a casual seating area. It was sort of like a living room. It was a nice setting, but the atmosphere in the room was very tense. It wasn’t exactly like signing a treaty of surrender on the deck of the
Missouri,
but there was an uncomfortable feeling in that office.
 
Mary Schapiro immediately made it clear that she intended to do whatever was necessary to restore public confidence in the SEC. The SEC that I had fought was out of business. It was going to be replaced by a tougher, more aggressive organization. If anything at all positive had come out of the Madoff disaster, this was it. Sitting there, I didn’t feel like I had won anything. I certainly didn’t gloat, but at least my overwhelming sense of frustration was gone. I liked Mary Schapiro’s words, but until she followed up by making real changes, those words meant nothing. And if she was asking for my help in transforming the SEC, well, I was very pleased to offer it. As my team well knew, I did have an opinion about the SEC.
 
After a brief discussion about the Global Financial Alliance, we began talking about Mary Schapiro’s desire to create a serious whistleblower program. I handed her a copy of the Certified Fraud Examiners’ 2008 Report to the Nation on white-collar fraud that proved the effectiveness of whistleblowers. She picked up the report and quickly read through the whistleblower data. “We need to do more of this,” she said. “We need to reach out to whistleblowers to get the big cases to show the public we’re serious about fighting fraud.”
 
Well, I certainly agreed with that. “Yes, you do.”
 
The difficulty, she explained, was that the SEC received as many as 800,000 tips a year. Although the majority of them were along the lines of “I think my broker is stealing from me because my account was down 20 percent last month” while the entire market was down 20 percent, there was no standard for separating the frivolous from the Madoffs. There were just too many tips and not enough people to follow up. In response, Gaytri recommended at information technology (IT) solution using keywords to limit the number of leads the SEC staff should pursue. Mary Schapiro said she was in the process of hiring a consultant to try to find a workable technological solution.
 
That was impressive. Clearly she was in a crisis response mode. I recommended several people I knew who had successfully developed whistleblower programs. Obviously Pat Burns was at the top of that list. When I mentioned one woman whom I greatly respected, Mary Schapiro’s face lit up and she told me, “I know her—she’s actually a friend of mine.”
 
Then I explained that the best way to attract those big cases is to create a whistleblower program similar to those of the Department of Justice and the Internal Revenue Service that makes the guilty companies pay the government back treble damages and pays the whistleblowers between 15 percent and 30 percent of the settlement amount. And those bounty payments should not come out of the government’s pocket. They should always be paid by the bad guys.
 
Until that point the meeting had been going very well. She had agreed that the SEC needed to develop a whistleblower program and needed to offer an incentive for people to take the risks. But then I told her that I had developed several whistleblower cases involving securities, and given my history with the SEC I had decided to file them with the Department of Justice, the IRS, or other government agencies.
 
David Becker interrupted, “You’re telling me you know about securities law violations and you’re withholding evidence from a government agency?”
 
“No,” I responded. “I’m just withholding them from the SEC. I’m a citizen and I turn in my cases to the agency I think can best handle them, and at this point that’s not the SEC. The government has the information, but it’s just with another agency. If they’re not bringing you into the case they have their reasons. Maybe they’ve lost confidence in you, too.”
 
Becker was visibly angry. Until that moment he hadn’t said a word. I began to discuss the specific reason I hadn’t brought a case to the SEC, and I used another case as an example. When I mentioned a key player in that case, Becker put up his hands. “I have to stop you,” he said. “I can’t talk about this because I may have a conflict here.”
 
I heard him, but it didn’t really register. This was a case I had nothing to do with. It had been reported on extensively. I thought maybe the problem was the way I had described it, so I tried again.
 
Becker stopped me again. “I’ve already told you, you really need to stop because I may have a conflict here.”
 
Mary Schapiro didn’t say a word. At that moment, and it turned out that Gaytri felt the same way, it appeared to me that David Becker was really the person in charge of this meeting. Gaytri spoke up, saying, “I’m not sure what the problem is. I think he’s just giving you an example. This isn’t anything we need to get involved in.” She looked at me. “Harry, I think you should just go on to something else.”
 
So I did—for a least a few minutes. The one thing on my mind was avoiding that topic, so naturally I stumbled onto it again. It certainly was not my intention, but I mentioned the key player’s name again.
 
David Becker stood up. Until that moment I didn’t realize how large he was. We were about five or six feet apart, separated by a coffee table, and Gaytri’s first thought was that he was about to come right over that table and go for my throat. I didn’t quite feel that way, but I did understand he was challenging me. It was an incredible moment. After everything we’d been through, after living in fear of a Madoff hit team coming for me, after all that, imagine the absurdity of being attacked by an attorney.
 
Gaytri stood up, too. “I don’t know what’s going on here. But this is completely uncalled for. It’s certainly not productive for anybody. We don’t have to talk about this.”
 
He ignored her. “I don’t know where you get off,” he said. “I told you I had a conflict. This is a case I’ve been involved in. You can’t come in here and tell us about ongoing cases and not give us enough details so we can get involved.”
 
I didn’t know precisely what had triggered Becker’s response. Maybe he simply was insulted that I had called his agency incompetent, or maybe it had something to do with his involvement in the other case, but whatever the reason, he was furious. For a few seconds I really believed he was going to hit me. I tried to calm down the situation. “Listen, I’d love for the SEC to get involved. But you guys don’t have a very good track record. So until you guys prove you’re serious about prosecuting these cases, I’ll take them to the DOJ, the IRS, and other competent government agencies. And when you prove you can do it, I’ll bring them to you.”
 
David Becker said evenly, “I’m general counsel. I can’t hear this information and be put in this position where I can’t do anything about it. And I’ve told you, I have a conflict.”
 
Gaytri was still trying to bring peace and harmony to this meeting. “This was supposed to be an informational meeting,” she said to Becker. “We didn’t know you were going to be here. Truthfully, I don’t even know what you’re doing here, but I’m not going to let you attack my client. We were asked to come and speak with Mary Schapiro.”
 
I don’t remember Mary Schapiro saying a word.
 
It was never my intention or my desire to cause any problems. But maybe David Becker should have left the room for a few minutes while we discussed that particular case. He didn’t budge, and he gave no indication that he was going to move, so there really was no alternative. Gaytri said, “I think we should adjourn at this point. Come on, Harry, we’re leaving.”
 
We shook hands with Chairman Schapiro and Steve Cohen, but not with David Becker. He made it pretty obvious he didn’t want anything to do with us. I left that meeting not really confident that the changes in the SEC that I believed were necessary actually were going to be made.
 
It was time to go home. It was at the airport that I began to understand that my life from that point on was going to be very different than it had been. Because my meeting with Schapiro had not lasted as long as I had anticipated, I had a chance to make an earlier flight to Boston. When I went to the desk at USAir to change my flight, the staff recognized me from TV. The desk clerk extended his hand. “I just want to thank you for what you’ve done, Mr. Markopolos,” he said, actually pronouncing it correctly. “The next flight to Boston is leaving in 10 minutes. I can get you on that one. Don’t worry, we’ll get your suitcase on board; I guarantee it.”
 
A member of the ground crew literally hand-carried my bag to the airplane. As I sat down in my seat and snapped my seat belt into place, I allowed myself to just relax for the first time in ... I couldn’t remember. But I certainly remember those words from the desk clerk. And those words I savored.
 
There was considerably more to come in the next few months. The media had become ferocious. The
60 Minutes
piece ran in early March 2009. It’s probably accurate to claim that I was the first person from Whitman, Massachusetts, to be profiled on that show;
60 Minutes
correspondent Steve Kroft narrated the story. I was “The one person who knows the most and is willing to talk”—but only after being besieged—“Harry Markopolos, the man who figured out Madoff’s scheme before anyone else.”

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