No One Would Listen: A True Financial Thriller by Harry Markopolos
Authors: Harry Markopolos
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seventh heaven I bought stock and every time that happened I bought and I won. And that client might investigate to make sure Venus and Mars actually were aligned and in the seventh heaven when I bought and that I made money! And then that client would willingly invest in my product.”
So creating a financial product wasn’t the problem; the problem was creating a product that could compete with a Ponzi scheme. In the spring of 2000, less than six months after we had first encountered Bernie Madoff, my anger at being forced into that position became the trigger that made me decide it was time to go to the SEC.
I went to the SEC primarily for my own self-interest. After Madoff imploded, people who knew nothing about me would write that I went to the SEC to try to collect a reward, that I did it for personal monetary gain. It is literally impossible to be any more inaccurate than that. I wanted to rid myself of the pressure of having to develop a product that couldn’t be created. Bernie Madoff was my competition, and I couldn’t compete with him because I had to generate my returns through real trading, while he was creating his returns on a computer. He was playing on my field, in my space, and I knew he was a dirty player. I decided it was time to go to the referee and get him thrown out of the game. The SEC was the referee.
The United States Securities and Exchange Commission was instituted during the Great Depression by President Franklin Delano Roosevelt to restore public trust in the financial markets. Congress established the SEC in 1934 primarily to make sure that the kind of financial abuses that had contributed to the stock market crash of 1929 could never happen again. The SEC, which is supposedly an independent and nonpolitical agency, was created to regulate the entire securities industry. The goal was to level the playing field, to ensure that anyone who wanted to buy or sell securities had access to the same information as everyone else, that they had all the information they needed to make intelligent decisions. As the SEC explains on its web site, its current mission is to “protect investors, [and] maintain fair, orderly, and efficient markets.” The efficient markets hypothesis, which Neil even now continues to believe in, theorizes—very basically—that as long as all market information is simultaneously and freely available to everyone, no one can have an edge. And that is completely dependent on the ability of the SEC to do its job. Through the years, though, the SEC had gained a completely undeserved reputation as the agency that effectively policed the financial markets, allowing people to believe that their interests were being protected. That SEC seal of approval was misleading and actually very dangerous.
Actually, the SEC has a lot less power than most people assume. While it can take civil action against corporations or individuals in district courts for crimes such as insider trading, accounting fraud, and the failure to divulge information, it has extremely limited investigative authority. The most SEC investigators can do is refer suspected criminal activities to state or federal prosecutors. What most people outside Wall Street don’t know is that the SEC doesn’t even regulate the over-the-counter markets. The biggest opponent of protecting those OTC markets was Alan Greenspan, who served as chairman of the Federal Reserve for almost two decades and foolishly believed that the markets were self-regulating.
But because the SEC also had the power to revoke licenses and prevent companies or individuals from participating in the market, I figured the least it would be able to do would be to prove publicly that I was right—that Madoff was a fraud—and shut down his hedge fund, eliminating the pressure on me to create a product that mirrored his returns. While I thought he probably deserved to go to jail, I didn’t spend much time considering the consequences
So creating a financial product wasn’t the problem; the problem was creating a product that could compete with a Ponzi scheme. In the spring of 2000, less than six months after we had first encountered Bernie Madoff, my anger at being forced into that position became the trigger that made me decide it was time to go to the SEC.
I went to the SEC primarily for my own self-interest. After Madoff imploded, people who knew nothing about me would write that I went to the SEC to try to collect a reward, that I did it for personal monetary gain. It is literally impossible to be any more inaccurate than that. I wanted to rid myself of the pressure of having to develop a product that couldn’t be created. Bernie Madoff was my competition, and I couldn’t compete with him because I had to generate my returns through real trading, while he was creating his returns on a computer. He was playing on my field, in my space, and I knew he was a dirty player. I decided it was time to go to the referee and get him thrown out of the game. The SEC was the referee.
The United States Securities and Exchange Commission was instituted during the Great Depression by President Franklin Delano Roosevelt to restore public trust in the financial markets. Congress established the SEC in 1934 primarily to make sure that the kind of financial abuses that had contributed to the stock market crash of 1929 could never happen again. The SEC, which is supposedly an independent and nonpolitical agency, was created to regulate the entire securities industry. The goal was to level the playing field, to ensure that anyone who wanted to buy or sell securities had access to the same information as everyone else, that they had all the information they needed to make intelligent decisions. As the SEC explains on its web site, its current mission is to “protect investors, [and] maintain fair, orderly, and efficient markets.” The efficient markets hypothesis, which Neil even now continues to believe in, theorizes—very basically—that as long as all market information is simultaneously and freely available to everyone, no one can have an edge. And that is completely dependent on the ability of the SEC to do its job. Through the years, though, the SEC had gained a completely undeserved reputation as the agency that effectively policed the financial markets, allowing people to believe that their interests were being protected. That SEC seal of approval was misleading and actually very dangerous.
Actually, the SEC has a lot less power than most people assume. While it can take civil action against corporations or individuals in district courts for crimes such as insider trading, accounting fraud, and the failure to divulge information, it has extremely limited investigative authority. The most SEC investigators can do is refer suspected criminal activities to state or federal prosecutors. What most people outside Wall Street don’t know is that the SEC doesn’t even regulate the over-the-counter markets. The biggest opponent of protecting those OTC markets was Alan Greenspan, who served as chairman of the Federal Reserve for almost two decades and foolishly believed that the markets were self-regulating.
But because the SEC also had the power to revoke licenses and prevent companies or individuals from participating in the market, I figured the least it would be able to do would be to prove publicly that I was right—that Madoff was a fraud—and shut down his hedge fund, eliminating the pressure on me to create a product that mirrored his returns. While I thought he probably deserved to go to jail, I didn’t spend much time considering the consequences
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