No One Would Listen: A True Financial Thriller by Harry Markopolos Page B

Society, and he was the cochairman of the ethics committee. I even knew his lovely wife, Mary Ann, from the society social functions we had both attended. Ethics is a big deal for a Chartered Financial Analyst. I knew Ed cared about the ethics of our industry certainly as much as I did. In fact, he offered a course in ethics for our 4,000 members. Like me, Ed is a CFA—but he had about 25 years’ experience in the industry. He really knew the numbers; he had been a portfolio manager at Fidelity sitting next to Peter Lynch, who was famous in the industry for turning the $18 million Magellan Fund into a $14 billion fund in 13 years. So I had no doubt he would get it instantly—and he would believe me.
     
    There is no prescribed way to tell someone you’ve discovered one of the largest frauds in history. “Ed, I’ve got something really serious I need to talk to you about,” I began. “I discovered this huge scheme; I’m not sure if this guy is front-running or if it’s a Ponzi scheme, but whatever it is, it’s bigger than anything you can imagine—unbelievably huge. He’s running the largest hedge fund in the world, although no one knows about it because it’s run so secretly, and the whole operation is some kind of fraud.”
     
    In his typically understated manner, Ed replied, “That sounds rather serious, Harry. When can you bring it in?”
     
    I knew I had to prepare a detailed report, laying out my strongest case in a way even an SEC lawyer could understand. “I might need a few more weeks to prepare,” I said.
     
    “Just let me know when you’re ready and I’ll schedule a meeting.”
     
    There. It was done.
     
    I spent quite a few nights over the next few weeks preparing this first written submission, which would reinforce the points I intended to make during my oral presentation. I put a lot of effort into it, knowing I was about to attack one of the most powerful men on Wall Street. It was pretty obvious that a portfolio manager at a midsize Boston firm shouldn’t pick a fight with someone like that unless he had some powerful weapons. This was my weapon. In the end it was only eight pages long, including the Broyhill All-Weather Fund “Manager B” exhibit. It didn’t seem like much, considering I was trying to take down a giant, but it was what I had. My expectation was that my detailed explanation of Madoff’s operation, accompanied by this presentation, would put the SEC on his trail. It would have to initiate its own investigation, and I was totally confident the SEC would reach the same inescapable conclusion we had. After listening to what I had to say and reading this material, I figured they would have to be complete fools not to realize I was handing them the case of a lifetime.
     
    Who knew?
     
    The report began, “In 25 minutes or less, I will prove one of three scenarios regarding Madoff’s hedge fund operation: (1) They are incredibly talented and/or lucky and I’m an idiot for wasting your time; (2) the returns are real, but they are coming from some process other than the one being advertised, in which case an investigation is in order; or (3) the entire case is nothing more than a Ponzi scheme.”
     
    As I explained, “My firm’s marketing department has asked our investment department to duplicate Madoff’s ‘split-strike conversion’ strategy in hopes of duplicating their return stream. We know from bitter experience that this is impossible.... I would like to prove Madoff’s a fraud so I don’t have to listen to any more nonsense about split-strike conversions being a risk-free absolute return strategy.” I added, “If there is a reward for uncovering fraud, I certainly deserve to be compensated. There is no way the SEC would uncover this on their own.” I did add that my firm did not know I was making this submission and I did not want anyone to know I was doing it, a reasonable request for a whistleblower to make, and that I had not traded on the