Review: No One Would Listen, by Harry Markopolos

My recent forays into real-life financial thrillers have been handsomely rewarded: House of Cards, about the demise of Bear Stearns, read like first-rate Clancy - I could not put it down, despite knowing how it ended before I bought the book. Same with Michael Lewis's The Big Short, whose characters and anecdotes were so compelling that I rooted for them even though the mortgage market collapse, which they stood to profit from, was maybe not such a positive event for the rest of us. Thus, I had high hopes for No One Would Listen, written by Harry Markopolos, the man who discovered Bernie Madoff was running a Ponzi scheme years before it was exposed and repeatedly tried to alert the SEC, the media, and the public - to no avail. 

Like many people, I have a lot of questions about Madoff, including: How did he get away with it for so long? What were the warning signs? Why were they ignored? No One Would Listen does not really seek to answer any of those questions, but it does address another question I've had for many years, specifically: 

Could there be anything more irritating than a sanctimonious math geek?

The answer, you will be surprised to learn, is "yes": A sanctiomonious math geek with a chip on his shoulder* who is proved right and now gets to spend the rest of his life telling everyone I told you so.

On every page of No One Would Listen, Markopolos reminds his readers that Madoff comitted the largest fraud in history, as though we've somehow all forgotten it since the last page. This is mildly insulting to begin with - I can retain a thought for a whole five minutes, sometimes longer - but as the book progresses, it's a bit like being nagged by the most annoying mom on the whole entire planet. Yes mom, I know. Largest fraud in history. Got it.

And there's the rub. I realized about 25 pages into the book why no one listened to Markopolos - no one likes to be nagged and criticized constantly; typically, they start to tune it out. Some people were sympathetic to Markopolos and tried to help, but they too received quite an earful for their trouble. For example, Markopolos calls one SEC agent weekly to launch into tirades about the agency's incompetence: "Your agency sucks! Your people ... are barely capable of catching a cold in winter ... most of your staff barely respond to heat and light." Although Markopolos is mystified that no one would hear his complaint about the largest fraud in history, I found myself more often than not wondering why some of these people continued to take his phone calls - and many didn't.

It is quite apparent that the people around Markopolos are responding to his personality throughout the book, a fact that frustrates him but doesn't motivate him to change or try a different tack. At one point, he leaves his job to go pursue Madoff and fraud cases full-time, and try to collect SEC whistleblower bounty payouts. He gives five months' notice to his company, and when they find a replacement after two months, he is asked to leave within two weeks. On another occasion, he goes marketing in London with some colleagues; they take him to meetings but fail to take him to social events where business is also conducted. Markopolos asks about it, and when his colleagues try to defuse the situation with a bit of humor, he responds with a remark calculated to offend.

Markopolos confirms that at least one SEC investigator was "skeptical" of him. Among her observations were that "she thought he was kind of condescending to the SEC."  She also questions his motivation, since she believed he was out to collect a reward - not really a stretch since he had quit his job to pursue fraud cases in hopes of collecting SEC bounty money. His response? "Because these people weren't smart enough to understand my message, they decided the problem had to be with the messenger."

So what was his message, anyway? Markopolos spent a lot of time using mathematical models to try to recreate Madoff's investment returns, and couldn't. In his initial complaint, he made six key points: 1) Madoff could not generate the type of returns he claimed using the market strategy Markopolos believed him to be using; 2) there aren't enough options in existence for Madoff to have been using the strategy he was believed to be using; 3) a perfect performance chart doesn't exist in finance; 4) since Madoff's reported returns could not have come from the market strategy or options hedging, and Madoff didn't say what strategy he was employing, it was clearly fraud - the largest fraud in history; 5) Markopolos's own company was incapable of replicating Madoff's returns with their own products - thus the returns were impossible; and finally 6) Madoff had only 3 down months in an 87-month period, while the market was down 26 months.

All of the above is a theory - a very interesting theory and one that we now know was correct. Unfortunately, without the benefit of 20/20 hindsight, it isn't the one thing that was really needed: Evidence.
It probably didn't help that everything Markopolos says is stated in absolute extremes; there is no grey area in his universe. Added to this is his unfortunate propensity for overblown melodrama: he ended his SEC complaints with dire predictions of what would happen if he was proved correct, such as the total collapse of the world financial markets, a Congress up in arms, and so on. Meanwhile, if the SEC does manage to not be so stupid (and Markopolos will do all the work for them - he's handing them the largest fraud in history wrapped in a bow), they will gain prestige and influence beyond their wildest dreams.  

Midway through the book he decides that he is really living a thriller: having discovered the largest fraud in history, Markopolos firmly believes his life is in danger. No evidence is provided for this assertion - it's another interesting theory - but he spends almost as much time reminding his readers of this very great threat as he does letting them know that he is trying to put a stop to the largest fraud in history. 

The incessant whining does nothing to build the suspense or tension needed to make the story into the really good thriller it could have been: Bernie Madoff, the charming sociopath swindler, is uncovered by a nobody (Markopolos) who becomes obsessed with trying to expose the massive fraud he knows is being perpetrated against countless innocent victims. In the right hands, Markopolos could be Agent Mulder of the X-files or that Jimmy Stewart character in Rear Window. Thrilling!

Unfortunately, Mr. Markopolos chose to tell his own tale, and it is sadly simple to see how Bernie Madoff got away with the largest fraud in history for as long as he did.
*A chip the size of Montana.