No One Would Listen

Book Review: No One Would Listen by Harry Markopolos

I recently finished this book by Harry Markopolos, the futile whistleblower to the Madoff Ponzi Scheme which self-imploded in 2008. I admit, I am a tad late to the Ponzi party, but better late than never. As the resident contrarian (much to the ire of my friends), it struck a chord when I chanced upon the title at the Amazon Kindle store. (Another reason was because at the time of purchase, I was still a smexy auditor at KPMG and thought it would add dimensions to my knowledge of audit and finance).

No One Would Listen

For those of you who aren’t familiar with the Madoff Ponzi Scheme, it was the biggest investment fraud rocked the financial (and almost every other) world in 2008 when Bernie Madoff admitted to conning US$65 billion off investors. A Ponzi Scheme, named after the infamous Charles Ponzi, is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from profit earned by the individual or organization running the operation (source: Wikipedia).

In layman terms: Persons A, B and C each invests $1,000 in a fund managed by a “portfolio manger” Charles Ponzi.  Ponzi takes $50 from the $3,000 they invested back to them each. Eventually he will need new funds injected to feed the original investors, to the inevitable point where the fund cannot find any more investors, of which it would collapse. The figure reached US$65 billion for Bernie Madoff.

Okay, enough of the technical stuff. Although the book didn’t contain beautiful vocabulary and bespoke literature, I felt that there are many lessons we could take away from the book:

1. If it sounds too good to be true, it’s too good to be true.

2. If it sounds too complicated for you to understand, it has to be good. I recall a quote: “People fear what they don’t understand”.

3. Reputation supersedes business logic. Madoff was the former chairman of NASDAQ.

4. The best lies are conveyed with open arms and in an upright manner. Madoff welcomed personal interviews and questioning in his office instead of trying to avoid contact. I have to say, this was the most surprising discovery and interesting part of the book.

5. Government regulatory bodies (the U.S. SEC in this instance) are timid and afraid of the big boys in the field. Self-regulation theory just doesn’t work; it boils down to market theory and renumeration. Individual employees in SEC (and I daresay audit firms) are just using their current workplace as “stepping stones” to their next, hopefully better paying job in the corporate world (which ironically are the companies you’re checking on). If you had to be a policeman for a month, would you want that period to be full of crime, rioting and paperwork? You just want to sit out your job quietly and without any drama. Bringing us to the next point…

6. Every man for himself. Many fund managers from established banks (Goldman Sachs, Citibank) knew of Madoff’s Ponzi scheme but did nothing about it. Maybe warn a couple of close friends. Realistically, would you go out of your way to stop this fraud? What’s in it for you? Of course you wouldn’t. Which is sad, really.

7. Luckily for us, there is still some good in humans. Markopolos DID went out of his way to uncover the fraud, listed down all the red flags and presented it to the SEC 4 times. He was putting his life and his own family’s life on the line by putting his name on the report because there were organised crime syndicates which were also invested in Madoff. But SEC didn’t listen. Why not, you might ask. Refer to items 5. and 6.

The man himself.

The man himself.

8. If you work in finance, you might think that your job is just investing right? It’s not just your job, it’s people’s livelihood and trust you’re meddling with. Madoff’s bankruptcy completed killed off multiple retirement funds and pensions. These are real people whose hard-earned savings over their lifetime were wiped out. All because they couldn’t afford a financial education like yourself, they are penalised to work in their retirement years to make ends meet. DO YOU HAVE A BLOODY CONSCIENCE? Think, before you invest someone’s money, you banker wankers. Ethics are the only attribute humans have that differentiates themselves from savage animals.

9. Telling a chick on a date that you just finished a book about the biggest financial fraud in history will get you laid.

Above all, this book taught me (or should I say, reinforced) how humans can be so blinded and biased when they are “riding on a winning streak”. Any good-willed criticism to your winning plan/idea/thinking/investment style/hot-and-supposedly-loyal-girlfriend/hot-and-supposedly-loves-you-for-your-personality-not-your-money-girlfriend/soccer team is quickly waved off as petty and sour-graped.

I think every factor in your life and decision making should be re-assessed in the most neutral sense. I’ll end off with one of my favourite sayings from the Chinese (I daresay they are the best, without a doubt, at sayings):

” 旁观者清 , 当局者迷 . ” – If one is personally involved in a matter, it is easy to blind oneself to the truth. However, if one is not involved the matter, it is possible to see things more clearly. (Source: Wiktionary)

Bonus fun fact: Charles Ponzi‘s company was called Securities Exchange Company, or SEC for short. Oooh, the irony!