No One Would Listen: A True Financial Thriller

by Harry Markopolos

  The next day I sent him an e-mail. He responded. I followed up one more time, but still not mentioning Madoff. This time he didn’t respond, and I never heard from him again. I’m sure he has no idea how close he came to being able to break the Madoff story and save people billions of dollars.

  Even though he obviously wasn’t interested, I was not above turning our brief conversation into something just short of a death-bed promise. I e-mailed John Wilke and explained, “If you guys don’t want it, Ben Stein over at Barron’s said he’d take it.”

  I got an immediate response. Of course the Journal wants it, Wilke wrote. And we set up another date to get together. He was going to come to Boston and get started on the story.

  John Wilke and I continued dancing together. He was always just about ready to start working on the story, and then something always came up. In November, I sent an update to the team, and I can still read my hope and my optimism in my e-mail: “Because the reporter, John Wilke, did all of those front-page WSJ articles on Congressional corruption, he wasn’t able to get to Madoff. The 3 Congressmen (2 Republicans and 1 Democrat) he exposed are all being investigated by the FBI. He and I just talked on a different front-page story he’s doing in December that I gave him. John told me that his editor has read my Madoff analysis and is very, very excited to start their investigation in January....

  “He said that his editor thinks that hedge fund scrutiny will increase now that the Democrats are in power and greenlighted John’s investigation starting in January. I guess we’ll wait and see what transpires. I’ll keep you posted. This guy does top shelf corruption stories, but everything he investigates is on a schedule.”

  I continued to speak with John regularly. That other story I referred to was about one of my investigations, which we finally agreed to postpone until there was an indictment. But in those conversations I suddenly began to hear his interest in the Madoff investigation waning. Something was going on, but I couldn’t figure out what it was. For the first time he began talking about needing “a new angle, something different from what’s been already written.” In February 2007, I sent the team an e-mail admitting, “The Wall Street Journal’s John Wilke has been a big disappointment. Obviously they were the wrong choice. Eventually Bernie will blow up and everybody will say, ‘I told you so.’ Feel free to buy 45-day maturity, 5% out-of-the-money puts once the first news of the Madoff blowup comes out. I suspect he’ll be considered the Enron of hedge funds.”

  I don’t know if I was more disappointed or confused, but more than either one, I was scared. There was never a moment I doubted John Wilke’s honesty or commitment. We spoke too often for me to ever believe he was just stringing me along, but clearly something (or someone) had happened at the Journal to prevent him from doing this story. If he wasn’t interested in this story, all he had to do was tell me he’d decided not to pursue it for whatever reasons. But he never did that. Until he began peppering our conversations with the need for a new angle, he had never even indicated there was any problem at all. It was always next week or next month. The only assumption I could make was that one of his editors—or perhaps the Dow Jones lawyers—had stopped him. In my mind, at least, I was convinced that someone high up at the Journal had decided it was too dangerous to go after Bernie Madoff.

  The question I wrestled with for a long time was: Why? When the newspaper that existed only to cover the financial world was handed a detailed explanation of the biggest fraud in Wall Street history, why wouldn’t someone at least conduct a cursory investigation? Three phone calls, two phone calls, that’s all it would have taken to verify that I wasn’t some kind of nut, that the accusations I was making were based on fact. A half hour, that’s all. Instead, Wilke spent more than a year making commitments that he never fulfilled. Of course it occurred to me that Madoff might have a good contact at the paper and was able to convince them there was nothing to this story. And more frightening, considering that I was already worried that the SEC had revealed my identity, was the possibility that whoever had killed the story at the journal had leaked my name to Madoff.

  I never blamed John Wilke. John was phenomenal; he was aces. I didn’t even blame the Journal; in fact, after Madoff went down I again handed the Journal the story it could have published three years and tens of billions of dollars earlier. I never found out why the Journal had not done the story.

  While I spoke with John regularly about my other cases, we carefully avoided talking about Madoff. I was very busy with my other cases; I knew that John could be of great importance to me, and he knew that I was a credible source of important stories. We talked about the other cases I was working on, with Madoff silently between us. Pat Burns trusted him completely, so I did, too. Unfortunately, terribly, in October 2008 John was diagnosed with a very aggressive form of pancreatic cancer. He died in May 2009.

  After it was clear the journal was not going to investigate Madoff, I didn’t know where else to turn. The government had proven to be willfully blind to Madoff, and now my attempt to bring the case to the attention of the public had failed. I had been working on this for too many years, and I was finally beginning to consider the possibility that Bernie Madoff was untouchable—that he was simply too powerful to be brought down. Not only because he had billions of dollars and knew the most important people in the industry and could make or break careers, but because he was a pillar of the financial industry. If he was a fraud, it brought into question everything these people believed in. Bernie Madoff was the ultimate insider; I was the bothersome outsider. I was some quant from Boston nobody had ever heard of. For those insiders, the people who knew Bernie personally, who took pride when he acknowledged them at restaurants and openings, the people who invested their own money or their clients’ money with him, for those people to admit that Bernie was a fraud meant admitting that everything they believed in was questionable. Maybe even worse, if some skinny guy who wasn’t even from New York could look at a few documents and figure out in five minutes that Madoff was a fraud, how could they have missed it for so many years? Or just as likely, how could they have known about it and never tried to stop it while thousands of people lost billions of dollars? So it was easier just to hope I went away. I mean, what could happen?

  The team kept me going through this endless series of disappointments. In our conversations we’d make jokes about the incompetence of the SEC, about Bernie’s ability to continue to bring in new money, about the fact that we could see that the emperor was stark naked.

  But as a result of this latest failure, as well as the fact that I was also working on as many as a dozen other cases of fraud, each of them involving more than a billion dollars, I increased my electronic security. Actually, only a few of those cases were financial frauds; most of them were medical frauds. It was very exciting work and I loved the challenge, but I had encountered a problem in my new career as a fraud investigator that I hadn’t anticipated and didn’t know how to solve. It was pretty basic: How was I going to earn a living? I wasn’t going to earn any money from my investigative work until one of my False Claims Act cases settled. And based on history, it could take several more years before that happened. Faith was amazingly supportive; she never complained, but it really bothered me that we had become so dependent on her salary. I just couldn’t figure out how to make this business profitable.

  There was no one I could turn to for advice. As I had learned, while there were other fraud investigators, there was no precedent for what I was doing. The law firms that routinely did False Claims Act cases would work directly with the whistleblower, and the statute provides for the whistleblower to get compensated from the bounty; the legal advisers would receive a percentage of that payment. But I wasn’t a whistleblower.

  Law firms are also permitted to hire consultants and pay them a fee, but I didn’t have a law degree, so I couldn’t be a legal consultant, and generally the law firm approached and hired consultants rather than consultants approaching the firm. But I w
as initiating the contact with law firms.

  And law firms are not permitted to pay referral fees or share revenue from cases with nonlawyers. So we couldn’t simply make a deal to share whatever monies we received.

  The statute simply hadn’t anticipated someone like me. I was preparing the entire case; I was discovering the fraud, researching it, recruiting whistleblowers, conducting my own investigation, and compiling the evidence needed for conviction. And finally I would hand it over to an attorney to guide it through the legal system and collect the bounty.

  I had spoken with several lawyers, and none of them could figure out how to make that fit in the existing structure of the False Claims Act.

  I began to solve that problem one evening in August, when I attended the Cambridge Chamber of Commerce’s Summer Bash. It was held at Millennium Pharmaceuticals, which was located not too far from MIT. So for $50 you got drinks, a world-class dinner, and the opportunity to meet some of the smartest people in the world. For me, meetings like this one were very good places to network; I particularly wanted to meet people from the pharmaceutical world, which I had discovered was ripe with fraud. As I had learned in my investigations, the health care industry makes Wall Street look honest. It’s a $2-trillion-a-year business with no controls and with limited auditing. On Wall Street the crooks at least have the decency to try to hide their frauds, but those people cheating Medicare don’t even bother doing that. Wall Street is only taking your life savings, but in health care they may be stealing your life. I was surprised to discover how little “care” there is in health care. It’s obviously no surprise that the pharmaceutical industry is a completely profit-driven business, but the methods companies devised to earn some of those profits were surprising—and in the case I discovered, illegal.

  I’ve been working on several cases that remain under investigation or under seal, meaning in both cases I can’t discuss them. Truthfully, my career aspiration is to prove that a drug with more than a billion dollars in annual sales is actually killing Americans and citizens across the globe, that in the clinical trials the dangers of this drug were revealed, and that the executives knew about the dangers and went ahead and marketed it anyway. I’ve been working on this case for a few years now without much success, but I hope someday I’ll be able to find a key witness and get this case filed with the Department of Justice.

  There was a large crowd at the Summer Bash, but I noticed a small, attractive woman involved in a very intense conversation with several people I knew. Eventually we were standing in the same group. I introduced myself to her, and she told me her name was Gaytri Kachroo.

  I wasn’t sure I’d heard that correctly. She smiled and repeated it: “Gaytri Kachroo.”

  “What does that mean?” I asked.

  She replied, “I’m Gaytri, the Hindu goddess of wisdom and knowledge.”

  Well. Now that was an unusual introduction, I thought. Actually, Gaytri Kachroo explained, she was an attorney—with five law degrees, including a master’s and a doctorate in law from the Harvard Law School. She had been born in Srinagar, Kashmir India, had grown up in the middle of a war, and had moved with her family to Montreal in 1971. At the time we met she was serving as general counsel to a number of small firms both in the United States and abroad. I told her, “I have to be honest. I don’t like lawyers.”

  “Neither do I,” she agreed.

  During this conversation I told her that I had a unique problem. I was a full-time financial fraud investigator but I couldn’t figure out how to earn any money doing it. I could find cases, and I could investigate them and hand over my evidence to law firms that could bring them to the government under the False Claims Act and earn many millions of dollars from the settlements—but I had been told by several attorneys that law firms were legally not permitted to pay what was basically a finder’s fee or a referral fee to people who brought cases to them. In other words, they couldn’t pay me for my work.

  Somehow, I needed to create a new business model that would enable me to earn a living uncovering fraud.

  Gaytri didn’t equivocate. “Whoever’s telling you that doesn’t know what they’re talking about,” she said. “Most lawyers believe that because they’re trained in old case law and don’t think in the future. I know what you’re doing is amazing. You’re making the cases that count from the ground up and possibly new case law.” She thought about it, then nodded. “I’m sure with a little thought we can figure this out. What you’re doing is a good thing. And since the outcome is legal, I can’t imagine there isn’t a legal solution. I’m sure I can figure out a way to make that structure work and I can make it legal.”

  We sat down in her office the next day to try to create a business model that would work. I explained to her that at the behest of the Boston office of the SEC I had filed several market-timing cases. I specifically did not mention Madoff to her. In fact, she knew nothing about it until December 11, 2008; when Madoff’s arrest was announced I called and told her that I was the Madoff whistleblower they were talking about on television. So when we began working together, there was no way for me to predict that she would become the fifth member of the team.

  As I eventually discovered, Gaytri was as unusual as her name. She was raised in war as India and Pakistan fought over Kashmir. As a child she remembered hiding in the bomb shelter in her backyard as bombs dropped around her “like thunder and lightning.” She had faced terror early in her life, so standing up to the SEC was not going to scare her. Her father was a mathematician recruited by Montreal’s McGill University in 1965; the rest of her family—her mother, herself, and two brothers—had moved to Montreal almost six years later.

  Her father was extremely controlling. Because he was afraid that his children would fall prey to western culture, he tried hard to shield them. As she told me one night, “It was important to him that we kept our roots, although he also stressed that we should experience the best of both cultures.” Growing up, though, Gaytri was not allowed to have friends outside of school, and when she went to Wellesley College, a women’s school, she actually was chaperoned by her brother, who was at MIT. Although she had been trained in mathematics at home, she rebelled, and rather than math or science, got her initial degree in studio arts and fine arts. After graduating, she ran away with a man she had been seeing secretly, whom she would later marry. During this dramatic escape from home she climbed out of a first-floor window as her boyfriend waited below, got on a bus, and tried to get away. Her brother, who was chaperoning her, jumped on the bus while her mother followed in her car. When the bus finally stopped at a café, the police were called and permitted Gaytri to leave.

  Eventually the couple married and had two children, while Gaytri was getting her legal degrees from the University of Ottawa and McGill University. Eventually, she left the security of her marriage and returned to the United States with her young children. Enrolling at Harvard Law School, she became the first single parent to get a master’s and doctorate in law.

  By the time I met her, she had worked as a civil prosecutor in Canada and for several of the most prestigious law firms in Canada and the United States, and was busy establishing her own international practice. It was not until we started working on my congressional testimony together that she told me that as a child of 15 she had tied the World Chess Champion, Anatoly Karpov, in a chess game.

  After what she had been through, absolutely nothing fazed her, although when we first started talking it’s doubtful she envisioned sitting next to me in front of Congress as we attacked the SEC.

  Initially Gaytri had only the vaguest knowledge about the False Claims Act, so she began by reading it, as well as the case law that had developed from it. We discussed numerous different possibilities—one of them even included me going to law school so I would qualify for a bounty. That one I rejected immediately. Truthfully, it had not even occurred to me that it was possible to earn an income from my work other than the reward money. But eventually we wor
ked out a novel approach to my problem: After I had gathered enough evidence to believe a fraud was being committed, I would approach a law firm—there are firms around the country that specialize in this type of work—and if the lawyers were interested in pursuing it they would hire me as a consultant for a negotiated hourly rate. This hourly billing would be my salary while I continued developing the case. I had already recruited the relators, as the whistleblowers are referred to legally, and in return for developing the case and guiding the whistleblower team through the entire process, I would receive a previously negotiated percentage of whatever reward the whistleblowers received.

  It was logical and legal. A private citizen, a whistleblower, can share fees with anybody he or she wants to. They can give a piece to a law firm, which is the way most contingency law firms work, or they can also give a share to the team leader, which was me.