No One Would Listen: A True Financial Thriller (40 page)

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Authors: Harry Markopolos

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Then I made one additional request. I told Jim Segel that I had several
quitam
cases under court-ordered seal against major financial institutions for stealing from the government. As such, I needed to have two attorneys at the witness table with me, not the one attorney that House rules allow. One attorney, Phil Michael, would be there to represent the government’s interests in those cases. Gaytri Kachroo would be on my other side and she would be representing me personally. That wouldn’t be a problem, Jim replied.
 
Two days after that meeting, the day after Christmas, the SEC’s inspector general, David Kotz, called to introduce himself. Kotz had joined the SEC almost exactly a year earlier, after leaving his private law practice to become the inspector general of the Peace Corps. I didn’t know much about him, although people I respected told me he’d done a good job in a short time. Kotz then asked if I would be willing to cooperate with his investigation. He had been given a mandate to investigate the SEC’s failures in the Madoff case, he explained, and make the appropriate recommendations to fix what was broken. He told me he intended to make sure that the culture inside the agency that had allowed Madoff to survive would be changed.
 
Kotz sounded sincere, but it would be a stretch to say that I trusted anyone or anything inside the SEC (except Ed Manion and Mike Garrity, of course). I didn’t know Kotz, and I didn’t particularly like the concept of a government agency investigating itself. That’s not exactly a recipe for good government. I didn’t say no, though; instead I suggested he contact my attorney to see what we could work out.
 
Gaytri Kachroo was still in India, and Kotz reached her while she was at a dinner at the old British Turf Club. She walked outside into a gorgeous night and stood on a beautiful moonlit green while they spoke. The whole situation was surreal; two weeks earlier she had never even heard of Bernie Madoff, and now she was in India, representing a key player in what was being described as the greatest financial crime in history. Although she had traveled to India to attend a conference focusing on business opportunities emanating from the new nuclear agreement between the United States and India, she immediately decided to cut short her trip to return to Boston and help me prepare my testimony for the congressional hearing.
 
Gaytri, who was representing me personally on my False Claims Act cases, quickly got permission from the law firm she had recently joined, the Boston office of McCarter & English, to also represent me—pro bono—for these government hearings. It was very gracious of that firm, and I would estimate that over the next few months McCarter & English would absorb over $100,000 in legal fees. Burt Winnick, the managing partner of McCarter’s Boston office, told me he personally knew dozens of victims, so he felt obligated to help out. During our first meeting, several partners made a point of coming into the conference room to shake my hand, and each of them promised to do everything in their power to assist me in getting ready to testify.
 
Gaytri’s concern, beginning with this phone call from Kotz, was to protect me and to protect the other cases I was working on. All my other cases were under seal, meaning I could not talk about them publicly, and she wanted to ensure that those cases were not jeopardized. At that time we weren’t certain what kind of investigation Kotz intended to conduct. If it was going to be a whitewash or a cover-up, if low-level employees were going to get blamed, if Kotz was going to try to describe this as an anomaly rather than a systematic failure, I didn’t want anything to do with him. But if he was serious, I wanted in.
 
Kotz wanted to meet with me while I was in Washington to testify. Gaytri gave him a firm lawyerly nonanswer, telling him we would absolutely consider it. But almost immediately she ended her trip and returned to Boston.
 
During one of her subsequent conversations with Kotz, he asked for copies of all the documents I had previously provided to the SEC. That set Gaytri’s antenna straight up. “Why do you need all that material?” she asked. “Didn’t you already get them from the SEC? They have everything Harry’s submitted.”
 
Kotz’s answer to that was our first hint that he might be serious about going after his agency. They do have the documents, he agreed, “But to tell you the truth, I have no idea what the SEC is going to give me.” That was the moment that Gaytri and I began to believe he was earnest about investigating his own agency.
 
That was a stunning admission. The SEC’s own inspector general did not trust his agency to provide him with a complete set of my documents. It meant that Kotz was suspicious that there was a cover-up taking place inside the agency. If that was true, my papers would help him expose it. So we agreed to provide him with copies of all my submissions and supporting materials—but we did so only 36 hours in advance of our scheduled congressional testimony, just in case. I gave him everything I had except a couple of documents that were criminal in nature and more appropriately should be shared only with law enforcement agencies. Publishing those documents in the
Congressional Record
might adversely affect active criminal investigations in progress, and I didn’t want Madoff’s aiders and abettors to have any advance notice of what was headed their way.
 
While I’ve had many dreams in my life, testifying in front of a congressional committee was not one of them. It was not something I would have chosen to do. Given the choice, I would have picked fortune over fame; but suddenly I was famous. Fame, or maybe recognition, is a fascinating tool, as I was discovering. People were intrigued by Madoff, and they wanted to hear what I had to say about his scheme. I intended to use that tool first to focus attention on the SEC and then, if it still remained sharp enough, to celebrate the importance of whistleblowers to expose corruption in our system. But achieving those objectives meant being well-prepared; I had to use my few minutes in the spotlight to make my points. I spent more than 100 hours preparing for my two- or three-hour testimony. As I found out, it takes a lot of preparation and rehearsal to appear spontaneous.
 
Unfortunately, the lack of sleep and the stress of having my home surrounded by the press caught up with me. The trigger that sent my health in a downward spiral was a letter from Congress requesting my testimony on January 5, 2009. I received a letter on December 30 asking me to submit my documents before the deadline—which had passed a week before I received the letter! I’d never felt so low. I requested a postponement. I spent the next two weeks trying to recover from the worst cold of my life and devoting every waking hour to preparing my testimony.
 
On January 5, 2009, David Kotz testified in front of Barney Frank’s subcommittee. In preparation for my own appearance—which had been rescheduled for early February—Gaytri and I watched the five-hour hearing, then watched the tape all over again. I took notes. I got a feel for each member of the committee, what type of questions each asked, how detailed they were, and whether each committee member listened to witnesses’ answers and asked intelligent follow-up questions. The representatives from New York were the most irate, obviously because New York was hit pretty hard by Madoff, but everybody seemed to be pretty angry with the SEC. Good.
 
I was finally scheduled to testify on February 4. I’d written a 12-minute opening statement in which I just ripped into the SEC. The military had taught me that you open an attack with massive fire. You deliver the most devastating volume of fire possible to destroy and demoralize your enemy. And I wanted to put down the SEC quick and hard. Oh, writing that statement felt so good. I was able to let loose and I did. In fact, my attorneys felt it was too aggressive and edited it for me. Their version was politically correct; if there is one thing about myself in which I do take pride, it is the fact that I am not politically correct. I’m Greek, so by nature I’m going to be blunt and tell people exactly how I feel. I’m not going to be gentle. I read their version and said, “I’ll never give that.”
 
“You should,” they advised.
 
I was pretty insistent. “I’ll always regret it if I’m not brutally honest. These people deserve it.”
 
Witnesses are required to give Congress an advance copy of their written testimony for review. Gaytri warned me that as soon as we handed it in it would be leaked to the media. Being naive, I didn’t think the government of the United States would hand over documents to the media that casually. But we waited until the last possible minute, until Monday night, February 2, at 10 P.M., before submitting it. And rather than submitting my opening 12 minutes of blistering oral testimony, I submitted my attorneys’ politically correct version. I kept the testimony I intended to give in my hip pocket.
 
By 7 A.M. the following morning my written testimony was on the Internet. By 9 A.M. I was getting phone calls from reporters asking for a statement. The hearing was scheduled to be carried on CSPAN3, which is about as low down the dial as it is possible to go and still have a picture. Congress leaked it, Gaytri suggested, because the members wanted more people to watch CSPAN3. I felt I was going to speak to four audiences: The most important audience was going to be the victims around the world. They deserved an explanation of what had gone so terribly wrong, and I was going to give it to them. Someone owed them the truth, and I knew that the SEC wasn’t going to tell it. I was also speaking to both domestic and international investors, because I wanted them to know that no one was protecting them. They were on their own. The SEC is useless, and it was my opinion that the Financial Industry Regulatory Authority (FINRA) was equally incompetent, if not corrupt. The third audience was the American public, especially people who might one day intend to invest in our markets. And finally, my fourth audience was the government, both this subcommittee and the SEC itself.
 
Officially, I was going to appear before the House Subcommittee on Capital Markets, Insurance, and Government-Sponsored Enterprises for a hearing entitled “Assessing the Madoff Ponzi Scheme and Regulatory Failures”—which was the polite way of saying “How the SEC Screwed Millions of People.” My only concern was that I would be asked about those cases I had under seal; to prevent that, Phil Michael was going to be there with me to represent the interests of the government in those cases as well as members of my whistleblower teams. Gaytri was going to be sitting on my other side. And right in front of me
60 Minutes
was going to be shooting my testimony in high definition.
 
The night before I was to appear, we got a copy of the SEC’s testimony. It was ridiculous, nothing more than a smokescreen. The SEC admitted it had no defense, but also refused to admit culpability and didn’t have the courtesy to offer an apology to the victims. Reading it made me very confident that they had no idea what was about to hit them. Clearly they were not prepared for this battle. They hadn’t had weeks of nights with little or no sleep; they hadn’t spent 100 hours preparing. Basically, they had copied their web site. Their entire defense appeared to be, we don’t have to defend ourselves because we’re the good guys.
 
At dinner that night I sat with my lawyers, along with Jeb White and Pat Burns of Taxpayers Against Fraud, as they read the SEC’s testimony. I knew we were in good shape when they started laughing at it. “I can’t believe they’re going to go with this,” Phil Michael said. “This is like no-testimony testimony or the no-defense defense.”
 
When Gaytri added, “It looks like they’re going to rely on their reputation,” everybody laughed again. When we returned to the hotel, Gaytri and I had a final discussion about the statement I would make the next morning. Until that time she had strongly advocated giving the milder presentation, but reading the SEC’s arrogant nontestimony had completely changed her mind. “You should go with your original,” she said. “Get ’em, Harry.”
 
On the morning of the 4th I woke up early and excited. I ironed my suit to make sure the creases were sharp. When we got to the Capitol building we found a long line of people waiting to get in. We actually got held up briefly at security because Phil Michael’s knee replacement set off the alarms. I felt like an athlete in the locker room before the biggest game of his career. I went into the men’s room and called my cousin, Pam, and gave myself my own pep talk. “I’m really going to let them have it,” I told her. “I’ve spent eight and a half years being treated like the SEC’s doormat. These people have put me through hell and now it’s my turn and I’m going to let them have it with both barrels. I’m going to put them down in my opening statement and I’m never going to let them get back up. I’ve got lots of ammo and I’m going to keep shooting until the chairman tells me to stop. I’m going to kick ass and name names.”

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