2018 1206 Episode 009 EO SMM Podcast Harry Markopolos — Transcript

Full transcript

1. 0:00all right we're back with the latest episode of  right now it's like this it matches my tattoo by
2. 0:19the way that's just where the whole name came from  and just wrapped up number 9 which was a fun one
3. 0:25I got to thank everybody at EEO the entrepreneurs  organization chapter here in Albany specifically
4. 0:31Jeff Bennett at direct advisors he is the incoming  supreme overlord for our chapter in the coming
5. 0:38year and excited to work more closely with Jeff  going forward and was this just kind of a crazy
6. 0:44idea I had when we were out in Buffalo for our  annual nerve conference and listing some amazing
7. 0:50speakers that I had seen over the course of this  event and I said the Jeff unlined on the second
8. 0:56day said Jeff how about we do our own podcast sure  sounds great what do you do what's the plan what's
9. 1:02the I said don't worry I'll take care of it and  you know what we're nine episodes then wrapping
10. 1:06up season one here today it's been a lot of  fun a lot of opportunities to learn stuff it
11. 1:10started back in September and to September where  we talked to Ali Mooney who is one of our guest
12. 1:15speakers for our IO Albany chapter we talked to  different members of EO we talked to my friend
13. 1:22Nicole snow who has darn good yarn we talked with  Annie and ehekk the owner of the Alpen house with
14. 1:28multiple locations and just an amazing business  there talked with a few of my friends who've
15. 1:32done amazing entrepreneurial work on their own  helping the community my friend through Jacobs
16. 1:37and dr. John Cooper the regional manager and start  programming guy for picks 106 here in Albany and
17. 1:44it's been a lot of fun we wrapped up last week  with a segment on meditation so if you ever
18. 1:50thought about trying to meditate and it's hard  it's you know trying to slow the mind down is
19. 1:56not the easiest thing that I have ever done in my  life but I've gotten much better at it where I can
20. 2:00slow it down and things are a little bit easier  and what a great thing we picked up and Leonard
21. 2:06Perlmutter last week was just amazing so if you  haven't checked out that one please do and this
22. 2:12week this is a another one of those EEO treats  we we bring in these great speakers to town for
23. 2:17the our learning events for our members and for  guests and this week we have in Harry Markopolos
24. 2:26and I'm saying markopolos and I'm pronouncing it  wrong and Jeff is going to sit there he's gonna
25. 2:30shake his head and he's going to give me another  facepalm I just can't say it right I don't know
26. 2:36what's the matter with me maybe I'm having a seat  I don't know but Harry is amazing Harry is the
27. 2:42whistleblower who tracked down all of the Bernie  Madoff stock scandal stuff from ten years ago and
28. 2:50the real interesting thing about it was Tuesday  next Tuesday the 11th is the 10th anniversary
29. 2:56of Bernie Madoff being taken off to jail so it  made for a nice bookend as a matter of fact the
30. 3:04Wall Street Journal was up to take pictures of  Harry for an article next week and Harry's in
31. 3:10that really interesting guy and I wasn't sure how  our conversation was gonna go because I hadn't met
32. 3:16him before we talked just briefly beforehand so  some of the financial stuff I'm not so good Lee
33. 3:22with the numbers so you have to forgive me for  some of it Harry is very smart with the numbers
34. 3:27and he pieced all of this through and he does this  now for a living he's a true entrepreneur and I'm
35. 3:33thrilled to have Harry on the program and his book  is out it's been out for a while pick it up it's a
36. 3:39great read so right now it's like this let's get  into Harry Markopolos you know you get to be the
37. 3:46last episode or first season of Oreo podcast here  right now it's like this we're hanging out with
38. 3:52Harry Markopolos the man who is the whistleblower  behind catching Bernie Madoff and then somewhere I
39. 4:01understand today the 10th anniversary it's coming  up on the 11th just a few days just a few days
40. 4:06now I got done reading the book and there was a  couple things right at the beginning that kind
41. 4:11of lured me in kind of hooked me you tell a story  right at the beginning of the book because Bernie
42. 4:15Madoff did a lot of damage to folks and there  was the story of the gentleman on the airplane
43. 4:20who saw the story on the in-flight TV and he said  to the flight attendant I want to get out well we
44. 4:29can't do that it doesn't matter I just closed the  door behind me was essentially what happened and
45. 4:34we were just talking beforehand you're a Jets  fan and obviously I'm a Mets fan too and this
46. 4:41affected lots of people including the owners of  the Mets tell me a little bit about the the folks
47. 4:48that got hurt in all this there were people that  suddenly overnight probably around five o'clock in
48. 4:55the afternoon on a cold snowy icy rainy night in  New England in New York that went from literally
49. 5:03riches to rags in the blink of an eye and they  lost everything that they had thought they had
50. 5:09saved for retirement and that we were investing  for the future and so they didn't have a good
51. 5:14future at that moment in time so the gentlemen  on the plane who I've actually met I met him
52. 5:19on the beach so he didn't get out now he trying  to commit suicide he tried to jump off a moving
53. 5:24JetBlue plane and the flight four restrained him  put him back in his seat and I asked him why he
54. 5:33tried to do that and it's only well I thought I  had no future I wasn't thinking clearly it was
55. 5:39very emotional and my wife was sitting next to  me you know I'm trying to jump out of this plane
56. 5:43and after a few days I thought about it and I  downsized I'm a partner at a big firm in New York
57. 5:53I make enough money I have a nice place on Fire  Island I have a nice apartment in Manhattan so
58. 6:01what I did is we sold the house on Long Island for  our cash needs let's rebuild our retirement and I
59. 6:11had to tell our kids that I've given you a great  education I've sent you to graduate school I've
60. 6:17given you opportunity seize the moment that's  all I can give you you're not gonna have any
61. 6:22inheritance now Madoff took that and I'm saving  for mom and I for our retirement and he's fine he
62. 6:30came to peace to himself and this was probably two  years later that I met him he was a friend of my
63. 6:35co-author David Fisher so me well thanks for doing  this this is our entrepreneurs organization Albany
64. 6:44chapter and loaded with people who are growing and  trying to make their themselves better and their
65. 6:51businesses better and you started your dad was a  bit of an entrepreneur he had a few restaurants
66. 6:57and bars and Arthur Treacher's - correct yes  and that's a Greek trait we're bigger than the
67. 7:04restaurants shipping furriers and dry cleaners and  bridge painting and those are our key sectors of
68. 7:11the economy that we focus on unfortunately the  entrepreneurs gave birth to another generation
69. 7:18and I sent their children to professional schools  and unfortunately now they're becoming doctors
70. 7:24dentists and lawyers Cod lawyers and it's a  disappointment because shoot whirs various suit
71. 7:30wares you know hourlies you know people that  aren't as entrepreneurial as the traditional
72. 7:37Greek businesses and so that's sort of sad you  know people don't want to work hard anymore as
73. 7:41entrepreneurs they work very hard people want to  do nine-to-five corporate work Monday to Friday
74. 7:47and entrepreneurs don't do that it goes all day  and night doesn't it there's no boundary between
75. 7:52work and and play all too often you end up taking  the work home and working from home to all hours
76. 7:58so your first job in the financial realm was  with the Arthur Treacher's with a few of the
77. 8:05stores wasn't as comptroller I believe Assistant a  controller a persistent Andy I got to learn how to
78. 8:11construct an income statement balance sheet how to  depreciation schedules you know how to file taxes
79. 8:16payroll taxes do quarterly estimated federal  state taxes we Hales how to do sales tax so I
80. 8:23became very familiar and I was pretty good at tax  accounting it took several courses in it as well
81. 8:28as accounting and it gives you a feel for the  numbers in a business and I also have to manage
82. 8:33restaurants and be a district manager and so the  accounting is more the backend you know keeping
83. 8:38score mm-hmm the scoring the points is what you  do on the front end customer facing bringing in
84. 8:44the revenues and so I've done both and it helps to  do a twosie I think if you're an entrepreneur go
85. 8:49to the front of the house and the back and that's  comptroller you found a lot of weeks was that your
86. 8:57first glimpse of it it was mainly fraud if it  was in a restaurant there's a narrow difference
87. 9:06between waste and fraud okay if you don't have  enough waste then you're serving stale product
88. 9:12something that was precooked pass it's holding  time it's not going to be tasty to the customer
89. 9:19and you can lose that customer where they giving  them a bad meal a bad experience so you wanted to
90. 9:24have waste but if you had too much waste and you  had to investigate or fraud and there was ways
91. 9:31to do that in a fast-food environment anything  that's valuable will sprout legs and walk out
92. 9:40the back door during break shift change or at  the close and it walks into people's trunk could
93. 9:47be your shrimp your fish but usually it was the  shrimp of the chicken no one ever stole fish why
94. 9:54would you they stinking probably right car would  smell and so once you spotted the trend that was
95. 10:00well above where the waste should be then you  started investigating for fraud and you would
96. 10:05do the inventories every shift change and you  would isolate the employees who work for each
97. 10:11shift and within a week or two through a process  of elimination you knew who was stealing now the
98. 10:17police aren't going to investigate someone  stealing a case of shrimp the dollar limits
99. 10:23are too low for detective to investigate so  what we would do is we would just cut the
100. 10:28hours of that person until they voluntarily quit  that way we'd have to play them unemployment and
101. 10:34that was a workable solution for our family's  business because we had 12 hours of Treacher's
102. 10:39we also had a Popeye's and we did want to have the  unemployment claims because it would drive up your
103. 10:43cost of unemployment insurance make your business  less profitable so always better when someone
104. 10:49quits yes after that initial experience in the 90s  you were working at rampant investment management
105. 10:57we called it rampart not rabbit I'm part of this I  can't read my handwriting then so you got it pull
106. 11:06on into the the financial end at that point yes I  went up there was a portfolio manager for equity
107. 11:13derivatives and we were trading many billions  of derivatives every quarter throughout the year
108. 11:19we were be trading those that was a very modest  sized firm you know anywhere between two to ten
109. 11:25billion at any one point in time was a well-run  firm well regarded in the industry and I enjoyed
110. 11:30working there I stayed there for almost 13 years  now that's when you first came across the name
111. 11:35Bernie Madoff isn't it actually no I saw him a  few my first trip into finance was it Mayfield
112. 11:42securities huh my dad bought a quarter interest  in a brokerage firm right outside of Philly and
113. 11:47leased trade over-the-counter stocks on NASDAQ  and I knew made office and over-the-counter market
114. 11:54maker I used to trade with the Madoff firm all  the time as a counterparty on the other side of
115. 11:59my firm's trades okay so they were well respected  they were trading five to ten percent of the daily
116. 12:03stock exchange volume in the United States so  they were well-regarded and then everybody who's
117. 12:08anybody was pretty head of trade through Madoff  but it was that ramp it was at rampart that you
118. 12:14became aware that something wasn't quite right  though yes we knew him as an over-the-counter
119. 12:22market maker no one knew him as a hedge fund  manager and that was the shock to me because
120. 12:27here's somebody who was running in effect what  was the largest hedge fund in the world yet no one
121. 12:33knew he was the largest hedge fund in the world  except for me and my team because we investigated
122. 12:39and he was bigger than anybody else what caused  you to investigate that well his returns his
123. 12:45returns were clearly smoke and mirrors his returns  were on average gross returns of 16 percent a year
124. 12:53he was delivering twelve percent net to the  investors the four percent difference that
125. 13:00was the marketing spread and he was giving over  ninety percent of the profits to the feeder funds
126. 13:06that sold clients into his hedge fund no one pays  ninety percent profit margin to mark you pay 15
127. 13:14you might pay 50 it was Merrill Lynch or somebody  big they could bring you a lot of assets to manage
128. 13:19but no one would pay 90 so Bernie is doing all the  heavy lifting he's giving the majority of the pie
129. 13:27on the fees to others he was overpaying and the  people receiving the overpayment never asked why
130. 13:36as long as the check cleared they were happy  and who were these people are receiving those
131. 13:42payments oh the big banks mainly it's the largest  banks on the planet so he just kind of turned and
132. 13:48looked away Thanks pretend to do due diligence  but they really don't what they do is they look
133. 13:54at their bonus payments and whatever is ringing  in money gets them paid at the end of the year
134. 13:58and they don't look any further than that so they  have compliance people because they've gotten so
135. 14:03much trouble with the regulators and department  justice and so that's mandated but there there
136. 14:08is a shield to say that we have compliance we have  procedures but they don't really follow those they
137. 14:13don't let anything get in the way at the bottom  line that's why we call them banksters now you see
138. 14:20all this you see these numbers and you're you're  saying to yourself there's something wrong that
139. 14:24didn't work so what do you do with that point  what are you what are your choices well I could
140. 14:34look the other way I would say that thousands of  people saw that Madoff was suspicious they looked
141. 14:40the other way walked in the other direction  I said nothing to anybody except maybe some
142. 14:43close friends but they never told the authorities  I didn't believe in that I knew he was too big and
143. 14:48will cause great harm to our financial system  and the reputation of our capital markets and
144. 14:53so I kept turning him into the Securities and  Exchange Commission and they said to you don't
145. 15:02call us yeah don't call us we'll call you it was  pretty clear they didn't understand derivatives
146. 15:07you know what their lawyer said and they didn't  have to move his people on their staff because
147. 15:11they didn't pay enough and derivatives people  aren't gonna work for the SEC because it's not
148. 15:16a career track the place is run by lawyers for  lawyers they can't count that's why they went
149. 15:21to law school they couldn't pass the GMAT and  get into a business school so you see and you
150. 15:27decide to step out from I'm assuming which was a  very good job and making enough money down on Wall
151. 15:36Street but you decide to step out and that came  with all different set of challenges and listen
152. 15:43enemies I would presume after doing the Madoff  case and being a derivatives professional I had
153. 15:49good math skills and I had really good accounting  skills for my work and the restaurants and I saw
154. 15:54so much fraud on Wall Street and I said hmm I  knew there was more opportunity in the other side
155. 15:59of Wall Street bringing fraud cases against them  for cheating investors no one had done it before
156. 16:04so I was creating a new field and so that's what I  did and I also did healthcare fraud cases because
157. 16:10the government did pay fifteen to thirty percent  rewards for healthcare fraud against Medicare and
158. 16:14Medicaid so when I was reading your book so you  had the challenges of the SEC who didn't seem to
159. 16:21be interested you had personal concerns about just  starting your car in the morning because some of
160. 16:26the folks that were part of this on the receiving  end of the Madoff thing that perceived that they
161. 16:32were making money were mobsters and drug cartels  yes that was a burning was zeroing out the Russian
162. 16:39mob and the Latin American drug cartels they had  caught him well they have a unique and special way
163. 16:45to terminate investment managers who cheat them  and so he had a lot of risk on the table and so
164. 16:51when I talked to the FBI after the case was over  a lead case agent Special Agent in Charge Keith
165. 16:58Kelly he told me Harry you know lucky you were  to survive in this case a lot of people gotten
166. 17:04killed for a lot less money than that was in this  case and it was those people in fact after the
167. 17:11news broke I do get calls from the Russians and  the Colombians and Russians were very nice and
168. 17:16gentlemanly the cartels were not they were very  cold and I would say mean and basically what they
169. 17:23wanted to know was how to find the people that  sold them in to Madoff so they could confront
170. 17:29them personally and I I sort of knew what they  were gonna do to those people when they caught
171. 17:33them and I also helped the government they part  of justice actually helped the Treasury Department
172. 17:41and the madoff criminal case against JPMorgan  they Bank copped a guilty plea hey 2.6 billion
173. 17:48in criminal fines it was January or February of  2014 or 15 and I helped the government calculate
174. 17:57damages on that case because JP Morgan was Co  investing with the Colombian drug cartels through
175. 18:04a swiss-based feeder fund name Aurelius finance  and I knew it was Colombians and the Colombians
176. 18:10threatened to kill the JP Morgan bankers if they  pulled out and that's in the public record it's in
177. 18:17the Justice criminal complaint against JP Morgan  so you've got all these obvious enemies that say
178. 18:25but you weren't get any help from the media The  Wall Street Journal didn't cover this we went to
179. 18:32the Wall Street Journal we went to the New York  Times and they wouldn't touch this with a 10-foot
180. 18:37Pole it was too big to be believed and there  were so many prestigious people and institutions
181. 18:41investing in madoff all the big banks well most  the big banks Goldman didn't invest in madoff but
182. 18:48other banks did you had Merrill accounts in there  you certainly had the big European banks deutsche
183. 18:57bank reserve bank two biggest banks in Germany  the two biggest banks in France sorry all four
184. 19:03big banks of France burn they're the two biggest  banks in Spain Banco Santander BBVA the big Swiss
185. 19:10banks were in their act the Swiss were huge in the  Madoff second only to America as far as a country
186. 19:17that are vested in Madoff so UBS credit Swiss big  banks - what's whistlin in there so he really had
187. 19:26fooled the Europeans and he had a few Asian banks  but not as many he was bigger in Europe actually
188. 19:30than he was in North America so what madoff was  doing was a Ponzi scheme so how did that work
189. 19:37in reality was he shifting money to cover losses  along the way is that my understanding basically
190. 19:44you're stealing from new investors to pay old  investors their money so you're just reshuffling
191. 19:48the money through your bank account and Bernie's  bank account was JPMorgan and they were aiding and
192. 19:53abetting looking the other way letting billions  pile up at an on interest-bearing checking account
193. 19:57and never asked a single question they had all  these anti-money laundering compliance checks but
194. 20:03they never did because account was so profitable  they made billions on that account did they have
195. 20:08any responsibility in this oh yes they paid 2.6  billion in criminal fines and coffee guilty plea
196. 20:13and all the folks that were involved that many of  them lost pretty much everything like this guy on
197. 20:20the plane who lost his entire retirement and had  to really start over it depends on how you got in
198. 20:26so let's say you came in through a large European  bank that made representations and warranties that
199. 20:32we do crate due diligence and we manage your  money well those are every euro those people
200. 20:38put in those banks usually paid a euro back they  wouldn't give you the fake returns that Madoff
201. 20:44pretended to earn but you got your initial money  back now if you came in through a cific insured
202. 20:49enter empty in the United States you'll be getting  your money back I'm the federal bankruptcy trustee
203. 20:55but here it is almost 10 years later he hasn't  paid out yet why because lawyers get paid by
204. 21:02the hour they're gonna milk it for every last  billable hour before they turn that money over
205. 21:07and then they're gonna cry because that was their  cash cow and that's the way lawyers worth they're
206. 21:13very parasitic so at the end of this do you guys  like lawyers by the way and they work on it a week
207. 21:30no I heard they bill thirty six hours a day days a  week six weeks a month and that's a slow month yes
208. 21:42so when you're done with this whole experience  and and he's goes off to serve his time what
209. 21:53what happens to you what happens to Harry besides  writing a book and it's a wonderful book by the
210. 21:58way no one want to listen it sort of starts out  slow and then tails off from there you're in very
211. 22:05modest and no humour in there at all no none none  there's nothing fun so where do you go from this
212. 22:11place you I do other cases I do a lot of ponds  these cases that are no fun pages I just never
213. 22:17take credit for them I'm just tired talking to the  press it's it it infringes on my time I'd rather
214. 22:23do cases and put people away and put them in jail  where they belong so you've continued on this
215. 22:27path you've taken this and I've done some of the  largest cases in the planet and we wouldn't know
216. 22:31No well you probably know about the currency cases  I did it gets the custody banks and that changed
217. 22:36the foreign currency markets forever no one ever  used to measure their foreign currency price fills
218. 22:40so if you were a corporate client or you were a  hedge fund or a mutual fund you would trust your
219. 22:46bank because they promise you best execution and  straight through real-time processing real-time
220. 22:52and what they would do is back date the ticket to  the worst price of the day so if you were buying
221. 22:58a currency you got to pay the highs and if you  were selling you got to pay the lows and the banks
222. 23:04called that best price which it was for the bank  for you worst price and no one checked I checked
223. 23:11what did this whole thing do to financial markets  and how things how did this change things in the
224. 23:18short term everybody was afraid and got religion  and they wanted to check to see that the assets
225. 23:25were there and they understood the strategies  in the medium term people forgot and I would say
226. 23:31here ten years later no one knows anything no one  learns the lessons of history just go on and keep
227. 23:37making the same mistakes look at Afghanistan and  Iraq you know do we learn anything from Vietnam
228. 23:41obviously not we don't think we can do better we  don't think we know better yes we have an is that
229. 23:49a human thing though the Russian mess and with  the Trump administration do we learn anything from
230. 23:54Watergate there's a misdemeanor that takes place  in Washington then we do the felony to cover it up
231. 24:02makes no sense no one learns anything everything  thank you for doing this thank you please