HOUSE_OVERSIGHT_012801.jpg

Chapter 2: Runaway desire The desire of being believed, or the desire of persuading, of leading and directing other people, seems to be one of the strongest of all of our desires. — Adam Smith In 1999, an investment officer in a management firm had a gut feeling that something was wrong in a corner of the securities market. Based on calculations from the stated investment strategy for the fund, the returns were not only orbiting outside the financial stratosphere, but were mathematically impossible. The officer contacted the Securities and Exchange Commission, outlined the problem, and asked them to look into it. No reply. Year after year, the officer continued to contact the SEC about this case, explaining that it was potentially lethal, that he had no personal investments in the fund, and had never been an employee. No reply. Then, in 2007, he sent the SEC a 17-page report, showing why there was only one plausible conclusion: the stated strategy for the fund was a fraudulent cover up for a massive money- making scheme. Eventually, in 2008, the brains behind this scheme was ousted, escorted to a life in prison as number 61727-054, and welcomed to his new home by a community of like-minded white-collar criminals. Meet HARRY MARKOPOLOS — the investment officer — MADOFF SECURITIES — the seductive investment opportunity — and BERNARD MADOFF — the genius behind one of the most spectacular Ponzi schemes in recorded history. Whistleblowers started warning the SEC as early as 1992, but no one listened. Madoff was making money hand over fist by pocketing new investments and if needed, using some of these to pay off individuals wishing to redeem their funds. Ponzi schemes work as long as new investments exceed the number of investors wishing to redeem their own investments. And for Madoff, this balancing act worked for 16 years. Then, as in the Bible’s Book of Joshua, the walls came tumbling down, with Jericho riding in to hand Madoff a 150-year prison term for the financial murder of his trusting clients. Altogether, these innocent and trusting people lost approximately $65 billion dollars, all because one man allowed his desire for wealth and power to run out of control. Or so it seemed. Hauser Chapter 2. Runaway desire J5 HOUSE_OVERSIGHT_012801