Hall of Fame & Shame
Markopolos is the former securities executive who blew the whistle on the $50-Billion fraud committed by New York investor Bernard Madoff.
In 2000, Rampart Investment Management of Boston wanted to know how they could match Madoff’s double-digit returns for his clients. They assigned math-wiz Harry Markopolos to try and reverse-engineer Madoff’s formula for success.
According to Markopolos, it took five minutes to determine the scheme was a fraud and a few hours of math to prove it.
Markopolos determined that Madoff was either running an elaborate Ponzi scheme – continually feeding money from new investors to pay off the old – or he was engaging in illegal “front-running,” improperly trading in investors’ private accounts ahead of orders the firm received from outside clients.
However, proving the fraud was the easy part.
In November of 2005, Markopolos sent a 21-page memo to the Securities and Exchange regulators. Entitled, The World’s Largest Hedge Fund is a Fraud, it summarized his suspicions and invited officials to check his analysis.
It took nine years for the SEC to finally realize Markopolos was right and Madoff was a crook.
After testifying before the House Financial Services Committee and despite extensive pleadings by political leaders to become head of the SEC or other regulatory agency, Markopolos said that he expressed no interest in a political career.
To mangle the opening line from Erich Segal’s Love Story: “What can you say about a seventy-one year old New York investor who was sentenced to 150 years in prison? That he was smart and deceitful. That he loved to steal $50 billion in other people’s money and showed little remorse.”
As the one-time chairman of the NASDAQ stock exchange, Bernard L. Madoff pled guilty to an 11-count criminal complaint where he admitted to defrauding thousands (no one knows the full count, yet) of investors of billions of dollars by operating an elaborate Ponzi scheme.
According to a heavily-footnoted entry in Wikipedia, “Madoff founded the Wall Street firm Bernard L. Madoff Investment Securities LLC in 1960.” Before his arrest in December, 2008, “The firm was one of the top market maker businesses on Wall Street which bypassed ‘specialist’ firms, by directly executing orders over the counter from retail brokers. Federal prosecutors estimated client losses, which included fabricated gains, of almost $65 billion.”
In sentencing Madoff to the maximum of 150 years in prison, U.S. District Judge Denny Chin said, “…the message must be sent that Mr. Madoff’s crimes were extraordinarily evil and that this kind of irresponsible manipulation of the system is not merely a bloodless financial crime that takes place just on paper, but it is instead… one that takes a staggering human toll.”
The day Cynthia Cooper’s life changed she was sitting in a hair salon wrapped in tin-foil when she received an angry call from her boss, WorldCom’s Chief Financial Officer Scott Sullivan.
As head of internal audit for the telecom giant, Cooper had asked the company’s external auditor, Arthur Andersen about a questionable accounting maneuver. Sullivan was incensed that she was pursuing the issue much less challenging the reputable Andersen. Far from being intimated, Cooper and her team of 18 internal auditors began working nights and weekends to uncover what would eventually grow to $11 billion in fraud.
The results of her actions ultimately led to the arrest and conviction of both Sullivan and CEO Bernard Ebbers. It also led TIME magazine to choose Cooper along with the FBI’s Coleen Rowley and Enron’s Sherron Watkins as Time’s 2002 Persons of the Year.
“This is about people and choices,” Cynthia told me in an interview last year. “Any of us are capable of giving in to temptation and most of us can recall points in our lives when we felt pressured to do something that we didn’t think was right. That is why it is so important to draw clear ethical boundaries before we come to the crossroads of difficult ethical dilemmas and prepare ourselves and our children to stand up to pressure.”
Cooper currently travels the country with her own team of specialists (www.coopergroupllc.com) speaking and consulting on fraud prevention and detection, leadership and ethics.
Sullivan was the man on the other end of the phone in a vain attempt to prevent Cynthia Cooper from digging any deeper into the vast financial fraud that was WorldCom.
The former chief financial officer, treasurer, and board member of the telecom giant was the principal engineer behind the $11-billion accounting fraud; at the time, the largest of its kind in U.S. history.
In August, 2005, Sullivan accepted a reduced sentence of five years in exchange for helping federal prosecutors gather documentation to pursue and eventually convict Bernard Ebbers, WorldCom’s founder and chief executive.
At his sentencing hearing, Sullivan told U.S. District Court Judge Barbara Jones, “Every day I regret what happened at WorldCom. I violated the trust placed in me. My actions are inexcusable.”
Before sentencing, Jones described Sullivan as the “day-to-day manager of the scheme at WorldCom”… someone who was “significantly more culpable than the other managers who cooperated. In keeping WorldCom going,” she said, “he was also preserving his $700,000 salary, $10 million bonus and stock options.”
In 1995, Jeff Wigand was the highest-ranking tobacco insider to step forward in a Mississippi court as well as the television news show “60 Minutes” and testify that the tobacco industry not only knew that nicotine was an addictive substance, but were actively involved in manipulating nicotine levels in cigarettes.
The cost for his integrity was high. He lost his job, his home, his wife, and for a time, his reputation.
In the months and years that followed, Jeff’s story has been told in a variety of forms including the feature film, The Insider. However, his own in-depth account as detailed in “What Do You Stand For?” gives us a greater sense of what he was truly up against. It’s a story about honesty over loyalty; duty over deceit; persistence over pressure. What we come away with is not only a scientist’s search for the truth but the moral courage necessary to reveal that truth in spite of the consequences to himself.
One of the great joys of writing a book like “Stand For” was meeting with and discussing ethical issues with people like Jeff who have demonstrated an extraordinary amount of integrity and courage in their lives. During the past few years, I’m pleased to say that Jeff is not only an ethical hero, but a friend who teaches me, by his own example, how to lead a better life.
Today, Jeff speaks around the world not only about the dangers of cigarettes but the importance of ethics in our lives.
To learn more about Jeff and his work, visit www.jeffreywigand.com
“Can you smell the money?!?!?!” Jack Abramoff once wrote.
Abramoff was a top, DC lobbyist who became the central figure in a widely reported public corruption scandal.
Among the politicians, lobbyists, businessmen and Bush administration officials caught in the probe: former Deputy Interior Secretary Steven Griles, the highest-ranking Bush administration official convicted in the scandal, pled guilty to obstruction of justice when he admitted lying to a Senate committee about his relationship with Abramoff; Former White House official David Safavian, the Bush administration’s former top procurement official, was sentenced to 18 months in prison in October 2006 after he was found guilty of covering up his dealings with Abramoff; Former Representative Roberty Ney, (R-Ohio) sentenced to 2 1/2 years in prison, acknowledged taking bribes from Abramoff; William Heaton, former chief of staff for Ney; Tony Rudy, lobbyist and one-time aide to former Majority Leader Tom DeLay; Michael Scanlon, a former Abramoff business partner and DeLay aide, pled quilty to conspiring to bribe public officials; and Italia Federici, co-founder of the Council of Republicans for Environmental Advocacy, pled guilty to tax evasion and obstruction of a Senate investigation into Abramoff’s relationship with officials at the Department of the Interior.
Abramoff is serving six years in prison on a criminal case out of Florida, where he pled guilty to charges of conspiracy, fraud and tax evasion. He has not yet been sentenced on charges of mail fraud, conspiracy and tax evasion stemming from the influence-peddling scandal in Washington.