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Frank Casey and Gaytri Kachroo at Odette
Frank Casey and Gaytri Kachroo (seated) with MBA Candidates 2011

Tell me what you know about "B"

Bernie Madoff: The mastermind behind the largest and most successful hedge fund in the industry was a total fraud and he was labelled a crook by those who investigated him.

No One Would Listen is the exclusive story of the Harry Markopolos-lead investigation into Bernie Madoff and his $65-billion Ponzi scheme. While a lot has been written about Madoff's scam, few actually know how Markopolos and his team-affectionately called "The Fox Hounds" by Markopolos himself, uncovered what Madoff was doing years before this financial disaster reached its pinnacle. Unfortunately, no one listened, until the damage of the world's largest financial fraud ever was irreversible.

Frank Casey, one of the “Fox Hounds”, and Gaytri Kachroo personal attorney for Harry Markopolos, on a recent visit to the Odette School of Business, talked us through a timeline explaining how they discovered the fraud, and how they provided credible and detailed evidence to the Securities and Exchange Commission (SEC) many times between 2000 and 2008, only to have warnings ignored repeatedly by the SEC.

View streaming video of Frank Casey's presentation here.

View streaming video of Gaytri Kachroo's presentation here.

A summary of events...

In late 1999, Frank Casey, with his exceptional derivatives background, somewhat of a “math geek”, discovers Bernie Madoff and consults with his friend and Rampart Investment Management colleague Harry Markopolos, securities industry expert and financial fraud investigator, about the Wall Street mogul’s financial successes. He handed Markopolos a prospectus outlining Madoff’s strategy and asked him to create a similar product. He sat down and looked at the numbers and literally within minutes Harry knew it was impossible to do. The numbers didn’t add up! “Harry tried and tried but couldn’t replicate his results”, stated Casey, later concluding it was impossible.

The Fox Hound team was made up of Frank Casey, Neil Chelo, Michael Ocrant, and Harry Markopolous. Gaytri Kachroo, Markopolous’s personal attorney, represented him before the House of Financial Services and the Senate Banking Committee. She also represented the Madoff investigation team before the SEC Inspector General.

In May 2000, an eight page submission was sent to the SEC providing the research to prove mathematically that Bernie Madoff is a fraudster – no response.

Good ethics demands action. And so it started, in January 2001, reporter Michael Ocrant, part of the Foxhounds investigative team starts researching the Bernie Madoff story for MARHedge, a semi-monthly financial newsletter. In May of the same year Ocrant publishes “Madoff tops charts; sceptics ask how”. In September 2001 they re-submit to the SEC – no response. “Be aware”, he tells the audience, throughout this whole adventure it was estimated in 2001 Madoff was running less than $20-billion. When he surrendered in 2008, it was estimated he was running roughly $65-billion, “you do the sad math,” stated Casey.

In June 2002, Casey goes on a marketing trip to London, Paris, Geneva & Zurich where he discovers that the European’s are Madoffs largest investors. Throughout 2003 and 2004 the investigation continues, and in October 2005 the case was submitted to the SEC for a third time – no response.

In June 2005, Casey discovers that Madoff is attempting to borrow money at European banks – the first indication that the scheme is running short of cash. In January 2006, further doubt was cast on the SEC competence: Integral Partners $40-million Ponzi scheme goes to trial - five years and five months after its discovery. In September 2006, in the option trader industry, word on the street, they start to believe Madoff is a fraudster.

In February 2007, Neil Chelo obtains a portfolio of Bernie Madoffs trading positions. The portfolio shows no ability to earn a positive return. In June of the same year Casey obtains Wickford Fund LP prospectus showing that Madoff is now short of cash and that he is offering a 3:1 leverage swap to obtain new funds. This prospectus is sent to the SEC – no response.

In August 2007, hedge funds all have losses this month except for Bernie Madoff – he is amazing! In 2008 global markets take a dive and the entire investigating team is busy with more pressing matters. In April 2008 John Sokobin, SEC’s Director of Risk Assessment calls Casey per the recommendation of a mutual friend. Casey meets with him, gives his professional financial advice and just before leaving his office Sokobin asks “tell me what you know about B.” At the end of the month Casey sends Sokobin his last SEC submission and quits the investigation.
Fall 2008 the markets crumble, panicked investors rush to redeem, Casey discovers that individual investors open direct accounts with Madoff. In December 2008 Madoff “confesses” and turns himself in after running out of cash to meet investor redemptions.

Kachroo’s observations about the way the financial industry operates are frightening after being immersed in the intricacies of the fraud investigation conducted by Markopolous and his team.

In February 2009, Gaytri Kachroo represented fraud investigator Harry Markopolous before the House Financial Services Committee and the Senate Banking Committee. She also represented the Markopolous investigative team before the SEC Inspector General.

She had meet Harry Markopolous about five years ago at a Chamber of Commerce event. At the time he was looking for a business model that would enable compensation for his fraud fighting company.

Madoff’s confession came as a complete surprise. For Kachroo it didn’t hold any compensation - only work! “Little did I know that I would start to work for Harry on congressional matters; how I got there was simply being honest – that was a quality Harry admired,” stated Kachroo.

Investigating Madoff was a first for Markopolous. Realizing there was so much fraud out there Markopolous left the financial industry and became an investigator.

Kachroo eventually left the law firm she was working for shortly after meeting Markopoulos because the law firm did work for financial companies that were benefiting from the questionable transactions Markopoulous was investigating.

Throughout this process Kachroo has gained unique expertise and is involved in establishing the International Centre for Corporate Ethics and Responsibility. She is also pushing for an international financial court to more effectively deal with individuals who move money around the world.

Frank Casey still remains in the financial industry. The work of the “Fox Hounds” has lead to substantial changes in the way the SEC does business. Harry Markopolous has many other cases in the pipeline.