Read No One Would Listen: A True Financial Thriller for Free Online Page B

like more than explaining their math to an interested listener. And Frank does have that Irishman’s way of making you feel comfortable with him. So it was only a matter of time before we were continuing our discussions after work in the better pubs of Boston. Over time we discovered several things we had in common, including the fact that although I was a reserve army officer while he had been regular army, both of us had been commissioned as second lieutenants in the infantry, which allowed us to tell plenty of funny stories about military life; and neither of us had a lot of respect for the corner-cutting ways business was often done in the financial industry.
     

    It is surprising that nobody actually knows how many hedge funds or money management firms operating as hedge funds exist in this country. There are no regulations that require funds to register; in fact, there are actually few regulations that they have to follow. But there at least 8,000 hedge funds, and perhaps thousands more. So out of all of those funds, how did I manage to find and identify the single most corrupt operation in the world? (Or at least I certainly hope he was the most corrupt one.) Our investigation of Bernie Madoff started with these conversations between Frank Casey and me.
     
    A properly managed firm invests its clients’ money in a variety of financial products. The firm’s goal is to create a balanced portfolio that has the potential to earn substantial profits while being protected from any drastic losses. A conservative portfolio, for example, consists of about 60 percent equity—stocks—and 40 percent bonds. Frank would meet regularly with portfolio managers to see what kinds of investments they were looking for and try to fulfill those needs.
     
    Like Neil and me, Frank was always looking to expand the number and quality of Rampart’s products. He had been hired because our two primary products, the Rampart Options Management System and a covered call writing program, had lost their sizzle and we needed something new to sell. So almost immediately he began trying to develop innovative ways to market our expertise. Among the products he and Neil worked on were principle-protected notes, which provide the chance of making a profit with the guarantee that you can’t lose the principle. Basically they involved using part of the investment to buy zero-coupon Treasury bonds, knowing the return over five or 10 years would equal the entire investment, and using the rest of the money to invest in hedge funds with leverage. The worst-case scenario was that after five or 10 years you’d get the original investment back but without any earnings. Basically, if the investment went south, the most a client could lose was the interest he or she would have made on the principle over five or 10 years. Frank’s plan was to have certain banks construct a blended pool of fund managers that could use the investment portion to produce something close to a 1 percent monthly return to the client, with the triple-A-rated bank guaranteeing the return of the original investment. Dave Fraley was supportive, telling Frank to try to build that part of the business. So Frank began prospecting institutions throughout New England, all the way into New York City.
     
    The financial industry is a business of contacts and relationships. No one ever buys a product and says, “That product is the sexiest thing I’ve ever seen. I don’t care who’s selling it.” Generally people do business with people they trust and like, or people who are recommended by someone they trust. So like any good salesman, Frank was always looking for leads. He was constantly asking us who we knew at what firms. Who could we introduce him to? He used to complain that I never introduced him to my friends, and there was some truth to that. Finally, though, I referred Frank to my old friend Tim Ng, who was then a junior partner at a Madison Avenue fund of funds, Access