MidMarketREWIND
September 26, 2011
One of the main highlights of ACG’s Business Conference in Los Angeles last week was financial fraud investigator Harry Markopolos, or more commonly known as “The Bernie Madoff Whistleblower.”
Between breaking down the methods behind Madoff’s madness, and giving the U.S. Securities and Exchange Commission a well-deserved backlash for ignoring the tell-tale signs he presented to them, he took the time to discuss how his new book, “No One Would Listen – A True Financial Thriller,” applies to the M&A community.
“The lesson here is everyone needs to get better at due diligence. It’s much talked about but back up the talk!” He told Mergers & Acquisitions. “You could also see it was a huge failure on the part of Goldman Sachs and Credit Suisse, but any investment bank can still be picked off by a client.”
During his presentation, Markopolos’ slides illustrated the details behind Madoff’s masquerade and how the victims included “30 to 35 Blue Chip companies you would be proud to own.”
He also mentioned the more notable victims whose names were prominently displayed below headlines, including Citigroup, Bank of America, AIG, Fannie Mae, Freddie Mac, Merrill Lynch, Lehman Brothers and Bear Stearns. The troubles that were faced by each of these institutions are no secret, but they were each rooted in a variety of bad investments.
“Leopards don’t change their spots – there’s always going to be a tell or warning that you didn’t see at the time,” he said, regarding the importance of taking on an ethical client.
For example, Markopolos recommends that middle market advisers ask their clients “curve ball” questions.
“Ask, ‘Where’d you go to school?’ ‘You graduated Harvard?’ Maybe you find out they didn’t enroll until junior year,” he explained. “Ask ‘What sport teams do you like or play?’ Then if you call up the college and find out they didn’t play lacrosse –and your client lies to you – run, don’t walk to the exits.”
Madoff was able to scheme the way he did, Markopolos says, because his firm Bernard L. Madoff Investment Securities LLC was littered with lies, with loan documents that weren’t worth the paper they were printed on.
Another piece of advice Markopolos has for mid market deal pros is be careful who they give mandates to. When asked to elaborate his statement that “twenty-somethings don't have the depth or breadth of experience to confront a master criminal,” he says he meant no disrespect to the rookie bankers out there handling the grunt work of a mandate or firm.
“The only way to get that experience is through bad experience,” he said. “If I asked the crowd ‘How many of you have been burned through a deal?’ There would have been a lot of hands going up.”
But if you ever come across a client like Madoff, he warns, “refer them to your arch rival.” - ANTHONY NOTO
Other links from our ACG LA coverage...
Learning from Linda Livingstone | Q&A with the Pepperdine University dean and professor on the dynamics of growing a university in a globalized and cash-strapped world
China: No Longer a Hidden Gem | The U.S. middle market faces savvier Eastern counterparts, but cultural differences still linger, making M&A in China very difficult
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