Exposing Financial Fraud: Forensic Accountant & Whistleblower John McPherson on DarkHorse
Bret Weinstein speaks with John McPherson on the subject of forensic accounting and whistleblowing. McPherson highlighting his concerns about the current financial landscape and the potential for another financial crisis.*****Sponsors:MUD\WTR: Start your new morning ritual & get up to 43% off your @MUDWTR with DARKHORSE at http://mudwtr.com/DARKHORSE #mudwtrpodDose: Save 30% on your first month of subscription by going to http://dosedaily.co/DARKHORSE or entering DARKHORSE at checko...
We're 18 months out from the financial crisis, and we're supposed to have all these reforms that have been put in place.
And yet, you bring forward a huge fraud, and you work through a system that's supposed to be well-designed to prevent investor harm, and it hides what you found.
And I found the whole thing to be staggering.
Hey folks, welcome to the Dark Horse podcast Inside Rail.
I have the distinct honor and pleasure of sitting this afternoon with John McPherson, who has become a friend of mine.
He's a member of the monthly Patreon discussion that we hold on evolutionary topics.
And he is a forensic accountant and, is it fair to say, a professional whistleblower?
Yes, that's correct.
Well, John, welcome to Dark Horse.
Well, thank you.
I've enjoyed the evolutionary discussions we've had over the last year, and it's been great to get to know you.
Yeah, it has been great.
I really enjoy those discussions, and you've contributed very mightily to them.
I am embarrassed to say that for quite some time as you were participating in those discussions, I didn't know that you had a fascinating occupation.
And that is going to be the subject of this discussion.
So do you want to tell us for people who maybe aren't quite sure what forensic accounting and whistleblowing are about what you do?
Sure.
So forensic accounting is sort of like the CSI type series, except instead of dealing with a live crime scene where you're taking samples and everything like that, you're actually dealing with companies, books and records, and you're piecing things together that way.
And if you remember, like during Watergate or whatever, they were always saying, follow the money.
So a lot of how you solve mysteries that determine what reality is, is simply by taking whatever information is being presented and then assembling in a way that more accurately depicts the truth.
So in a way, forensic accounting is kind of like a search for the truth.
The only difference is instead of using like samples and whatnot, you're using.
Bank accounts and books and records and that type of thing.
And then with whistleblowing, that's more along the lines of taking, at least in my case, taking what I've learned in forensic accounting and then applying that to help the government stop major frauds.
And I kind of stumbled into that.
About 15 years ago, at the end of the financial crisis, I came across fraud, which was occurring down in Texas, which I believe to be the biggest Ponzi scheme since Bernie Madoff.
And I started looking at it and looking at it.
And then I went through a whole process of things that led me to become a whistleblower.
So you might say that I'm like an accidental whistleblower more than that.
Than a true whistleblower.
Most whistleblowers that I think people think of, they think of there's somebody on the outside or somebody on the inside who's aware of something and then is trying to, you know, stop something that is bad from going on.
And the role that I have played is more outside of that, just taking a look at what's publicly available information and then trying to piece together what's really, really occurring there.
So that's my role as a whistleblower over the past 15 years or so.
And you mentioned Ponzi scheme.
Everybody, of course, will have heard that term and have a vague sense of what it is.
Do you want to be more specific about what a Ponzi scheme is?
Sure.
A Ponzi scheme is an investment scheme that only survives if new money comes into the scheme.
So the problem with these investment schemes is once the truth comes out, if it's...
That was being portrayed is the new money stops flowing in.
And then if it is a Ponzi scheme, the problem is the entire thing collapses.
So if you think about Madoff, and I've been pretty fortunate when I started working on my first case, I reached out to Harry Markopolis, who is the Madoff whistleblower.
And then Harry has been kind of like a mentor to me for many years.
And I've ended up working on a lot of cases over the years with Harry.
So I was very fortunate.
But the Madoff case was simply he took in a lot of money, and he was representing that he was investing that, and he actually wasn't.
So then when the existing investors needed a return, it wasn't being paid out to them through their investments.
It was being paid out to them through new investors coming into the scheme.
So that works as long as the circle of funds continues.
And when the new money stops, it just collapses all at once.
So it creates the impression that the person managing the fund has an insight on how to make money in the market.
But is this the same thing as front-running?
No.
Front running is where you have, my understanding of front running is, that is where you have some, you get, someone puts an order in for a trade.
So you have an idea about what's going on with the underlying trades.
And then you go in front of that and can make a profit from, if someone's buying X, you can buy a little bit below X and then sell to X. So I think that's front running trade.
That's kind of commonplace.
And when that occurs, it's just taking money off the table that would be otherwise, like, legitimately belonging to somebody else.
The Ponzi scheme is far more dangerous because it just wipes everything out.
Yeah, Ponzi scheme is effectively a pyramid scheme.
On steroids, yeah.
Yeah, and it cannot continue to grow forever because there's a limited number of people and a limited number of dollars, and therefore it's guaranteed to collapse and leave people holding the bag.
So, you know, there's no content to it at an investment level.
Yeah.
All right.
So, I don't know exactly how best to explore your story.
I've looked at what you've given me, and there's a vast...
Array of things we might talk about.
What do you think is most productive?
So I can just kind of walk you through like my first case, which was the Ponzi scheme.
And I think it will kind of articulate from that somewhat my greater concerns are in terms of what's happening with our capital markets and where we are, because I do have concern.
And one of the people I follow is Ed Dowd and others like him.
And they're basically saying that, you know, we might be on the precipice of another financial crisis.
And if you look around, I think all the indicators are there.
It has me greatly concerned.
We have, like, all-time high housing market, bond market, gold, crypto.
At the same time, underneath that, you've got people that are struggling like they've never struggled before to make ends meet.
And then you've got the Fed lowering the discount rate.
So it looks to me...
Oh, and you also have Warren Buffett.
Selling stocks and carrying a lot of extra cash.
So it looks to me like there is a concern.
Something's in the midst about happening in that regard.
And what happened and you only find out about these things like after the fact.
So when the last financial crisis came and went.
Really, the thing that I think most people were surprised by was the rating agencies.
So the rating agencies, all of a sudden, everybody had trust in them and everything was fine until it wasn't.
And in a blink of an eye, a lot of value vanished.
And my experience is more on the accounting side, and I'm concerned that sort of the same thing may be coming to play in accounting.
And I just wanted to get the, as a whistleblower, I kind of wanted to get the word out on that.
So let me just flesh that out slightly.
First of all, is it fair to say that when you express concerns about another financial crisis, you're talking about something of the magnitude of 2008 or greater?
Potentially, yes.
Yeah.
So that's very frightening because we barely got out of 2008. I know.
The ratings agencies were effectively, by the way, for anybody who wants to understand 2008, it is certainly worth watching The Big Short, which does an excellent job of making the story fascinating and emotionally gripping, but also does give you a sense for what happened.
And what you see is that the ratings agencies, by essentially not evaluating the quality of these investments, but stamping them as high quality, allowed investors to be drawn in, who then ended up holding the allowed investors to be drawn in, who then ended up holding the bag when the rot inside of the investments was So what you're saying is this time it's not the ratings agencies.
For one thing, people would spot that coming.
It's the accountants that you're concerned about.
Is that a fair summary?
Yeah, that's my concern.
And, you know, so first of all, by way of my background.
I graduated from college as an accounting major in the mid-1980s, and I've been an accountant ever since.
Well, there were eight big accounting firms back then, and now there's just four.
So I started with one of them, and I still have a lot of friends that are in the accounting profession, a few of them still practicing and many retired who still keep in touch.
And I don't think...
What people realize is how the profession has changed and how it used to be is you literally was almost adversarial and antagonistic.
So when I started, it was not often for one of our partners to go in and have an argument with a client about what something was valued at.
And one time I was at one of those and the partner wasn't aware that we could overhear the conversation.
And he came out and he apologized for, you know, he actually got into a shouting match.
Well, it's gone from that kind of a relationship between a client and an accounting firm, which yields accurate numbers, to one that is totally more client-service oriented.
And it's not, what's the right number?
It's become, to a large degree, how can we get you to the number you want to get to?
And when you do that, you start to compromise a lot of different things underneath that.
And that's my concern.
And over the last 15 years as I've been doing this whistleblower work, you just keep seeing more and more and more of it, and you see it proliferate even more to the point that you generally get concerned about how far afield we've gone since I've been around so long.
the there was like a demarcation point in the late 80s when one of the this is from my perspective from one where one of the account public county firms basically said we're going to come up with like a different audit approach and they reduced their fees by if i recall correctly it was by about like a third and then the whole the rest of the industry kind of followed along because they had no choice so you kind of went from industrial strength auditing where you could actually get to accurate numbers to a more abbreviated And then what happens with that
is it just opens the door for, you know, more fudging of the numbers.
And within my circle of friends who've been around for like 40 years, I mean, there's a thought that, you know, somewhere maybe as much as half the companies in some way or another are fudging their numbers, and that that is, I think, inflating overall earnings.
This is across the spectrum of everything by about a third from where it was when we started all the things being equal.
That's a concern.
So just to connect some more dots for people, why would you inflate your earnings?
Well, obviously that affects how valuable a company you appear to be in a market.
So for publicly owned, publicly traded companies, creating the impression that you are a vibrant business when in fact maybe you're stagnating or losing money.
We'll bring in investors and those who have information on what's real and what isn't are in a position to transfer the wealth of those unwitting investors to themselves.
Correct.
Is that fair?
Yeah.
And a lot of it is motivated by stock option plans of executives as well.
So it's a combination of those factors, but you're exactly right, Brad.
All right.
Where should we go for people to take a look through your eyes?
So I don't think many people know what a corporate fraud looks like.
I don't think people know what the whole process of going through one is.
So if it makes sense, I'll run through one of mine that was my first one and maybe give a flavor for what's involved here and some of the dynamic.
So if that makes sense, I'll...
Okay, great.
This was 2010. This was after the financial crisis.
And I came across this company out of Waco, Texas.
The name of it was Life Partners.
And to me, it looked like it was a Ponzi scheme.
The company basically did life settlements.
And life settlements, in case people aren't familiar with that, is sale.
of elderly health-impaired life insurance policies to investors.
And effectively what it is, it's a bet on when the elderly person is going to pass away, going to die.
And what this firm was doing, it was using an artificially low life expectancy to charge more for the policies.
And then as a result of that, they made extra fees.
The problem was on the back end that they escrowed the premiums for the shorter life expectancy.
And when the person outlived that, you had problems paying to keep the life insurance policies in effect, in force.
And then if you don't pay the premium, they lapse.
And every investor in the policy loses everything.
So that was my concern with that, is that if the fund of new...
Money dried up, that effectively the policies would begin to lapse.
And what the company was doing is it was taking new money that was coming in and using that to advance funds to loan to keep the policies afloat.
And when the new money stopped flowing in, the policies would have lapsed.
So it wasn't a small undertaking.
It's about 22,000 people that were invested in this to about $1.4 billion.
So, if I understood your story correctly, there are two kinds of victims here.
There are the people with the insurance, the people who are covered, and the investors in these fraudulent policies.
Is that right?
No, the only victims here would be the people who invested in the policies.
The elderly people who took out the life insurance policies, they were, in many cases, paid a fair price for their policy when they sold it.
So, there's only one set of victims here, and it's the people who invested in it.
Got it.
All right.
So, I'm not sure what to ask you.
What did you learn from this experience?
Yeah, so then basically, I'd never been confronted with this before.
So, I first reached out to the accounting firm and said, you know, I got a concern here.
I think there's a $1.4 billion fraudulent investment scheme going on.
And I thought everything would progress like normally from there.
And I found out I was the second person that had the suspicion.
The board of directors had hired a reputable law firm to conduct an investigation, and then I was going to be interviewed.
And then that's when things started to go.
And if everything worked normally, I just probably wouldn't have done this.
But things got so strange that I was kind of like, you know, this isn't really what capitalism is about.
This isn't right.
Our first sponsor for this episode of the Inside Rail is brand new to Dark Horse.
It's DOS.
Dose for your liver is a tasty drink that supports liver health.
Your liver has hundreds of functions in your body, most famously as a filter, an organ of detoxification.
Modern life is pretty toxic, so your liver has been hard at work.
Dose for your liver was formulated to cleanse your liver of unwanted elements, aid digestion, and maintain your body's ability to filter toxins.
Dose for your liver has four active ingredients, milk thistle, ginger, dandelion, and turmeric, in a base of delicious organic orange juice.
Dose is gluten-free, dairy-free, sugar-free, and vegan.
And it tastes fantastic.
Dose comes in a sleek glass bottle with stainless steel shot glass to take your dose with.
You can drink it straight or add it to other drinks.
Zach thinks it would be excellent in coffee, but he'll grow out of that.
Dose for your liver's in-house clinical studies found significant improvements in standard measures of liver health, as indicated by levels of enzymes including aspirate, Dose promotes healthy liver function, aids digestion, eases bloating, and even boosts energy levels.
Stick with Dose and feel the incredible benefits over time.
More energy, reduction in brain fog, And better sleep.
Save 30% on your first month's subscription by going to dosedaily.co slash darkhorse or entering the code darkhorse at checkout.
D-A-I-L-Y dot C-O slash Dark Horse for 30% off your first month subscription.
Our second sponsor this week is Mudwater.
That's M-U-D slash W-T-R. Mudwater makes fantastic products.
Their signature masala chai is spicy and delicious and chock full of adaptogenic mushrooms and Ayurvedic herbs.
With one-seventh the caffeine of a cup of coffee, you get energy without the anxiety, jitters, or crash.
If you're looking for a different way to kick off your morning, try Mudwater.
And Mudwater is a great drink for winter.
It warms the body on those chilly mornings.
Each ingredient was added with intention.
It has cacao and chai for just a hint of caffeine, lion's mane mushrooms to support focus, cordyceps to help support physical performance, chaga and reishi to support your immune system, and cinnamon, which is a potent antioxidant.
Mudwater also makes other delicious drinks with adaptogenic mushrooms, including matcha chai and gold mudwater loaded with turmeric, a non-dairy creamer out of coconut milk and MCT, and a sweetener out of coconut palm sugar and lacuma, a fruit of an Andean tree used by the Inca, to add if you prefer those options.
Or you can mix and match, add a bit of their coconut milk and MCT creamer with some honey from bees.
Or honey badgers or wherever you get honey.
Or use Mudwater's Lakuma and coconut palm sugar sweetener and skip the bees entirely if you don't want to bother them.
Mudwater is also 100% USDA organic, non-GMO, gluten-free, vegan, and kosher certified.
That's right.
It's chill with the man upstairs.
Mudwater's flavor is warm and spicy with a hint of chocolate plus masala chai, which includes ginger and cardamom, nutmeg and cloves.
It's also delicious blended into a smoothie.
Try it with banana and ice, milk or milk-like substance, mint, a touch of honey again, and cacao nibs.
This is delicious.
To get up to 43% off and a free frother, go to mudwater.com slash darkhorse.
That's M-U-D-W-T-R. So basically, the interview call comes in, and instead of the lawyer trying to search for the truth, he tries to intimidate me and starts asking questions like, where do I get the information?
Who do I get it from?
All this before even talking about the fraud.
So it wasn't even a search for the truth.
It was kind of like, How can we, like, not follow the truth?
And so I basically said, okay, well, I'll tell you that if you're willing to indemnify me.
And he said, no, we're not willing to indemnify you when the phone call ended.
And I'm like, okay, so there's two credible witnesses that have a concern.
This is a year and a half out from the financial crisis about the potential of a major Ponzi scheme.
And the law firm I'm dealing with that was hired by the board of directors is not even getting to the point where they're asking what I found or what occurs there.
Anyway, to bring the story forward, fast forward.
I find out later that there were two audit firms that were looking at this, plus the legal firm.
This is one of the biggest frauds in the history of Texas.
And instead of them finding it, they don't find it.
The law firm issues a final report that basically doesn't even mention.
The potential Ponzi scheme.
And then at the board of directors meetings, they say everything's fine with the investigation and the issue of the financial statements.
And, you know, at this point, I was kind of like, we're 18 months out from the financial crisis and we're supposed to have all these reforms that have been put in place.
And yet you bring forward a huge fraud and you work through a system that's supposed to be well designed to, you know, prevent investor harm.
And it hides what you found.
And I found the whole thing to be staggering.
It wasn't operating anywhere near like I thought it would.
And the thing that bothered me a lot about this was, as this is playing out, there is no one in this process that is remotely concerned about the 22,000 people that are going to lose everything.
I mean, it was like it wasn't even an issue.
And then when you drill down below that, you're kind of like, okay, well, I think the audit fee was like $150,000.
So it's like you're sacrificing these people for $150,000.
That didn't make sense.
And then it's like, you know, the reality is it is what it is.
So it's not like it's going to go away.
So what is the endgame here?
So the whole thing was pretty alarming, actually.
So, a couple things.
One, you say that when the lawyers contacted you, that you read it as an attempt to intimidate you.
I have to say there's also the alarming implication that they want to know who else knows about this, where if you were the only one to know, does this put you in danger?
I will say that the other implication here, as you hint at, is they wouldn't be doing this for a fee.
They've got to be in on it somehow in order to justify the risks that they take in covering up a fraud like this.
What it suggests is an elaborate racket.
I think there's a standard operating procedure that they don't deviate from.
What this did for me is whenever you read about some scandal or controversy or whatever and they say, okay, they've hired an investigator and you bring in like a reputable attorney and then they say everything's fine.
Well, it's a racket.
Yeah.
And it's a sophisticated one.
It's designed by basically saying to people, if you have a friend or family member or just somebody who had an active conscience and came to you and said, I'm worried about this, the first step you have to do is to give them up and create a danger in their lives.
So it's literally, it's almost like a sophisticated plan that was designed to create an interview structure whereby you never find the truth because you create a barrier at the beginning of the process.
Just simply by the definition of the terms, it's an organized crime.
And that organized crime, it can be planned or it can evolve as people discover that it's actually more lucrative to play this other role than to do the job that they've nominally signed up for.
But however it comes into existence, what you get is a lot of people...
inverse of what they actually do, because really the way they're getting paid is by figuring out how not to find the thing that they're being paid a smaller amount to go look for.
Yeah, it's remarkable, actually.
And I don't think people understand how that's how this works, because I've been associated with this in other instances, and this is not an anomaly to how the process works.
It's kind of like someone's come up with an effective way to do this.
It's become the standard practice.
And by effective, I mean not effective at finding the crime or the fraud, effective in terms of not doing it.
What has your experience been as a whistleblower beyond your encounter with the perpetrators?
Obviously, there's a whole federal apparatus that is ostensibly designed to prevent fraud.
Yeah.
And the funny thing about that, so after I walked away from this, and just one other thing that bothers me about this whole thing, and that is...
And I think on our evolution thing, we had touched upon this.
And it's that experiment where you electroshock, what's the name of that experiment?
Yeah, Milgram.
So you have people who are involved in this process who are making these decisions about how they're going to handle this, and it is going to adversely affect and perhaps in some cases destroy people's lives.
And they're unaware of the consequences of what they're doing, or worse, they just have decided that that's okay.
Because literally, the existence of that mindset was prevalent with the first step of what I was doing.
The second step, when I went to the SEC, actually the exact opposite existed.
And I went to the SEC kind of expecting it to be like the MVA. And instead, it was like shopping at Nordstrom's.
And the people there that I dealt with in the Fort Worth office were remarkable.
And so literally, I reached out.
I did a little outline.
I reached out to them and literally within, I think it was three weeks, they'd flown up to Baltimore.
They brought the head of the Fort Worth office up.
I mean, they understood the severity of this, which in contrast to how it was when I went with the company and tried to resolve it, like with the accounting firm and everything, this is the mirror opposite of that.
So they come up, we have a meeting in the intervening period of time.
I had gone around, actually, I'd gone around and gathered.
Additional information, because I wanted to make sure if I was making this allegation, I wanted to make sure it was accurate.
So I literally flew around the country, and some of the people I met were incredibly helpful and played a key role in this.
And then ultimately, they came up to Baltimore within three weeks, and then literally a couple months later, they flew me down to Fort Worth.
Couldn't have asked for better people working on it.
Originally, it was Mike King who headed the office, Frank Goodrich and Akita Atkins.
They were remarkable.
Then Mike King was replaced by David Woodcock.
He was remarkable.
And then David Peebler finally replaced all of them.
And they're kind of like the unheralded.
At the end of the story, there's a billion dollars of investor recoveries that come out of this, which is amazing.
And those folks played an enormous role in doing it.
So we end up...
You said more than a billion dollars was actually recovered for investors who had been defrauded.
Yes.
Yeah.
Fantastic.
Yeah.
And that never happens in a Ponzi scheme.
I mean, people walk away from Ponzi schemes with nothing.
And we got a billion dollars out of 1.4, and there's a good chance they can get 100 cents on the dollar still.
So it really, it's like one of the most successful SEC enforcement cases ever.
And it's because of the role I played plus the amazing work that they did.
I mean, it really should be held out as a case study in how to make capital markets function.
So they did a great job, took the company to trial, won a trial, and then the company got a judgment, so they used that to try and get a receiver appointed because the company was still doing some of what it was doing before.
Then I flew down for the risk.
So they asked for my assistance going forward.
Then they asked me for who would be a good receiver, and I helped out with all that.
And then we end up down in Waco.
I was down in Waco for the receiver hearing.
And just to give you a little flavor for why I respect the SEC field offices so much is...
They had a handicapped victim of the investment scheme that was in a wheelchair.
If I recall correctly, it was an elderly lady.
And David Woodcock, who was the head of the whole office, is there.
And I walked by the witness room because I was sitting in the court that day.
And he literally is on his knees talking to her because she's afraid to testify.
And, you know, for me, kind of the distillation of everything that they did that was right was that moment.
And so anyway, the company filed for bankruptcy to avoid the receiver.
And then we ended up having to have a bankruptcy trustee appointed.
And then I went and became involved in that process.
So if you think about it, we basically stopped the fraud for the most part through the court and the SEC. And then the bankruptcy court was where we went to get the investor recoveries.
And I showed up there, had five years of experience.
Walked in the door.
It was almost a surreal experience.
We thought it was going to be a salvage mission because when you stop a Ponzi scheme, the concern is that it just falls apart.
But literally the first day, I found a couple million dollars in a policy.
I had a list of policies.
And then we ended up finding over $100 million of hidden cash nobody knew existed in the first week.
And it went from a salvage mission to something where we could actually have this amazing outcome.
Your initial discovery of the fraud, how were you able to access the financial documentation that allowed you to see it?
Oh, I figured that out off of their filings with the SEC. These are public documents.
Yeah.
So you had a fraud operating in plain view.
This happens all the time.
Well, that's fascinating.
So why?
You're describing the SEC field offices are highly competent.
You've got frauds existing in broad daylight.
How do you reconcile those two things?
I think it's a resource issue in a lot of cases.
And then I also think that there are There are probably a number of companies that get protected status and don't necessarily get the scrutiny of other companies.
So I think it's two factors.
I think it's resource-constrained, and I think there's uneven enforcement within those resources that are available.
Got it.
Okay, so is there more to say?
That was the first fraud that you...
Oh, just the last thing I'll run into, which is like the last crazy element of this, and that is, like, from my take, at least my experience, is if you have a properly functioning capital market, like, integrity is what's important, and the enforcement and everything is predicated upon.
Preserving the integrity and driving out fraud.
But you can get to a point in the capital market where the integrity is less important because fraud has become a more significant driver of profits and value.
And then when you get to that point, people that do concern citizens and governmental agencies that stand up for this kind of thing, but more importantly.
People that just don't tolerate it and do something, they become an enemy of the state.
And the last chapter in my first whistleblower experience played out literally this year, last year.
Everybody loved our work, so we expect the whistleblower award process to go fairly the way everything else had.
Do you want to describe what that process is supposed to do?
Oh, sure.
So what the process is supposed to do in the aftermath of the Madoff scandal, they put in place a whistleblower award program to encourage other people like Harry Markpolis to come forward.
And as part of that, you would get paid a percentage of what the fines were or what the investor recoveries were.
And effectively, we went into the process and filed.
Back in 2015 and filed an award application.
And we expected them to act upon it very quickly.
So that would have been...
I forgot what you said the percentage was.
Oh, I'm sorry.
It's 10 to 30%.
10 to 30% is kind of what you would get paid.
So a huge award on, you said, over a billion dollars.
It could have been.
But the funny thing is we recognized that.
So when we did our submission, we were kind of like, look, we recognize this is a massive number.
So if you...
We're okay if you want to pay less than that.
The whole time I was doing this, we thought there was going to be nothing.
It was only when we got to the bankruptcy thing and found $100 million, we thought we had something that could pay anything to anybody.
So I did five years of this just because I didn't want people to lose everything.
I wanted to stop it.
But most whistleblowers do not do it for the money.
They do it just because it's the right thing to do.
So we were like, we'll work with you on this.
You know, we recognize this is like an extraordinary number.
And how was that offer of yours met?
Well, the funny thing was then the whole thing got kind of, we had ended up getting coercive and they basically were making, they gave me two options to get paid.
One was ignoring the bankruptcy and one was including the bankruptcy.
And then we were kind of like, well, we did all this work.
We may as well, you know, have everything factor in the full of it.
Full amount.
And then we chose the option of the full amount.
They're like, oh, well, this will take another five years.
And then a couple months after that, they give us the opinion and they say, no, we can't pay you anything because it came out of a bankruptcy, which is absurd because Madoff went into bankruptcy.
So the program that's designed to stop the next Madoff would not pay Harry Markopolis, the Madoff whistleblower.
For the Madoff fraud.
So effectively, it was ridiculous.
But what I've found through the whole thing is like ridiculous actually can prevail.
So then the crazy thing was we had to go.
They made us take them to court to appeal it.
So then we went down to court and I had two offers and they neglected to put that on the record or in the hearing.
So.
They're saying they can't pay.
I had offers that were going to pay.
And effectively, they just reneged on the offer.
And long story short, it basically is how you end up getting no award whatsoever from the government for five years of work that saved 22,000 people from losing a billion dollars.
To encourage whistleblowers, created a program to pay 10% of the recovered funds to whistleblowers, at least 10%.
You did it spectacularly, recovered more than a billion dollars, and not only did you not get $100,000 or $100 million, but you got stiffed completely.
Yes, completely.
Completely.
And the one thing in terms of how this ended up that is particularly infuriating to, not infuriating, but insulting actually, to, there's another whistleblower, John Barr, who's an amazing person.
His story parallels mine.
There's another whistleblower, Don James, who helped me, another extraordinary thing, is that basically there's this exemptive authority where they could pay it if they wanted to.
The law allows that in special circumstances, particularly when it's in the investor's interest here.
And basically what they said is, we have the exemptive authority.
What you did do was extraordinary, but guess what?
We're not going to pay you anyway.
We just stood back thinking, is this our government?
I mean, seriously, you've got three guys that came off the bench, left everything on the field, did everything they possibly could, had this amazing outcome.
They can find a way to pay us, but they won't.
Yes.
Well, it goes back to your earlier point about you really have a choice between two different kinds of systems.
In a system where money is made based on integrity, then the incentive to prosecute fraud is elevated, and you will find people motivated to seek out those frauds.
But across a certain threshold, The smart money is in participating in frauds, not finding them, and in fact, avoiding finding them.
And so it shouldn't be surprising to find any system, anything about the system designed to encourage whistleblowers will in fact punish them rather than reward them, because the whole point is to prevent whistleblowing from, preventing all of this money being made by the fraudsters.
You're absolutely right.
And if you look at Madoff, like Harry was on that nine years before it blew up.
I mean, if you actually have a program that does this and you've got well-intentioned people, it can save a lot of harm.
And at some level, I hate to be cynical this way, but I do have a principle where, which is...
No matter how cynical you get, you're still being naive.
And I think it applies here.
In the case of Madoff, is it clear that the system needed to prosecute a fraud?
And so Madoff was convenient.
In that case, because it was so over the top, because it was a Ponzi scheme.
But it's not obvious the system would have been motivated over a Bernie Madoff under ordinary circumstances.
It was the extraordinary circumstances of the financial collapse, which required scapegoats.
And I think Madoff is the only guy who went to jail.
Is that right?
Yeah.
And I think you're absolutely right on that, Brett.
Basically, when you do this kind of thing, you have visibility and other things.
So I ended up meeting with two FBI agents after the fact.
It had a document-driven, it was a black-and-white case of significant fraud during the financial crisis.
And the government didn't do anything with it.
And they became so distressed by it that they left the agency.
And we couldn't do anything with them on this particular thing.
I'm like, well, this is pretty obvious.
Why wouldn't the government go after this?
And it was almost like nobody went to jail, but maybe it wasn't by accident.
Maybe this was a series of collected decisions that ended up where some folks that should have gone to jail didn't go to jail during it.
And the size of that fraud was fairly significant.
And I don't think that was isolated.
But then the other concern that arises out of that is when you have good people.
In the middle of a corrupt system, then they end up leaving it and then the system becomes even more corrupt and then it starts to deteriorate in an accelerating rate.
This is true in science as well.
Oh yeah.
The good people end up not being able to stand the rat race aspect of it and the poor quality science that they're forced to interact with and so they go do something else and it leaves a shell behind.
Yeah, it does.
Yeah.
So, I'm trying to figure out among the various experiences that you've been through what we should focus on next.
Well, I mean, maybe.
So, I've got a number of frauds that I've worked on that fall into the category of like, So,
one of the worst frauds I ever came across involved for-profit college.
And this for-profit college, I became aware of it because the Senate was doing a...
An investigation of the for-profit college industry.
Senator Harkin chaired that.
And so I'm looking at this.
Fortunately, they made the information available.
I mean, long story short, they were fraudulently accredited.
It was obvious they were fraudulently accredited.
I had worked for one of my clients was one of the larger for-profit online colleges, and they actually did a great job.
They were a good one.
So I saw two colleges that got their accreditation denied.
It wasn't like I was just unaware of the space.
And I'm looking at what they're doing, and I'm like, this is, like, mind-blowing.
Anyway, the number of people that are affected by this is about 300,000.
And the way the fraudulent accreditation works is you need to be accredited to access the federal money.
Right?
So this was a cleverly designed scheme where they weren't using other, they were using other people's money, but other people's money was the government's money that then became a loan to the students.
The students took a loan out to get an education they never received.
And I'm looking through some of this stuff and literally there were failure rates of like over 90%.
And it was designed so you had cohorts of students that were just entering that literally failed out.
They had no chance of success.
And then they layered above that, more senior people came with a lot more credits than they passed.
So on a blended rate, it didn't look as obvious as what it was.
Anyway, long story short, that's $3 billion of student loans that these people are carrying.
There's a government program called Borrower Defense, if I recall correctly what the name is.
And then basically how that works is that if you were defrauded into attending a college, you can get refunded your tuition.
So all these in the last year or whatever tuition forgiveness programs that have been proposed, they're literally not...
Going after the people who are most deserving of that, which are the people who have been defrauded as part of this.
And I have come to discover, learn, suspect or whatever.
The reason is, is because if you are defrauded, the perpetrator is required to pay the government for the loan forgiveness.
So what's happened here with...
These cases, and this case in particular, is the reasons why these students, who I think really deserve a debt forgiveness, is because it's going to come out of somebody else's pocket.
And that somebody else's pocket is a private equity firm, I believe.
So you have a system whereby you will go try and protect people unless or until You're stepping over a line, and then you don't do anything.
Wow.
So that's quite a story, if I understand it correctly.
You had a fraudulent college that allowed students to avail themselves of federal educational loans.
The only way to access that is through the fact that the college is accredited.
A fraudulent college shouldn't have the potential to be accredited.
In this case, the accrediting agency either failed or was in on it, gave an accreditation it shouldn't have.
The education that the students sought didn't exist.
And so now they've got the double whammy.
They've got a federal loan that they cannot escape by any mechanism.
They didn't get the education that should allow them to earn their way into paying it off.
And nobody is interested in this because somebody has to pay back the loan, and it would have to be the investors who invested in this fraudulent college, and they're powerful and influential, and therefore the system leaves these hapless students holding the bag.
Yeah, and again, it gets back to who are the victims and people not caring about the victims, which really...
It irritates me.
And this is why, you know, this is 12 years ago and I still can't get past this.
So basically, when you're dealing with something that's coming out of private equity, you're dealing with something that you've got a lot of very sophisticated people developing very sophisticated and clever schemes that basically prey upon people.
And it's not right.
So basically what happened here is, if I recall correctly, they came up with a whole recruiting scheme that preyed upon these people's insecurity of not having a college degree.
So that was how they enrolled them.
They enrolled them into a program that they were destined to fail in.
The program was set up not to be passable?
They made more money off a student failure than off a student success.
Yeah.
No, I see it.
That's incredible.
And so the thing that is really troublesome is these people then fail out, and they were preyed upon psychologically to get into the program.
They fail, and they think it is because who they are they fail.
They do not realize they entered a system that never should have existed because accrediting, as you know, being a professor and everything, this accrediting is there so students succeed.
It's to prevent this very thing from occurring.
And these students, I mean, it had to be personally devastating.
Yes, it's psychologically harmful.
I mean, I can't tell you the whole idea that educational loans are specifically inescapable through bankruptcy is a shocking fact in and of itself.
And the double whammy.
Of getting one of these loans and not even getting the education that is supposed to enable you to pay it off is financially crippling.
I don't know if this is the spot, but I did want to point out that after 2008, I realized that evolution in the market Was going to create and had apparently already created something I call the bubble game.
And the idea is that a bubble that inflates for reasons that are not about the intrinsic value of something increasing is really in many ways the ultimate mechanism for making money.
If you know where the bubble is going to be and you know how to get in and know something about when it's going to collapse, then it just spits money at you for no reason.
And it robs people who are trying to get in on this apparent growth that is, in fact, phony.
So basically, it's just a transfer of wealth from people who have inside information about where the bubble is and when it's likely to burst, a transfer of wealth to them from people who are simply treating the market as if it should be taken at face value.
You find here, once you realize that that's just simply a far easier way to make large amounts of money than actually innovating and delivering value, which is difficult, then the point is, of course, the system starts defaulting into this.
And basically what happens is behind the scenes, people, you know, there are two kinds of people in the world.
There are people who are confused enough to think that the way you're supposed to make money is to actually provide value.
And then there are people who get how the racket really works.
And once you're in on the idea that, oh, it doesn't really matter what the bubble is about, what the subject is this time, you just need to know that that's a bubble.
It's not going to last forever.
And here's the characteristics so that you can, you know, get in before it inflates and get out before it bursts.
And, you know, you're on easy street.
So, OK, I can see it with education.
That's an obvious place to do it.
But there are innumerable places to create these bubbles.
And, you know, what you're telling me is there's publicly available information that would allow a sophisticated person to detect frauds because filings are obligatory.
But apparently...
The overlap between people who have the skills to understand the publicly available information and the incentive to call it out rather than participate is vanishingly small.
I'd agree.
Yep.
Exactly.
Yeah, which is frightening.
And it does begin to explain how you end up with a civilization as broken as ours is.
A civilization, you know...
Who knows what the immediate connection is, but you go and you find out that the CDC gave us advice during the so-called pandemic that was the exact inverse of the advice it should have given us.
And the answer is, well, I don't know exactly why that happened, but in a world, it's over your tipping point somehow, where you're saying either the system is...
Built to create integrity and it has an incentive to punish fraud or it's built to enrich people for doing nothing, in which case it will protect fraud and it will treat people who attempt to reveal it as enemies of the state, as you said.
Yeah, exactly.
And like one of the tricks with what we do is if you end up in a situation where you've got this super complexity, it's usually a red flag, something horrible is going on.
And if you think about the last financial crisis we had, does anybody really understand what happened there?
Did they ever really explain it?
Was there any takeaway in terms of what happened?
It's all murky, right?
But if you were to take a look really, going to your point here, if you take a look at really what happened, it was like the world's largest pump-and-dump scheme that ever happened.
And all they did was they pumped up, and what worries me is they just pumped up real estate on that one.
And if you look around what's going on now, it's much more than that.
It's like the bubble of bubbles.
But they pump it up, and then they make their money, and then they get out before it collapses.
And I had another experience related to this that kind of supports what you're saying there, and that is we were in the process of raising the fund right before the financial crisis occurred.
I was familiar, actually, with the life settlement asset class.
It was a life settlement fund that was a major investment bank, several hundred million dollars in size.
And we had gotten through all the due diligence.
And we were there for, like, the final meeting.
And what people forget is the commercial paper market started locking up before the financial crisis happened.
It was kind of like a canary in the coal mine.
It was an early warning sign.
What I thought was really nice was that the chief investment officer, it's a huge firm, came down to our meeting and he said, look, we've got problems with commercial paper.
He goes, at this point in time, I don't even know what my balance sheet looks like.
So I'm afraid.
We appreciate all that you've done.
I'm afraid.
I'm sorry.
We're not going to be able to move forward with this.
So then I came back to my office and I had lunch with my partner, Gabe, and another colleague of ours, Walt.
And I explained what happened.
And we thought, well, that's pretty bizarre.
Well, financial crisis hits like this.
Like nine months later, whatever it was.
And then we're at lunch and Gabe's saying, yeah, I got crushed, whatever.
And we look at Walt.
Walt, how did you end up doing?
He goes, I didn't lose anything.
When you told me that story, I sold out of everything.
And I think what it is, is people have a faith in the system, which is why we didn't exit anything, that Walt did not have.
And he was smart.
That's number one.
But number two, if that investment, the chief investment offer comes down and talks to us, everybody on Wall Street knows what's going on.
So it'd be nice if somebody had gone through and said, okay, how many people on Wall Street really lost everything or a lot or anything when the financial crisis hit?
Because I think, based on that experience, people knew in advance.
It was a surprise to a lot of people.
It wasn't a surprise to that group of people.
Yeah, that's a mind-blowing description.
It matches my sense of how these rackets work, which is that basically the whole game is that you have to deduce the actual rules of the actual game, which are not like the rules that we are taught.
So you go into investing thinking that the idea is to be able to spot something that's undervalued and arbitrage it.
And of course, yeah, that's good if you can do it.
Whereas, if you know that people are inflating bubbles and going to maybe even burst them intentionally because they profit by being out, if you do that, then you've effectively discovered a second tier.
It's as if every Sector can exist in two phases.
One phase is the legitimate phase in which that sector is producing what it claims to produce.
And the other version is the racket version where the illusion of that sector producing whatever it is supposed to produce is what brings in naive people who are the supply of funds.
It's very difficult to tell which phase something is in because they operate in a way that looks similar.
And in fact, I have a memory about Enron.
Maybe you will know as somebody who's been very active in this sector.
Obviously, Enron is a good bit farther back in history than your work.
But my recollection is that Enron...
So Enron had initially been a very vibrant energy company in Texas, and it had effectively discovered that delivering energy and services was very costly, and that by effectively abandoning its legitimate energy business, it could become a full-time racket.
And the part that I'm not certain of is I recall reading that they had a trading floor that was phony in which they would bring journalists in and everybody would pretend that they were actively trading on the phone, multiple screens in front of them, and then the journalist would be gone and they'd stop doing it because it wasn't really connected to the outside world.
Do you remember this?
I don't remember that specifically, but I do remember that whole aura of a transition from something that dealt with something that was tangible to the migration to the trading.
But that would not surprise me.
I don't think I have a faulty memory.
Well, I don't think I have a faulty memory either because it's not the kind of...
It's so preposterous, in fact, that if I had come up with it, I would have thought it was too ridiculous to say out loud.
So I'm certain that I read that.
The funny thing is it's hard for me to find documentation of it.
So it does make me question why I have that running around in my head.
But nonetheless, the idea of people who, to a superficial observer, appear to be involved in some industry when in fact...
They have discovered that actually that's working too hard and there's a much easier way to get much larger amounts of money and that basically you just need a source material, which is suckers.
Yeah, I think that's happened with a lot of things.
I think you're spot on with that.
And I think if you go and look across what's evolved in this country, we have a lot of people that are not happy.
That didn't used to be the case.
And I think people sense that things have changed and that we've gone from something that people can understand and participate in to something that seems to be almost surreal.
Well, it's a pretty nasty trick to teach people.
To the extent that we teach people at all, we give them a false portrayal of How the world works.
And then to the extent that the world is a test of your ability, it's really a test of your ability to spot bullshit.
And while I appreciate people who spot bullshit, and I feel that I am one, nonetheless, I don't want to see people punished because they believe in the system and because, you know, they did what they were asked or they accepted.
That which they were led to believe in school, that's not how the system is supposed to work.
Yeah, very true.
Very true.
And then like the experience that I've had and others have had, that when you try and stop that kind of thing from occurring, then instead of having a tailwind, you have a headwind.
And I got to tell you.
With that college I was telling you about, which I think the way the students' reviews is horrible.
So I was just trying to get that out in the public.
So I've worked with the Wall Street Journal over the last 15 years or whatever, and I've been a source named unnamed on about 50 articles or whatever.
They didn't have an interest in it, but that's okay.
That's not like their areas.
Then I called New York Times, and I had worked with them.
They had no interest in the student story.
And if you do the work I do, to get 100% recovery for any victim, it never occurs.
So then I go to the Washington Post, nothing.
I go to USA Today, and they at least read the material, but then passed on doing an article.
The closest I came to getting somebody to expose what happened to these students was a website, CoffeeZilla, which is like a whistleblower website for social media type things.
But our media has so failed us too, Brett.
What's so frustrating is, like, here is a thing where it's 300,000 students, 70% Yeah,
and as you will recall, I've been in that exact situation.
When I was in graduate school, I did work that I didn't know was in any way connected to money.
I was just doing an evolutionary project.
I was studying why animals like us grow feeble with age, why we senesce.
And I stumbled upon a flaw in the mice that were being used for virtually all mammal experiments, including drug safety testing.
And it just so happened that the flaw that the mice had would create a impression that drugs that were actually very dangerous to people were much safer than they were.
And I felt certain this was so clearly a hazard and it was so thoroughly demonstrated that the flaw that I had found was real, that it was inconceivable to me that this would not become a scandal, that it was inconceivable to me that this would not become a scandal, that it would not become a fascination of science journalists, that the system would not be absolutely forced to
just in order not to continue to compound the damage going forward.
And I tell you, I had this strange pattern occur.
I would every so often encounter a journalist.
And I would say, I've got a hell of a story for you.
And I would tell them.
And they would be fascinated.
And they would say, wow, let me get back to you.
Let me talk to my editor, this, that, the other.
And then they would either go dead silent.
I'd never hear from them again.
Or they would come back and they would say something shocking.
Like I contacted people and it turns out this has already been dealt with.
And it's like, well.
What does that even mean?
If the flaw is real and it's been dealt with, where's the evidence that it was?
In science, we're supposed to know that there's been a change in the mice.
So either it wasn't dealt with and they're claiming it's been dealt with, or it has been dealt with and it hasn't been dealt with publicly.
Something's not right, and yet no journalist would write a story on this.
It is still slightly mysterious to me how it is.
That journalistic publications, how newspapers end up in on the racket, but they certainly behave like they're in on the racket.
And, you know, obviously we've seen with pharma that there's been a huge amount of the purchasing of advertising on journalistic television programs not ostensibly to compel people to...
Take products they wouldn't otherwise take, but because it gives a tremendous amount of editorial leverage when an inconvenient story is going to emerge that some huge fraction of a newspaper or television network's budget is actually coming directly from pharma, and they don't want the spigot turned off.
Yeah, the whole thing during COVID was amazing to watch.
And there are a lot of people in the whistleblower community that were incredibly impressed by what you were able to accomplish there.
And that just the fact that an opposing view was censored, you know, that's not what our system is predicated upon.
And usually it's those opposing voices need to be heard.
You should actually go out of the way.
And with the student thing, the thing that was most depressing to me was I actually reached out to NPR, which I thought they would be.
I mean, it's their demographic.
This would be a great story for them.
And they had no interest in it.
So I think it extends like beyond.
So then you're like, well, why wouldn't NPR be interested in this story?
It's that it's got everything I would want if I was an NPR person.
And I think it's because the different contributors to NPR do not want, for whatever reason, these kinds of stories going out.
And then it just doesn't make sense sometimes.
Yeah.
I wish we had a fuller understanding of how that actually works.
I think it's a mixture of things.
There's some sort of...
A structure that alerts people when they're on a story that is not supposed to emerge.
And then presumably, as with all of the other places, a journalist who finds good stories and then keeps getting those stories killed by some force that doesn't want them to emerge is going to leave and do something else.
Yeah, yeah, yeah.
Yeah, definitely.
All right.
So I know you have...
Further chapters in your story.
So where do we head next?
So just to continue on, the people that have been my cold cases were the cases that I don't want to leave behind.
So another one isn't a case of mine, but I think it gives a glimpse into what happened the last time we had the financial crisis and maybe a precursor of what might happen this time.
So the last time...
We had the TARP program that rolled out and basically opened the checkbook up to businesses.
And then we had the program that was supposed to help the borrowers.
So first of all, my research was somewhat incomplete because I just found out about this recently.
But there was supposed to be a lot of money that was allocated for the borrowers, and I don't see where that occurred.
The program they put in place was called HAMP, if I remember correctly.
And what the HAMP program did was, if you were a subprime borrower, you could get relief.
But what the relief consisted of is they would reduce your mortgage and they would extend your term.
But what they didn't do is they didn't reduce the principal that you own.
There was a HUD lien that came in, so you always owed the same amount.
So if you think about the pump and dump...
The values of these houses get pumped up.
People are suckered into taking a loan out, a subprime loan out on this.
And how I found out about this was it was a friend of the family who was trying to get a mortgage refinanced.
And they were underwater still because of this huddling.
So what happened then is what happened.
During the financial crisis, we took care of business.
And then the victims who wandered into this pump and dump scheme, the relief they got was really not any relief at all.
It was, oh, you still owe the same amount, even though your house was never worth that, that you got the mortgage on.
And I looked into this a little bit, and there is a quote from Tim Geithner, if I remember correctly, that basically referred to this program as foaming the runway.
Like, the idea wasn't to help out, like, the average homeowner who got stuck in this thing.
What it was doing, it was foaming the runway so that the foreclosures were not overwhelming the banks.
They could spread them out.
So it foamed the runway for, and no one reports on this.
And there are people, I mean, literally, I think there's...
There's at least half a million people or to a million people that are still stuck in this.
And because they're stuck, they can't refinance their loans when it was 2%, 3% or whatever mortgage.
They're stuck in this thing.
They're like a hamster on a little wheel running along because this HUD lien exists.
So the program to help out the borrowers really didn't help out the borrowers.
And nobody reports on that either.
That's crazy.
So effectively, You don't, it's not even that the bubble collapses and you're left holding the bag.
You're trapped inside a mortgage that should never have been issued in the first place.
And the purpose of this is to, you know, to protect the same people.
Yeah, I guess, you know.
And nobody reports on that.
And this person, there was a huge fraud.
It was, I always forget the name of it, Drake.
Being in Whitaker or something like that.
And so basically, they were defrauded on the front end coming in here with this by what was the CEO that actually got 30 years in jail.
So that just gives you an idea how bad whatever that program was.
I'm not that familiar with it.
But there's no relief for that person.
But, you know, you can find a way to provide relief to folks that don't need it.
Yeah, incredible.
All right.
I'm going to let you continue to lead.
You've got no shortage of interesting tales to tell.
The other significant one that I stumbled upon involves long-term care insurance.
This was a big product back in the 1970s and 80s.
I was doing some research in this area.
And there's a lot of information that's available and it's produced by the NAIC. So we go look through this thing, and I'm seeing all these reserve adjustments and everything like that, and it all seems to be from policies that are from 2002 and before, or predating 2003. So the way the information is organized is I got my policy level detail one report and then the years that the policy was written in another report.
So one of the things if you're doing this kind of work you got to be aware of is like information that should be together is like spattered about and you've got to reassemble it into something coherent which is what we did.
So then we're looking at this and I keep seeing that like all this crazy reserve stuff and a reserve basically Is what you're going to, is a reserve to pay future premiums.
So if you're under-reserved, you, not future premiums, future claims.
So if you're under-reserved, you can't pay your claims going forward.
So we look into this, we look into this, and then General Electric has a big $14.5 billion reserve adjustment.
Genworth had one, and there were a whole host of other carriers, and we're like, what happened with this?
Well, They come up with a story, but what we discerned was a true story was in 2000, this Fair Rate Act came out.
Let me make sure I got the name of it right.
Fair rate act.
So that was the NAIC that did that.
Anyway, what it basically said was, we're fixing the problem going forward because these things weren't properly priced.
So anybody getting a long-term care policy going forward, it's fixed for.
But the folks who have a long-term care policy that predates that, we're doing nothing for.
So it's a ticking time bomb.
Like the way insurance works, it's a math equation that solves as people age.
So the industry, neither the industry nor the regulators let anybody know, and it's 5 million people, is my estimate.
So this is like a lot of people.
They were trapped in this policy, this long-term care policy that was going to increase.
The rate premiums on, not exponential, well, if it starts up, like two, four, five, ten times until they get paid a claim, and they're not aware of it.
So we hired a crusty old long-term care insurance guy, and he goes, and the people, the horrible thing about it was these people who were going to be victimized by it were walking around thinking they were the luckiest people in the world because they got in before the rates went up, right?
Not knowing that, no, you're going to get crushed.
And then if you know how the economics work on this, basically when somebody can't afford the premium escalations to come in, then they lapse the policy.
And when they lapse the policy, the reserve underneath it is released as profit.
So long story short, somebody, when they establish that there's a huge problem with long-term care pricing big enough for the NAIC to go through and do something with it, that instead of them notifying the people that have the affected policies, they're going to be crushed.
They tell them nothing.
They just fixed the problem going forward.
So there's a cohort, I think, of about 2.3 million people now that have policies dating back to that that should have been warned that, you know what, you have a choice here.
You can pay another 10 years of premiums, 20 years of premiums, but guess what?
It's going to escalate and it's going to become unaffordable to you.
Or we can just leave you in the dark, let you pay that, and then turn all that into profit when you lapse your policy.
So they didn't even get alerted.
No, they weren't alert.
They fixed the problem going forward and kept everybody in the dark who had it existing, and then it was a ticking time bomb for them, and then that's been playing out.
And you still see these articles on long-term care premium increases to this day.
It'd be nice if somebody would pay attention to that and do something for those people.
But to your point, Brad, so you would think AARP would be paying attention to that or doing something to look out for seniors, but they're not.
I mean, you would think they would be spearheading this, but you have the media doesn't cover it, and the groups that are supposed to look out for their interests also aren't covering it.
So the long-term care thing is another one that I've stumbled upon that might be nice if somebody did something about it.
Well, you're fleshing out my model of no matter how cynical you are, you're still being naive because this is impressing.
Even me, and I thought I was pretty aware of how much fraud was involved in our system.
I did want to talk about...
The question of too big to fail, which I think actually hints at why our system has become so fundamentally corrupt.
Is that the right way to say it?
So basically corrupt.
In the too big to fail story, I never hear it described correctly.
So this is 2008. At the end of it, actually even in the midst of it, entities...
We're so large and so integrated into the way our economy functioned that they were understood to be too big to fail, which really means too big to be allowed to fail.
They weren't so big that they couldn't fail.
In fact, they were failing.
But there's a way in which this is accurate, right?
There's a way in which somebody hollows out an important institution and The fact that the institution is a fraud doesn't mean that letting it fail isn't worse for the victims of the fraud.
However, what was never explained to me is why, in saving those institutions, the people who steered them into trouble needed to be bailed out.
Seems to me that it is perfectly consistent with the recognition that some institutions are too big to be allowed to fail, that the people who wrecked those institutions should be punished.
That they should not have come away from this rich.
Some of them should have certainly gone to jail.
And the fact that they didn't is the reason that we are now still talking about this in 2025. Because if the system did suss out where the rackets are, punish the people who corrupted those systems, then the point is a lot more people would attempt to do honest work.
But it's hard to get people to do honest work when they are being out-competed by people who are engaged in fraud, which is increasingly pervasive in our system.
Yeah, I'd agree.
I mean, if you look at where the brightest people go out of college or graduate schools, it's in the Wall Street or private equity where they devise these schemes.
It's not into anything that's productive.
And, you know, I remember when you get out of college and go work in a warehouse and have a car and support your family and take vacations and everything like that.
And everything seems to have changed without anybody becoming aware of how it was changing.
I think along the way.
Do you have a sense?
So you're a whistleblower, which means that you're an outsider, even though traditionally we might think of whistleblowers as insiders.
Most whistleblowers are not involved in the fraudulent activity.
Maybe they're on the shop floor and they detect something.
Do you have a sense?
For what the conversations sound like in the places where these frauds are architected.
When private equity is involved in a fraud, do we have any idea what those people sound like to themselves?
Well, I would say the one conversation I think that happened after the financial crisis is everybody got together.
Everybody, I don't know necessarily got together, but it was kind of like, holy shit, can you believe we got away with that?
Because I think everybody was astonished, even them, that no one went to jail and no one was punished.
And I think that was maybe a very telling demarcation point from when we went from something that...
Something that functioned the way it should function to something that didn't.
And then if you have no consequences, if you have no downside, then basically why wouldn't you pursue that course of action?
Right.
In fact, evolutionarily, this is just obvious that effectively the profit and no punishment through fraud is a beacon telling you that this is the way that...
One creates wealth in the system.
It is telling you what the actual rules of the system are.
And we, of course, inevitably get the system that we ordered, right?
If we punish fraud, then we won't see a lot of fraud.
If we reward fraud, if we fail to punish it and allow it to be its own reward, we will see frauds elaborate.
We will see them become ever more Yeah, and in a way, it kind of goes further than that.
So I've been working on a case for an extended period of time.
And I think what the takeaway from it is that we're finding is That this whole globalization and financialization, reorientation of our economy and everything, was number one, a bad idea.
And then number two, we have evidence that it was kind of failing in the 90s, in the late 90s, obviously.
And instead of everybody redirecting and saying, wait a minute, this model isn't working, they basically started hiding its failure.
And it continued on and then ultimately expressed itself in the financial crisis with the blow-up of this financialization orientation.
But the globalization component of things, I mean, it didn't work either.
I mean, it created China.
You've just got to wonder, this single-minded pursuit of wealth has compromised a lot of people's lives in a way that we had a system that seemed to work pretty well.
And instead of sticking with it, we completely reoriented and they created the greatest wealth disparity since the Gilded Age.
So it worked.
But no one has told that story.
And when you start going through and chasing the money and everything, you start to get a view in terms of what really has been going on here.
And it's not good.
Well, this has been...
A fascinating, if disheartening, discussion.
Is there anything further that you think we should be talking about?
Obviously, we are at a transitional moment between administrations, at the very least.
What should we know?
Well, the one thing that I'd like to point out here...
It would be hopeful of is I don't think President Biden, even though it was his SEC that was taking us to court and all that, I don't think he's aware that his administration actually treated three people who did the extraordinary job that we did the way that we've been treated.
So there is the exemptive authority that they have.
And if the Biden administration, I believe, still has the opportunity to fix that, it would be great if they could fix that.
And there are three people that would like who...
Basically, just trying to help out.
Other people could be rewarded for doing that.
That would be greatly appreciated.
That'd be one.
Number two, along the same lines with the other two ones that I brought up, whether it's the for-profit school students, I'm happy to provide that information to them.
It's actually in the SEC's files as we stand here.
And then with respect to the subprime people that have the HUD lien, you know, if you could do something for them, I think a lot of people would really appreciate that, too, because the ultimate goal here Like, let's take care of people because we haven't been doing a good enough job of that.
Yes, I would love to see the Biden administration do some good on the way out.
I'm mortified by much of what it has done, aside from the pardoning, not pardoning, the freeing of Julian Assange.
It's a pretty bleak picture, but it would be wonderful and it would be a signal that actually maybe the little folks in the world.
Show up on the Biden administration's radar somewhere.
All right.
John, you're not, in general, a wildly public person, but where should people find you?
You know, the funny thing is there probably isn't a way they can find me.
But if anybody wants to reach out by email or whatever, my email is John M. J.O.H. and M at M.M.S. Advisors, which is my firm, Mary Mary Sue Advisors, plural dot com.
All right.
Well, John, it's been a real pleasure, and I look forward to seeing what you come up with next.
