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Markopolos: I gift wrapped and delivered the largest Ponzi scheme in history to the SEC

February 4, 2009

This morning, the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises is holding a hearing to assess the alleged $50 billion investment fraud engineered by Mr. Bernard L. Madoff. This is the second in a series of hearings that will help to guide the work of the Financial Services Committee and the Capital Markets Subcommittee in the 111th Congress in undertaking the most substantial rewrite of the laws governing the U.S. financial markets since the Great Depression. Earlier coverage of this hearing on The Gavel>>

Chairman Paul Kanjorski, Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises:

Chairman Kanjorski: “Unlike many others who suspected that something was amiss in Mr. Madoff's operations, Mr. Markopolos took the extra step of alerting authorities at the Securities and Exchange Commission about his concerns. As we will learn from his testimony, Mr. Markopolos was justifiably relentless in ringing alarm bells. Unfortunately, our regulators failed to follow his roadmap and heed his warnings. As a result, thousands of investors were hurt.”

Harry Markopolos, an independent financial fraud investigator for institutional investors and others seeking forensic accounting expertise, as well as a Chartered Financial Analyst and Certified Fraud Examiner:

Markopolos: “As early as May 2000, I provided evidence to the SEC's Boston Regional Office that should have caused an investigation of Madoff. I re-submitted this evidence with additional support several times between 2000 — 2008, a period of nine years. Yet nothing was done. Because nothing was done, I became fearful for the safety of my family until the SEC finally acknowledged, after Madoff had been arrested, that it had received credible evidence of Madoff's Ponzi Scheme several years earlier…I gift wrapped and delivered the largest Ponzi scheme in history to the SEC, and somehow, they couldn’t be bothered to conduct a thorough and proper investigation because they were too busy on matters of higher priority. If a $50 billion dollar Ponzi scheme doesn’t make the SEC’s priority list, then I want to know who sets their priorities.”

Rep. Perlmutter and Mr. Markopolos:

Rep. Perlmutter: “When you vilify people who are regulating the system so that taxpayers don't have to pick up the pieces, or the depositors of a bank don't have to pick up the pieces, or shareholders don't have to pick up the pieces — but when you vilify those regulators, then you make them out to be the bad guys in the system, then they become the bad guys in the system. There are philosophical differences between my side of the aisle where there's the need for regulation so the need for taxpayer doesn't have to pick up all the pieces when everything goes to hell, and wanting to keep the market completely free so that the guy can make the last obscene buck.”

Rep. Speier and Mr. Markopolos:

Rep. Speier: “You spoke about not using your name, handing over documents with gloves on–that’s a bit of paranoia, one might say. I want to know why you had that concern and if you suffered any recriminations?”

Mr. Markopolos: “Mr. Madoff was running such a large scheme, of unimaginable size and complexity, and he had a lot of dirty money…When you’re that big, and that secretive, you’re going to attract a lot of organized crime money. Money we now know came from the Russian mob and the Latin American drug cartels. When you are zeroing out mobsters, you have a lot to fear. He could not afford to get caught, because once he was caught, if he would have known my name and knew that he had a team tracking him, I didn’t think I was long for this world.”

Rep. Ackerman questions representatives from the U.S. Securities and Exchange Commission (SEC):

Rep. Ackerman: “Your mission, you said, was to protect investors and detect fraud quickly. How’d that work out? What went wrong? It seems to me that with all of your investigators, and all of your agency, and all that you described — it was one guy, with a few friends and helpers who discovered this thing nearly a decade ago, led you to this pile of dung that is Bernie Madoff and stuck your nose in it, and you couldn’t figure it out. You couldn’t find your backside with two hands if the lights were on. Could you explain yourselves? You have single-handedly defused the American public of any sense of confidence in our financial markets if you are the watchdog. You have totally and thoroughly failed in your mission.”

Rep. Maloney questions representatives from the U.S. Securities and Exchange Commission (SEC):

Rep. Maloney: “Mr. Markopolos in his testimony earlier testified that he brought complaints five times in writing to the SEC. These were detailed complaints, it wasn’t ‘I think something’s wrong,’ these were detailed complaints that this is wrong, they’re not trading, here’s examples, and it was a very specific complaint – not once, not twice, not three, not four, but five times to the SEC. He said he had the support of some people in the SEC, professionals saying that this needed to be investigated. How many more times would a whistleblower have to bring complaints to the SEC for them to have investigated the Madoff case?”