Madoff Whistle-Blower Cites 'Abject Failure' by Regulatory Agencies
By MICHAEL R. CRITTENDEN
FEBRUARY 3, 2009, 5:48 P.M. ET
WASHINGTON -- The Securities and Exchange Commission for years ignored detailed warnings regarding Bernard Madoff's alleged Ponzi scheme, the man who blew the whistle as early as May 2000 is slated to tell U.S. lawmakers Wednesday.
Harry Markopolos, an independent fraud investigator, said in more than 300 pages of testimony before a House committee that he was repeatedly ignored or given the brush-off by SEC officials.
"There was an abject failure by the regulatory agencies we entrust as our watchdog," Mr. Markopolos said in the remarks prepared for a Wednesday morning hearing and obtained by Dow Jones Newswires.
Mr. Markopolos's two previous Capitol Hill appearances have been canceled at the last minute, and interest is high as to the insight he can provide into one of the greatest Wall Street swindles of all time.
In the documents provided to the committee, he describes his efforts, which began as early as 1999, like a military intelligence operation. Mr. Markopolos said he and his team of investigators collected "intelligence reports from field" operatives and developed networks of contacts to provide information on Mr. Madoff's operation and the feeder funds that allegedly contributed to the Ponzi scheme.
Mr. Markopolos expresses frequent frustration with his repeated meetings with SEC officials, who he claims asked few questions and made little effort to understand the complicated derivatives instruments allegedly used by Mr. Madoff to bilk investors.
He said his experience with the SEC "led me to conclude that the SEC securities lawyers, if only through their ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed."
"I was dismissed and ignored," Mr. Markopolos said, "making any further attempts to explain on my part impossible."
Mr. Markopolos acknowledged that they did not go through official channels beyond the SEC to expose their suspicions. He said he did not think the FBI would take them seriously because of the SEC's decision not to pursue the case. The group also did not contact the Financial Industry Regulatory Authority because of Mr. Madoff's family connections to the group.
He also said in his narrative to a House Financial Services subcommittee that he and his team of investigators were worried for their safety because of Mr. Madoff's position as a powerful Wall Street investor. This led them to anonymously submit some documents to the SEC and not always identify themselves to officials.
"My team and I surmised that if Mr. Madoff gained knowledge of our activities, he may feel threatened enough to seek to stifle us," he said in the testimony.
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Text of Markopolos testimony:
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