As has been clear for years with all the shorting and phantom-share manipulation scams, the SEC is eyebrows deep in the problems vs. the solutions....
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Whistleblower says Madoff had help, blasts SEC
Wed Feb 4, 2009 4:26pm EST
By Rachelle Younglai and Karey Wutkowski
WASHINGTON (Reuters) - Harry Markopolos, a former investment manager who warned U.S. regulators about Bernard Madoff, criticized the Securities and Exchange Commission and said on Wednesday that Madoff had help in running his alleged $50 billion fraud.
Markopolos told Congress that the SEC staff was neither willing nor able to uncover what Madoff, accused of having run the world's biggest Ponzi scheme, was really doing. He also said that he knows the names of a dozen other so-called feeder funds that helped Madoff raise money from pension funds and wealthy investors and that he would turn these over to regulators this week.
Calling SEC staff "too slow, too young and too undereducated," Markopolos said regulators "did not understand the red flags and could not do the math."
"They looked at the size of Madoff and said he's a big firm and we don't attack big firms," Markopolos said about U.S. regulators.
Madoff, a former chairman of the Nasdaq stock market, has been accused of running a massive Ponzi scheme in which he paid of earlier investors with money from later investors.
The failure of the SEC to detect the massive scandal was examined at a U.S. House Financial Services subcommittee hearing on Wednesday. The panel is gathering information before it launches a broad reform of U.S. financial regulations.
At the hearing, Markopolos described his probe of Madoff and attempts to share information with SEC officials. As early as May 2000, Markopolos said, he provided the SEC's Boston office with evidence that he said should have triggered an agency investigation of Madoff.
Over the subsequent years, Markopolos said he resubmitted the evidence to the agency, but to no avail.
"I gift-wrapped and delivered the largest Ponzi scheme to them," said Markopolos, who is now working as a fraud examiner.
Markopolos said the SEC's enforcement division lacks experienced financial experts and is hindered by lawyers who do not understand red flags. Markopolos also highlighted turf battles between the SEC's Boston and New York regional offices and said the agency was captive to industry.
"There are no incentives for the SEC to find fraud," he said.
Markopolos and Madoff were Wall Street competitors when Markopolos was the former chief investment officer of Rampart Investment Management. Markopolos began looking closely at Madoff in 1996 after his boss at Rampart asked him to figure out how to match the returns of Madoff's firm. Markopolos said his analysis convinced him it was impossible for Madoff to consistently outperform the markets.
Markopolos had harsh words for some SEC employees, such as Meaghan Cheung, the agency's New York branch chief whom he had contacted in November 2007. Cheung, Markopolos said, never grasped the concepts in his report or asked him any questions.
"Her arrogance was highly unprofessional, given my understanding of her responsibility and mandate," Markopolos told the Congressional panel, which held the hearing as it considers broad financial regulatory reforms. Cheung left the SEC in fall of 2008.
REGULATORY REFORM EYED Continued...
reuters.com
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