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Gold9472
02-04-2009, 03:16 PM
Madoff whistleblower blasts SEC
A fraud investigator told Congress that he'd warned the agency about Madoff's Ponzi scheme years ago. But his efforts went nowhere.

http://money.cnn.com/2009/02/04/news/newsmakers/madoff_whistleblower/

2/4/2009

NEW YORK (CNN) -- A whistleblower who repeatedly warned the Securities and Exchange Commission that Bernard Madoff was perpetrating a massive investment fraud testified Wednesday that the regulatory agency that oversees financial markets is inept, "financially illiterate" and far too cozy with the financial titans it is supposed to be regulating.

"The SEC is also captive to the industry it regulates and it is afraid of bringing big cases against the largest most powerful firms," said Harry Markopolos, an independent financial fraud investigator. "Cleary the SEC was afraid of Mr. Madoff."

Markopolos began contacting the SEC at the beginning of the decade to warn that Madoff was a fraud. He sent detailed memos, listing dozens of red flags, laying out a road map of instructions for SEC investigators to follow, even listing contacts and phone numbers of Wall Street experts whom he said would confirm his findings. But, Markopolos' whistle-blowing effort got nowhere.

"I gift wrapped and delivered the largest Ponzi scheme in history to them and some how they couldn't be bothered to conduct a thorough and proper investigation because they were too busy on matters of higher priority," Markopolos told the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises.

Agency squabbles
After at first receiving an encouraging reception from the SEC's Boston Bureau Chief, Edward Manion, Markopolos said the New York SEC office, which supervised Boston, blocked a further investigation.

"In 2000 Mr. Manion warned me that relations between the New York and Boston regional offices was about as warm and friendly as the Yankees-Red Sox rivalry and that New York does not like to receive tips from Boston," Markopolos testified.

Markopolos said it took him five minutes to conclude that Madoff was a fraud after looking at his reported investment performance, and four hours of actual number-crunching analysis to confirm his suspicions.

Bernard Madoff, who is now under 24-hour house arrest at his Upper East Side luxury apartment, faces one charge of securities fraud for allegedly running a scheme that cost investors around the globe tens of billions of dollars. The single criminal count carries a maximum sentence of 20 years in prison. Madoff estimated the investment loss at $50 billion, according to the criminal complaint.

Markopolos initiated his investigation after one of his bosses at his former employer, Rampart Investment Management, asked him to replicate Madoff's investment strategy.

As he dug deeper, Markopolos said he began to fear for his life, convinced that Russian mobsters and Latin American drug cartels were Madoff clients. When he tried to deliver an investigative file to former New York Attorney General Eliot Spitzer, Markopolos said he wore gloves to ensure his fingerprints would not be on the documents.

Markopolos said the SEC is in need of a major overhaul. Senior managers should be replaced, lawyers should be separated from financial investigators, and the agency should hire employees who have years of Wall Street experience, he said.

"You want reverse age discrimination. Hire the old foxes to police the henhouse," he said.

Senior SEC staff directors told the Committee they are dedicated to protecting investors and cracking down on fraud.

"We assure the Subcommittee that the Commission and its staff take the alleged Madoff fraud very seriously. The losses incurred by investors as the result of Mr. Madoff's alleged fraud are tragic, and we appreciate the impact of those losses on the lives of investors," SEC Director of Enforcement Linda Chatman Thomsen said in a statement.

Markopolos said he intends to turn in a "mini-Madoff" who has engaged in a $1-billion financial fraud tomorrow when he meets with the SEC's Inspector General David Kotz.

Kotz, who is studying the SEC's failure to respond to Markopolos' warnings about Madoff, confirmed to CNN that on Thursday he is scheduled to meet with Markopolos.

Gold9472
02-04-2009, 03:22 PM
According to the 9/11 Commission regarding the put options, “The SEC and the FBI, aided by other agencies and the securities industry, devoted enormous resources to investigating this issue, including securing the cooperation of many foreign governments. These investigators have found that the apparently suspicious consistently proved innocuous.”