Madoff accuser to reveal another Ponzi scheme; calls SEC ineffective

ByABC News
February 4, 2009, 3:09 PM

— -- The financial investigator who repeatedly warned federal regulators that Bernard Madoff was running an alleged $50 billion Ponzi scheme told Congress Wednesday he would blow the whistle Thursday on a similar, $1 billion "mini-Madoff" scam.

In his first public testimony, Harry Markopolos said he would provide the evidence during a meeting with H. David Kotz, the Securities and Exchange Commission's inspector general. Markopolos also said he would give new information on about 12 European feeder funds that sent investors' money to Madoff.

Kotz confirmed the meeting, but said he had not yet seen the material. Markopolos gave no specifics during an, at times, explosive session of the House capital markets subcommittee.

But the Massachusetts fraud investigator held little back as he criticized the SEC.

"I gift-wrapped the largest Ponzi scheme in history for them," yet, the SEC for nine years didn't stop Madoff, said Markopolos, who accused the agency of continuing "to roar like a mouse and bite like a flea."

The SEC is bogged down in turf wars, undercut by regulatory gaps, unwilling to investigate large firms such as Madoff's and hobbled by a lack of financial derivatives experts, he charged.

Markopolos also testified he and co-investigators feared for their lives after making the allegations. Madoff, if faced with life in prison, would "face little to no downside to removing the threat that we posed," he said.

Madoff, 70, was arrested in December as the alleged scam crashed amid a wave of investor withdrawal requests. He is now under house arrest in his $7 million Manhattan apartment pending prosecution for an alleged global scam, whose victims include small investors, celebrities, charities, hedge funds and banks.

Testifying after Markopolos, SEC officials said the agency seriously examines all major fraud allegations. But they declined to discuss the handling of Markopolos' allegations, saying they did not want to jeopardize ongoing investigations.

"We didn't call you up here to hear a traveler's guide to how the SEC operates," said panel Chairman Paul Kanjorski, D-Pa.