A former rival of alleged Ponzi-schemer Bernard Madoff launched a scathing attack today on the Securities and Exchange Commission for its "disastrous" handling of the Madoff investigation.
Harry Markopolos, a money manager who says he spent nine years investigating Madoff, told lawmakers on the House Financial Services subcommittee that the SEC was not competent enough to know that Madoff's business was built on fraud and that the agency was unlikely to investigate someone so prominent in the financial world.
Saying that the SEC "continues to roar like a mouse and bite like a flea," Markopolos accused the agency of having "a combination of incompetence and an unwillingness to take on a major player like Mr. Madoff."
"I gift-wrapped and delivered the largest Ponzi scheme in history to them, and somehow they couldn't be bothered to conduct a thorough and proper investigation because they were too busy on matters of higher priority," Markopolos said. "If a $50 billion Ponzi scheme doesn't make the SEC's priority list then I want to know who sets their priorities."
Madoff, a prominent Wall Street figure and former chairman of the Nasdaq stock market, was arrested in December after allegedly confessing to bilking investors of $50 billion by his own estimates, in what the authorities say was possibly the largest Ponzi scheme ever. Bankruptcy trustee Irving Picard said today in U.S. Bankruptcy Court that nearly a billion dollars has been recovered for bilked investors.
Markopolos said that at times he feared for his life during the years of his voluntary investigation of Madoff because Madoff had nothing to lose.
"Mr. Madoff was already facing life in prison if he were caught, so faced little to no downside to removing whatever threat he felt we posed," Markopolos said.
"At various points in time throughout these past nine years, each of us feared for our lives," he continued, referring to a group of people he said was working with him. "Each time any of us collected information we took risks and fortunately for us we were not discovered."
Representatives of the SEC received a chilly reception this afternoon from the panel, led by Chairman Rep. Paul Kanjorski, D-Pa.
"We are committed to reducing opportunities for fraud, and to detecting it quickly, to best protect investors from those who would seek to prey on them," Linda Thomsen, director of the SEC's enforcement division, said in prepared testimony.
Still, Thomsen added, "The activities and conduct of Mr. Madoff and others are under active and ongoing investigation by criminal authorities, by the SEC's Enforcement Division and, with respect to past regulatory activities, by the SEC's Office of Inspector General. We are not authorized to provide specific information about matters under active investigation or past regulatory activities in this matter. We cannot jeopardize the process of holding the perpetrators accountable."
In testimony provided to the panel, Thomsen said the SEC is "looking at ways to improve the assessment of risk."
Markopolos said he started looking into Madoff because he worked for a rival firm and wanted to know if there was any way Madoff's investment claims were accurate. He said he stuck with his investigation for nine years because he believed Madoff was defrauding investors.