Madoff tipster blasts SEC for ineptitude

Steve Thel in Marketplace, February 04, 2009

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KAI RYSSDAL: The Securities and Exchange Commission doesn't usually get much attention. But put a whistle blower in front of a Congressional committee and attention you will get.

Harry Markopolos spent 10 years trying to get regulators to look into disgraced money manager Bernard Madoff, without much luck, though.

HARRY MARKOPOLOUS: 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.

Marketplace's Jeremy Hobson has our story.

JEREMY HOBSON: Members of Congress were stunned by Harry Markopolos's testimony today. Markopolos said it took him five minutes to determine that Bernie Madoff's fund was a fraud.

MARKOPOLOS: And I wish I had a whiteboard and easel here, but I don't. So I'm going to give you a hand signal, and I'm going to show you what his performance-return line looked like. It was a 45-degree angle without any variation. It went in only one direction -- up.

Markopolos's allegations sent members of Congress yelling at SEC officials.

That's nothing new to Stanley Sporkin, a former director of the SEC's division of enforcement. He says the agency has always been a whipping boy.

STANLEY SPORKIN: It's probably a year ago when the top officials in Washington were complaining about the SEC being too tough, and that all the business was going to go to London, and that you had to cut back on regulation.

Sporkin says, if anything, the SEC needs more authority.

Steve Thel teaches securities regulation at Fordham Law School. He says the SEC may get it, but in some areas, it may have to cede authority to the Fed.

STEVE THEL: It's pretty clear that the SEC was an ineffective regulator of the capital of investment banks. But at the same time, it's likely that the kind of authority that the SEC might have used to pursue Madoff, the Commission's going to continue to have, in all likelihood, and in fact is probably going to get more.

Thel says the agency's problem isn't the amount of power it has, but rather the ideologies of some of its commissioners.

THEL: For the last few years, it has moved away from trying to enforce the laws towards a skepticism of the very idea of regulation at the top.

Congress tried unsuccessfully to boost the agency's budget last year. But today's showdown may have whet Washington's appetite for another try.