George S. May Business Blog

Markopolos blasts SEC

Whistleblower Harry Markopolos took the stand today delivering the ultimate “I told you so” testimony. As he stood before a House subcommitte, Harry Markopolos laid into the Securities and Exchange Commission (SEC), labeling them as, basically,  a spineless agency afraid to step up to giant industry names like Madoff. Markopolos, un-intimidated by the agency’s top officials glaring him down from the back of the Washington hearing room, made a point to repeatedly trash the SEC, going as far as to say that the commission “roars like a lion and bites like a flea”.

But he didn’t stop at their ineptitude when it came to Madoff in particular:

“The SEC securities lawyers, if only through their investigative ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed” said Markopolos.

At a certain point, it is hard to fault Harry Markopolos for having so much built up aggression. According to him he pointed the finger all the way back in 2000 only to be pushed aside and ignored by the SEC. Markopolos explained to the House how he had conducted a four hour investigation revealing that Madoff’s promised returns of 10% were impossible. After the SEC didn’t respond he began to dig deeper and press harder, again to no avail. Eventually, as Markopolos got louder and no one came to his side, he admitted that he actually became increasingly worried about his safety as well as the safety of his family.

“The SEC is … captive to the industry it regulates and is afraid” of going after high up persons in the business, Markopolos testified. He asserted, the SEC “is busy protecting the big financial predators from the investors.”

Markopolos’ “told you so” testimony, didn’t just go after the commission as a whole, however. He actually singled out and then ripped a number of very powerful, high up industry officials.

Mary Schapiro took some major heat from Markopolos as he deemed her and the industry’s self-policing Financial Regulatory Authority to be “very corrupt”. Mary Schapiro, now Obama’s new head of the SEC, ran the FRA until December.

Markopolos moved from Schapiro to former New York Attorney General Elliot Spitzer. Markopolos maintained that he had sent Spitzer a package with revealing documents on Madoff, to which he received no response. Spitzer’s family trust since has been revealed as one that took losses at the hands of Madoff.

Next Markopolos moved on to Meaghan Cheung, New York office chief of the SEC: “Her arrogance was highly unprofessional, given my understanding of her responsibility and mandate”. He further attributed her lack of attention to his allegations to the fact that she simply just didn’t understand.

“The SEC was never capable of catching Mr. Madoff,” he testified. “He could have gone to $100 billion. … It took me about five minutes to figure out he was a fraud.”

Markopolos’ dedication, thoroughness, and seeming pleasure in ripping the SEC is somewhat comical if you ask me. But after nine years, can you blame him?

His testimony does raise a very important question though. Did the SEC truly miss the Madoff and his Ponzi-scheme for all these years, or is this a case where they merely ‘turned the other cheek’? Unfortunately, the more evidence that comes to the surface the more I lean toward the latter. I am far from a conspiracy theorist but I do start raising questions when we see the vast documentation that Markopolos had been collecting and pushing to the SEC for nearly a decade. How could nobody, excluding Markopolos, catch on? Is it really possible that the SEC’s New York office chief just couldn’t wrap her head around Markopolos’ allegations toward Madoff?

Possible, but highly unlikely.

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