Harry Markopolos, the famously ignored Madoff whistleblower whose well-informed and detailed warnings about Bernard Madoff were disregarded for years by regulators, testified before House Financial Services Committee today that the SEC is “incompetent,” among other things. But he had even harsher words for FINRA.
Looking every bit the part of a financial analyst propeller-head in his mauve suit, canary yellow shirt and tie, partial comb-over and glasses, Markopolos was calm and confident seated before the committee and even appeared to be enjoying retelling his story of how completely he was ignored by the nation’s top financial watchdog. Congressional committee members heaped praised on Markopolos for his efforts, ineffectual as they were.
Markopolos’ written testimony detailing much of what he described in his letters to the SEC can be viewed here. His answers to committee member questions repeatedly recounted the incompetence and lack of interest at the SEC despite the meticulous analysis he and his partners had compiled for them in letters they sent on more than a half-dozen occasions to the SEC’s Boston offices. At one point he said his devotion to bringing down Madoff coupled with his military training made him perfectly comfortable and willing to go “deep cover” on behalf of an investigation, “even don a disguise” and “not inform his wife.” As he grew more comfortable behind the microphone, Markopolos ripped the SEC in ever more creative ways. “There are 3,500 chickens in the SEC. We need a few more foxes … particularly at the senior level,” he said. And there was this zinger: “You could fly the entire staff of the SEC down to Fenway Park in Boston, have them spend the afternoon there, and they still couldn’t find first base.”
In perhaps the highlight of Markopolos’ time behind the mic, he announced that tomorrow he plans on giving SEC Inspector General Kotz another Ponzi perpetrator he’s uncovered (view the video clip, here). We’ll have to wait and see what comes of that juicy bit of information.
With the vitriol in the room building, Markopolos gave the stage to five SEC officials, including Andrew Donohue, director of division of investment management; Lori Richards, director of the Office of Compliance and Inspections; Erik Sirri, director of the division of trading and markets; Linda Chatman Thomsen, director of the division of enforcement and Andrew Vollmer, deputy general counsel at the SEC. FINRA’s interim CEO, Stephen Luparello was also there.
From the outset, committee members attacked the SEC officials, demanding to know what had been learned from the Madoff investigation. Unfortunately, deputy general counsel Vollmer prevented that, citing the fact that the investigation was ongoing. Rep. Ackerman (D-N.Y.) got so frustrated at that response that he let fly with this comment: “I am frustrated beyond belief. We are talking to ourselves and you are pretending to be here. You’ve told us nothing. What the heck went on? What went wrong? One guy with a few friends and helpers found this fraud over a decade. You guys couldn’t find your backside with two hands when the lights are on. You have totally failed in your mission.” He followed that one up later with this one to the panel: “Your contribution to this proceeding is zero. We thought the enemy was Mr. Madoff. I think it’s you.” Ouch.
But if the SEC was incompetent and under-compensated and couldn’t find its own backside, FINRA didn’t fare any better in Markopolos’ assessment. (The committee let FINRA’s Luparello off easy, only asking him one question.) Asked by a committee member to compare the two agencies failings, Markopolos said, “I never thought the SEC was corrupt … FINRA is definitely in bed with the industry.” Asked later by Rep. Kanjorski about those comments as well as which one Markopolos thought was better, “a corrupt regulator or an incompetent one,” Markopolos answered, “I’d give the SEC an A+ for incompetence and FINRA an A+ for corruption.” That he’s still living after years of trying to put a stop to Madoff is proof the SEC isn’t corrupt, he says. “I don’t think I’d be standing here today if the SEC had taken money, had told Mr. Madoff my identity,” he said, referring to press reports that international organized crime syndicates were invested with Madoff.