Legal News

Squaring off Today on Capitol Hill: Markopolos and the SEC

By Dan Slater

In a few minutes, fraud investigator, Madoff whistle-blower and Man-of-the-Moment Harry Markopolos will testify before the House Committee on Financial Services. Markopolos (pictured), who had warned the SEC for nearly a decade that Madoff was operating a Ponzi scheme, has criticized, rebuked and indicted the SEC for its oversight failure in the Madoff case.

His testimony, which you can find here, offers a new level of detail.

From page 15:

My experience with New York Branch Chief Meaghan Cheung . . . demonstrated to me an SEC failure in providing appropriate personnel to understand the case I was submitting. Ms. Cheung also never grasped any of the concepts in my report, nor was she ambitious enough or courteous enough to ask questions of me. Her arrogance was highly unprofessional given my understanding of her responsibility and mandate. When I questioned whether she understood the proofs, she dismissed me by telling me that she handled the multi-billion dollar Adelphia case. I then replied that Adelphia was merely a few billion accounting fraud and that Madoff was a much more complex derivatives fraud that was easily several times the size of the Adelphia fraud . . . She was unresponsive and mostly uncommunicative when I did call, demonstrating a lack of interest and acumen for this area of investigation.

Ms. Cheung could not be reached for comment. The SEC did not respond to requests for comment, but forwarded along the expected testimony from SEC representatives, also set to testify today:

The SEC staff receives hundreds of thousands of tips each year from various sources. Some are from credible sources that provide detailed information in support of the tip, and some are newspaper clippings or printed promotional material sent with no further explanation. . . While the SEC does not have the resources to fully investigate all tips and complaints received, SEC staff use experience, skill and judgment to triage the complaints to devote attention to the most promising leads and the most serious potential violations.

Among those scheduled to testify for the SEC: Andrew J. Donohue, Director, Division of Investment Management; Lori Richards, of the office of compliance; Erik Sirri, from the division of trading and markets; Linda Chatman Thomsen, from the division of enforcement; and Andrew Vollmer; from the office of the general counsel.

Full post as published by Law Blog - WSJ.com on February 04, 2009 (boomark / email).