SEC 'chickens' humbled by Madoff whistleblower

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The Independent Online

The man who waged a decade-long crusade to unmask Bernard Madoff as a swindler was so frustrated at regulators' refusal to listen that he offered to go in disguise and undercover to help gather evidence.

Harry Markopolos, a Boston accountant who said it took him "five minutes" in 2000 to realise Mr Madoff's purported investment returns were impossible, appeared in public for the first time yesterday to eviscerate the Securities and Exchange Commission for its failure to uncover a $50bn (£34.6bn) Ponzi scheme – history's largest fraud.

Appearing before lawmakers on Capitol Hill, Mr Markopolos said most of the senior staff at the SEC should be sacked and the whole organisation rolled into a new super-regulator that employed more knowledgeable financial professionals and fewer lawyers.

"The SEC staff now is 3,500 chickens, and we need to get some foxes in there," he said. The organisation continues "to roar like a mouse and bite like a flea".

For the first time, the 52-year-old Mr Markopolos told the story of how he and a small team of helpers investigated Mr Madoff by gathering evidence from market participants, rivals and more than a dozen hedge funds – many of them in Europe – that were funnelling money to the alleged fraudster.

The quartet included two formercolleagues from his old firm, Rampart Investment Management, and a trade magazine journalist whose 2001 piece raising scepticism about Mr Madoff had been brushed off by the financier. The team fell back on intelligence-gathering techniques that Mr Markopolos said he used as a special operations major in the army reserves.

"Each of us feared for our lives," Mr Markopolos said. "If he'd have known my name and known he had a team tracking him, I didn't think I was long for this world."

Although his identity was known to staff at the Boston branch of the SEC, Mr Markopolos made many of his early attempts to alert New York-based regulators using anonymous tips. He also tried secretly to alert Mr Madoff'sinvestors, once dropping an envelope of documents at a Boston library where Eliot Spitzer – the former New Yorkattorney general who campaigned against Wall Street sleaze, and who was also a Madoff investor – was due to speak. He had handled the envelope with gloves to avoid fingerprints, he told Congress yesterday. "We had to remain secret, we feared for our health and safety. The government should have no fear."

Mr Madoff was arrested on 11 Dec-ember after confessing that his investment business was "all just one big lie", and that he had long been paying existing investors with money coming in from new clients – a classic fraud known as a Ponzi scheme.

Mr Markopolos became convinced Madoff Investment Securities was Wall Street's largest fraud after, in 2000, conducting a cursory examination of the options trading strategy Mr Madoff had been claiming to use to generate returns of around 10 per cent every single year. It took him five minutes to work out they were mathematically impossible; it would take 40 minutes more research into the options market to see that the volume of options trading Mr Madoff claimed to be doing was impossible, too.

"I gift-wrapped and delivered the largest Ponzi scheme to them," Mr Markopolos said yesterday, but SEC staff were "too slow, too young and too under-educated I gave them a road map and a flashlight, but they didn't go where I told them to go, they didn't look where I told them to look, they didn't call the people I told them to call."

Mr Markopolos said he is working on numerous other cases – including a $1bn "mini-Madoff" that he intends to take to regulators this morning.

The SEC has launched an internal investigation into links between its staff and Mr Madoff and members of his family.

Chicago conmen in $44m pensioners fraud

Four Chicago conmen preyed on Brit-ish pensioners in a $44.2m fraud that was halted yesterday by the Securities and Exchange Commission, according to charges laid in an Illinois court. The men, and four related companies, are alleged to have been part of an international scam to sell penny stocks listed in the US at vastly inflated prices using cold sales calls to addresses in the UK, Germany and across Europe. Their victims number at least 1,400, the SEC said. In legal documents unsealed in Chicago yesterday, a number of British victims in their 60s and 70s describe how salesmen contacted them claiming to be from recognised UK brokerages, with hot share tips. The SEC says the stocks, which traded in the US over-the-counter market, were sold at prices that included hidden commissions of more than 60 per cent. The charges against the four men – Stefan Benger, Jason Meyers, Philip Powers and Frank Reinschreiber – are linked to an international investigation into a so-called "boiler room" scheme.