Lawmakers Sink Teeth Into the SEC
Agency Mocked for Not Catching Madoff

By Frank Ahrens
Washington Post Staff Writer
Thursday, February 5, 2009

Lawmakers gave officials from the Securities and Exchange Commission a severe tongue-lashing yesterday over investment fund manager Bernard L. Madoff, accused of running nothing more than a $50 billion Ponzi scheme.

Members of a House Financial Services subcommittee were angry at the SEC officials for two reasons: failing to catch Madoff before he defrauded investors despite detailed and ample warnings from whistleblower Harry Markopolos, yesterday's star witness, and failing to answer specific questions about Madoff, citing a form of executive privilege.

Time and again, SEC enforcement chief Linda Chatman Thomsen and acting general counsel Andrew N. Vollmer said they were unable to answer the panel's questions because the agency itself is being investigated by its inspector general for the way it handled Markopolos's tips, which came to the SEC nearly a decade ago.

Rep. Gary L. Ackerman (D-N.Y.) delivered the most sustained and withering attacks on the witnesses.

"The economy is in crisis," Ackerman said. "We thought the enemy was Mr. Madoff. I think it's you," Ackerman said to Vollmer.

"Your value to us is useless," Ackerman continued. "Your value to the American people is worthless, your contribution to this proceeding is zero."

Ackerman then employed a colorful metaphor to describe how the SEC responded, or did not, to Markopolos's investigation.

"One guy with a few friends and helpers discovered this thing nearly a decade ago," Ackerman said. "He led you to this pile of dung that this Bernie Madoff was and stuck your nose in it and you couldn't figure it out. You couldn't find your backside with two hands with the lights on."

Ackerman was just getting warmed up.

"If anyone could make the case better than Mr. Markopolos, and I didn't think they could, about you people being completely inept, you have made the case better than him," Ackerman said.

"I am profoundly sorry you feel that way," Thomsen replied, meekly.

Ackerman, though, reserved his harshest treatment for Vollmer, trying to get him to admit, simply, that the SEC officials are relying on executive privilege to avoid answering some questions -- a position Vollmer said the SEC commissioners approved, though without consulting the Justice Department.

"How did you screw up?" Ackerman asked.

"Let's let the system work that Congress created," Vollmer said. "There will be some recommendations and time for the committee to look at the facts . . . "

Ackerman interrupted: "We wouldn't be in this mess if it wasn't for you!"

The two spent the next several minutes talking over each other until Ackerman huffed, "I'm finished."

Markopolos told the committee yesterday that after investigating Madoff, he "offered to go undercover for the SEC under their command and control" to try to catch him.

"I would have assumed a disguise as I was trained to do in the Army," Markopolos said, telling only his wife about his mission, "and led a team" that would have caught Madoff.

Markopolos told committee members that a few years ago he had handed over copies of his report on Madoff to New York officials in such a way as to make sure his fingerprints were not on the documents.

Rep. Michael Arcuri (D-N.Y.) asked Thomsen what the SEC did when Markopolos brought information.

"When Mr. Markopolos came to you, did you consider that a credible lead?" Arcuri asked.

"I can't answer that," Thomsen responded. "That is the subject of the inspector general's investigation."

Arcuri: "Ma'am, I've used that excuse a number of times, and I can't even fathom" how it would apply here, he said. "When you investigated Mr. Madoff in 2006, did you find any wrongdoing?"

Thomsen: "We did not bring an enforcement action."

Arcuri: "That's not what I'm asking."

Thomsen: "I know but, again, I can't answer any specifics about the underlying investigation other than to say what is public."

Later, Mary L. Schapiro, the SEC's new chairman, wrote to the panel's top members to say she understood the hearing must not "have been satisfactory for you." Schapiro, who wasn't asked to attend, pledged that she'd work to provide adequate information to Congress so that it can do effective oversight, while safeguarding the civil and criminal investigations. "There needs to be a full accounting, both of Mr. Madoff's activities and why we did not detect the fraud, which we truly regret," she wrote.

Staff writer Zachary A. Goldfarb contributed to this report.

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