Congress To Hear From SEC IG, Whistleblower, On Madoff

December 31, 2008 10:42 a.m.

Promising “the most substantial rewrite of the laws governing the U.S. financial markets since the Great Depression,” a Congressional committee has released a list of witnesses that it has called for hearings on the Bernard Madoff scandal, starting this Monday. And the makeup of the list suggests that lawmakers are serious about getting to the bottom of the Madoff matter, and preventing a repeat.

According to a press release, Rep. Paul Kanjorski will call the following witnesses before the House Financial Services committee:

– Mr. H. David Kotz, Inspector General, U.S. Securities and Exchange Commission
– Mr. Stephen P. Harbeck, President, Securities Investor Protection Corporation
– Mr. Harry Markopolos, an independent financial fraud investigator for institutional investors and others seeking forensic accounting expertise, as well as a Chartered – Financial Analyst and Certified Fraud Examiner
– Mr. Allan Goldstein, a retiree and investor with Bernard L. Madoff Investment Securities
– Ms. Tamar Frankel, Professor of Law and Michaels Faculty Research Scholar, Boston University School of Law
– Mr. Leon Metzger, adjunct faculty member at Columbia University, Cornell University, New York University, and Yale University

There are a number of interesting things here….

As SEC IG, Kotz is, at the request of the agency’s chair Chris Cox, looking into how the SEC missed an alleged fraud of Madoff’s size, during several investigations into his business over the last decade. So the invitation to Kotz to testify suggests that Kanjorski and his colleagues will focus in part on fixing the SEC’s myriad problems.

The SIPC is a federal fund created to cover fraud losses in brokerage accounts, which is preparing to compensate Madoff investors. So the inclusion of its president, Stephen Harbeck, suggests the committee will also focus on the pressing question of which of Madoff’s alleged victims will be made whole — an issue that currently remains opaque. That impression is reinforced by the inclusion of a Madoff investor, Allan Goldstein, on the list.

But the name Harry Markopolos may stand out the most. It was Markopolos, then a rival broker, who first argued, in a detailed complaint to the SEC, that Madoff’s returns were too consistently high to have been achieved honestly. His testimony could provide some preliminary insight into how Madoff set up a system that deceived investors and regulators for so long.

We’ll bring you all the news from the hearings next week…

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