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Markopolos: SEC's regional turf tiffs hampered case

Accountant was warned N.Y. didn't like tips from Hub

Harry Markopolos testifies yesterday. Harry Markopolos testifies yesterday. (Susan Walsh/ Associated Press)
By Beth Healy
Globe Staff / February 5, 2009
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Harry Markopolos, the man who tried to tip off federal regulators about the Bernard L. Madoff scandal for nine years, yesterday told lawmakers that turf battles between the Boston and New York offices of the Securities and Exchange Commission were at the heart of the agency's bungling of the case.

Speaking before the House Financial Services subcommittee, Markopolos recalled that one SEC staffer in Boston who had listened to him warned him "that relations between the New York and Boston regional offices were about as warm and friendly as the Yankees-Red Sox rivalry."

Madoff was arrested in December for allegedly running a $50 billion Ponzi scheme, evidence of which Markopolos said he had "giftwrapped and delivered" to SEC staff, but the SEC did nothing.

Markopolos, a 52-year-old accountant from Whitman, said he first contacted the SEC's Boston office in 2000. He said Ed Manion, a staff member there, was helpful but was unable to persuade his superiors to investigate the case.

Manion advised Markopolos to send his evidence to the New York office, which Markopolos said he did in 2001, in a report titled "Madoff Investment Process Explained."

But nothing happened, he said. By the fall of 2005, Markopolos said, he was in touch with Mike Garrity, the branch chief of the SEC in Boston. He told congressmen yesterday that Garrity "distinguished himself" in the case, examining the evidence and agreeing there were irregularities in the Madoff operation. Garrity put Markopolos touch with SEC officials in New York because Madoff's firm was based there.

But, Markopolos said, he was warned that "New York does not like to receive tips from Boston. Truer words were never spoken."

In his testimony yesterday, a frustrated Markopolos said the SEC is "captive to the industry it regulates and it is afraid of bringing big cases against the largest, most powerful firms." He added, "Clearly the SEC was afraid of Mr. Madoff."

Markopolos figured out Madoff was running a scheme while working for Rampart Investment Management in Boston. The office math whiz, he was assigned in 2000 to learn how Madoff was achieving double-digit returns on an options strategy and to try to replicate it, but he couldn't.

Markopolos said this wasn't the first case the SEC missed. The drivers of major enforcement actions of the past decade have been the New York attorney general's office and Massachusetts Secretary of State William F. Galvin, he said. Those offices pursued mutual fund market timing and the auction-rate securities scandal, he said, "while the SEC watched quietly from the sidelines."

David Bergers, district administrator of the SEC's Boston office, declined to comment yesterday, as did a Washington spokesman for the SEC.

Tensions ran high in the hearing yesterday when SEC officials Andy Vollmer, the agency's acting general counsel, and enforcement director Linda Thomsen, refused to respond to questions about the Madoff investigation posed by Representative Gary Ackerman, a New York Democrat.

"You've told us nothing," Ackerman shouted. "You have totally and thoroughly failed in your mission, don't you get it?"

Thomsen said the SEC could not comment on the ongoing investigation of Madoff.

Mary L. Schapiro, the new head of the SEC appointed by President Obama, sent a letter to Pennsylvania Democrat Paul Kanjorski, the panel's chairman, yesterday after the hearing, saying in part: "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."

In his testimony, Markopolos said he had discovered a dozen additional funds that funneled money to Madoff, "hiding in the weeds" in Europe.

He plans to present his findings to the SEC's inspector general today.

Beth Healy can be reached at bhealy@globe.com. Material from Globe wire services was used in this report.

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