Lawmakers clash with SEC over Madoff probe

updated 2:22 p.m. ET Feb. 4, 2009

WASHINGTON - House lawmakers on Wednesday accused the Securities and Exchange Commission of impeding their probe into how the agency failed to uncover the alleged $50 billion fraud perpetrated by Bernard Madoff.

The clash between lawmakers and high-ranking SEC officials came at a hearing after the whistleblower in the case, Harry Markopolos, said he had feared for his physical safety and would turn over new evidence to the agency showing the alleged Ponzi scheme mastermind had not acted alone.

Markopolos said he had discovered a dozen additional funds that funneled money to Madoff, "hiding in the weeds" in Europe. Managers of investment "feeder" funds that relayed money to Madoff willfully turned a blind eye to his improprieties because they were paid generous fees, Markopolos said.

He plans to present his findings to the SEC's inspector general on Thursday. If proven, they would substantiate the assertions of many analysts that the alleged fraud was far too large for Madoff to have conducted alone.

Madoff, a prominent Wall Street figure who had been chairman of the Nasdaq Stock Market, was arrested in December after allegedly confessing to his sons that he had bilked investors in what the authorities say may be the largest Ponzi scheme ever.

Markopolos also planned to provide information on what he called a "mini-Madoff," another Ponzi scheme he said he's uncovered that may have defrauded investors of as much as $1 billion.

In loud, angry exchanges, lawmakers threatened to issue subpoenas to SEC officials to compel their testimony.

Rep. Paul Kanjorski, D-Pa., the House Financial Services subcommittee's chairman, vented frustration after the SEC's acting general counsel said the five officials appearing before the panel couldn't answer lawmakers' questions about the Madoff case because it's under investigation. The five SEC commissioners voted earlier to assert a privilege in not having officials answer questions from Congress.

Kanjorski accused the agency of impeding the panel's investigation, calling it an "abuse of authority."

It was a blistering escalation of criticism of the SEC, which has been blasted by lawmakers and investor advocates over its failure to discover Madoff's alleged $50 billion Ponzi scheme, despite the credible allegations brought to it over years. Against the backdrop of the worst financial crisis since the 1930s, lawmakers of both parties are calling for a shake-up of the agency.

Linda Thomsen, the agency's enforcement director, said the SEC takes the Madoff case very seriously, but asserted there were confidential areas related to the ongoing investigation that couldn't be publicly discussed.

The SEC officials said the agency is looking at possible changes in the wake of the scandal, including more frequent examinations of investment advisers and improving its process for assessing risk. President Barack Obama's new SEC chief, Mary Schapiro, has pledged to revitalize the agency's enforcement efforts.

But any changes will come too late for Markopolos, who said that because of the SEC's inaction, "I became fearful for the safety of my family."

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