MARKOPOLOS BLOWS LID OFF MADOFF
Wall Street Corruption, Regulatory Enabling
By Wayne Jett © February 4, 2009
In testimony as riveting and revealing as any presented in the Ferdinand Pecora hearings of the Senate during 1933, Harry Markopolos CFA of Boston told the House subcommittee on financial services on February 4, 2008, that the Securities & Exchange Commission is “busy protecting big financial predators from ordinary investors.” He said FINRA, the primary self-regulatory organization of the U. S. financial industry, corruptly assists those same predators. Note that the newly confirmed SEC chairman is Mary Schapiro, the immediate past CEO of FINRA, who was Wall Street’s first choice for the SEC slot.
After hearing extensive evidence of Markopolos’ decade-long efforts unsuccessfully to persuade the SEC the largest U. S. hedge fund was a provable fraud, the House subcommittee heard from a panel of SEC staff officials who claimed privilege against testifying about Madoff. Congressman Gary Ackerman (D-NY), visibly incensed by the day’s events, said the SEC’s own statements were even more convincing that the SEC is “completely inept” than even Markopolos’ evidence.
Subcommittee chairman Paul Kanjorski (D-NY) admonished the SEC officials that their refusal to testify regarding the Madoff investigation would not stop his members from proceeding with broad-based regulatory reform, including possible abolition of the SEC.
SEC Not Corrupt
Markopolos was asked why he called FINRA “corrupt,” but did not use the same term for the SEC. He replied that if the SEC were corrupt, then his confidential evidence would have been leaked to Madoff, and he in all probability would not have lived to testify at the hearing. With regard to his evidence that the Russian Mafia invested in Madoff’s scheme, Markopolos hastened to declare that he tried to stop the Madoff fraud so as to benefit all investors, including the Russian Mafia, so he should not be mistaken as having targeted them.
Markopolos testified that, by presenting evidence of financial fraud to the SEC, he had crossed an invisible line. Crossing the line will bar him for life from working in the financial industry. He said he has known many others who have suffered similar fates in the past after speaking up against fraud and corruption.
Agents of Reform
Markopolos stands tall among few financial professionals who act in the public arena to prevent fraud and abuse of investors. Last year’s testimony on Capitol Hill by Michael W. Masters and Fadel Gheit regarding trading practices in crude oil derivatives, which pushed the price of crude so high, comes to mind as worthy of comparison to Markopolos and the team of professionals he praised for working with him. But even Masters and Gheit opined the oil price manipulation was “excessive speculation,” not unlawful or corrupt.
Markopolos rightly feels isolated in his unsuccessful attempt over nine years to get the SEC to act on his suspicions. In reality, however, he follows many other Americans who have gone before him in similar quests. Literally thousands of CEOs and other corporate officers have pleaded in vain for action by SEC staff to prevent fraudulent plundering of their share price by financial predators. Tens of thousands of ordinary shareholders have done the same. These people have communicated millions of letters, emails and telephone calls to senators and congressmen begging for fair and effective enforcement of federal securities laws. Responses to all these complaints were no different in substance from the SEC’s cold shoulder to Markopolos.
Manning the Barricades
The SEC has been a raging scandal for the past three years while its quashing of the only investigation of market fraud by the largest hedge fund was unraveled by two Republican senators, Specter and Grassley, over strenuous objections of Senators Dodd, Schumer and Shelby. Specter and Grassley had support only from Senators Hatch and Bennett, yet they were able to unearth enough hard evidence two years ago to prove the fact stated by Harry Markopolos today: the SEC gives license to every large player on Wall Street to do whatever they wish to other investors without fear of law.
At least in the House, if not in the Senate, Democrats are taking heed of the monstrous reality that Wall Street has been and is robbing ordinary Americans daily of their hard-earned savings. They do this by selling shares they don’t own and don’t deliver (called “watering stock” in the Twenties, drawn from the practice of allowing cattle to drink deeply before stepping on the scale at sale time), with wash sales between their own accounts to fool investors about market sentiment, and with credit default swaps which more naked short selling.
The only means of avoiding economic depression yawning in the nation’s path is to bring immediate end to this financial mercantilist domination of U. S. government. Law enforcement and remediation must be brought to bear. Time is short, as the nation’s life blood pours into vessels held by the SEC’s masters. ~