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Was the SEC ordered to stand down in Madoff's investigation?

Madoff whistleblower to slate 'inept' SEC regulators

By Stephen Foley in New York

The man who repeatedly tried to blow the whistle on Bernard Madoff's $50bn (£34.7bn) fraud will this morning brand regulators at the US Securities and Exchange Commission as "inept" and "financially illiterate".

In a damning written testimony prepared for Congress, where he will be appearing before the House financial services committee, Harry Markopolos says he feared for his safety during a nine-year campaign to unmask Mr Madoff, one of Wall Street's grandees and a former chairman of the Nasdaq stock exchange. Mr Madoff confessed in December to running "a giant Ponzi scheme" which faked returns for thousands of investors built over several decades.

Mr Markopolos, a Boston accountant, says he waged the equivalent of a military campaign, using tip-offs and intelligence reports from field officers, to build the case against Mr Madoff, but when he passed his concerns to the SEC he was repeatedly "dismissed and ignored". He says: "It led me to conclude that the SEC securities lawyers, if only through their ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed."

Many of Mr Markopolos's submissions to the SEC have now been made public, including a 2005 report entitled "The world's largest hedge fund is a fraud", which set out how Mr Madoff's purported options trading strategy could not be generating the returns he claimed. The SEC, which had often used Mr Madoff as an adviser, investigated the claims but unearthed no evidence to support any action. Officials asked few questions and made little effort to understand how complex options worked, the whistleblower claims.

Former SEC chairman Christopher Cox launched an internal investigation into the organisation's links to Mr Madoff when its failures became known last month, but the scandal has prompted renewed calls for the regulator to be replaced with a tougher body.



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