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DODD STATEMENT: HEARING ON SEC IG INVESTIGATION INTO MADOFF SCANDAL

September 10, 2009

WASHINGTON – Today, Senate Banking Committee Chairman Chris Dodd (D-CT), held a hearing on the recent report issued by the Inspector General of the Securities and Exchange Commission on their Investigation into the failure of the SEC to uncover the Bernard Madoff Ponzi scheme.
 
The Committee heard from the SEC Inspector General H. David Kotz, who discussed the findings of his report released last week detailing SEC failures, along with Harry Markopolos, a fraud examiner who repeatedly warned the SEC about Madoff’s firm.  
 
“Bernard Madoff stole $50 billion,” said Dodd.  “He stole from individuals and pension funds and charities and municipalities like Fairfield in my home state.  He stole more than money.  He stole the retirement savings and the economic security of families across the country.  And the Securities and Exchange Commission didn’t stop him.”
 
“There can be no excuse for that colossal failure.  But I demand – the victims of this fraud, some of whom hail from my state and have testified before this committee, demand – an explanation.  And so today, we hold our third hearing on Ponzi schemes – and our second on the Madoff fraud in particular – to find out how this could possibly have happened, and what we need to do to make sure it can never happen again.”
 
Chairman Dodd went on to outline steps that should be taken.
 
 
 
Below is Dodd’s full opening statement as prepared for delivery.
 
“Bernard Madoff stole $50 billion.”
 
“He stole from individuals and pension funds and charities and municipalities like Fairfield in my home state.  He stole more than money.  He stole the retirement savings and the economic security of families across the country.  And the Securities and Exchange Commission didn’t stop him.”
 
“There can be no excuse for that colossal failure.  But I demand – the victims of this fraud, some of whom hail from my state and have testified before this committee, demand – an explanation.  And so today, we hold our third hearing on Ponzi schemes – and our second on the Madoff fraud in particular – to find out how this could possibly have happened, and what we need to do to make sure it can never happen again.”
 
“Incredibly, it emerged late last year that SEC staff had received multiple complaints over a period of sixteen years that Madoff’s business was not legitimate, but hadn’t taken any effective action.  To his credit, then-Chairman Christopher Cox directed the SEC Inspector General to conduct a full investigation of why these credible reports had been ignored.
 
“The Inspector General released a report last week, and it is deeply disturbing.  As the report indicates, ‘The SEC received more than ample information in the form of detailed and substantive complaints,” but “a thorough and competent investigation or examination was never performed.’”
 
“The report goes on to describe an embarrassing series of internal failures at the SEC:
 
n  Incompetent supervisors directed their offices to look only for the types of fraud they understood and failed to recognize the type actually being committed in the Madoff case.
n  Inexperienced SEC staff simply accepted Madoff’s claims without making the single phone call or sending the single letter that it would have taken to verify his information.
n  No one ever thought it merited a closer look when Madoff said he traded in Europe with a firm that reported there was no activity in the account.
n  Divisions and offices failed to coordinate or share information.”
 
“It is ugly stuff.  Beginning in 1992 – 1992 – the SEC received information that should have led to a quick end for Bernie Madoff’s Ponzi scheme.”
 
“But because the task of following up on that information was assigned to junior staff or supervisors with insufficient experience in the securities market, because that staff failed to ask obvious questions or take simple steps to verify what Madoff told them, because their supervisors actually discouraged further investigation – in short, because the SEC failed to do its job, Madoff stole $50 billion.”
 
“Today, we will hear from the Inspector General about his report.  We will hear from Harry Markopolos, an investment analyst who continually attempted to get the SEC’s attention with regards to the Madoff fraud about his ideas for improving the organization.  And we will hear from the heads of the Office of Compliance, Inspections, and Examinations and the Division of Enforcement about what the SEC has done in light of the Madoff revelations, and about what Chairman Schapiro intends to do going forward.”
 
“There are several clear steps that should be taken:
 
n  SEC staff should be trained in markets and investment strategies so they can know fraud when they see it, and the SEC should hire staff with real world experience.
n  The very culture needs to be reformed to encourage aggressive oversight
n  Staff should verify self-serving statements of facts made by targets of investigations.
n  Coordination among the SEC’s offices and divisions must be improved.
n  There should be a more rigorous system for evaluating outside tips and allegations, including articles in the financial press.”
 
“Like many Americans, I am stunned and angry that this fraud was allowed to happen.  But I also believe that the SEC can do better.  And I look forward to discussing how in today’s hearing.”
 
 
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