We’ve written about Harry Markopolos enough, hitting Google’s top page for the searches.  We’re the only website on the Internet that posted, in text form, the Harry Markopolos letter to the SEC warning them of Madoff’s theft and fraud.  

Today, Markopolos testified in front of Congress about the SEC’s failure over the Madoff case and other cases like it.  Markopolos cut the SEC with a sharp knife, testifying about their ineptitude.  As Markpolos states, the SEC is run by young, inexperienced lawyers, not financial analysts with experience.

“Unfortunately, the SEC staff lacks the financial expertise” and understanding of the complex securities traded in the marketplace to investigate frauds”, testified Markopolos. “A fraud that should have been stopped at $7 billion in 2000 has now grown to $50 billion.  We need a highly trained finance team that is highly incentivized to look for frauds. Derivatives are too complicated otherwise.  They had no idea how to do the math.” 

There’s a problem, though: Markopolos is still offering Congress a glimmer of hope that there’s a political solution to these massive thefts and acts of fraud.  Harry, there isn’t.  Government can not protect the people who head into transactions with an understanding of what they’re buying into.  The derivatives and hedge fund industry is a HUGE market of risk and reward.  When a person or group puts their faith into an individual or company and doesn’t go through their own audit process, they’re liable to lose money.

Markopolos’ call for an overhaul of the SEC is like throwing toothpaste at teeth that are completely rotted away.  The only solution is not to look for stronger toothpaste, or try to repair the teeth, but to extract them completely.  No overhaul of the SEC will fix these problems.  The SEC needs to be disbanded, and the market should return to how every market works: customers police their own investments.

Too many people place faith in the regulated markets because of the SEC.  When there is no overseer, they must learn to do due diligence themselves.  If they’re unable to, they have to invest through a company that promises due diligence and backs it up with insurance against failures such as these.  Companies that perform due diligence and offer some financial backing cost the investor more in terms of lower returns, but that’s what you get when you are too lazy or uneducated to do the work.  If you can’t make your own peanut butter and jelly sandwich (a cost of maybe 50 cents), you can pay someone else to do it.  It’ll cost you to have someone else doing your work.  Mow your lawn for an hour, or pay someone $50 to do it.  That’s how markets work.

Markopolos seems like he has something to gain.  He testified that he ”offered to go undercover for the SEC under their command and control” to investigate Madoff.  Sounds like political pandering, to me.  When he gave his Madoff warning report to New York officials, he even took steps to keep his fingerprints off the paperwork.  Madoff says he is preparing a list of ”mini- and medium-sized Madoffs” to hand over to the SEC.   “I hope this time they will actually listen to me.”

So here we have someone who is pitching himself as the new replacement head to the SEC, or at least an investigative head.  He’s been a competitor to Madoff, but of course the SEC didn’t listen to his dire warnings.  They’re too in-bed with the large derivative traders and investment banks.  People lost money because they had faith in government.  That’s a hard lesson, and yet I believe those same people burned will put trust in whatever replaces the SEC.

My advice?  Invest in things you understand.  If you can’t get a good return on your money, look at the source of the problem: money that loses its value automatically over time, due to our fraudulent and criminal Federal Reserve bank, that has the power to destroy your money while it sits in your pocket or in your bank account.  They’re the ones forces interest rates to less than 1% on savings.  They’re the ones quietly stealing 5-10% of the value of your money every year.  The SEC and the Federal Reserve are the reason you’re poorer today than 1 year ago.  Don’t try to fix the problem, just go with the proper solution: shut both agencies down and return to a sound money system.

While we’re at it, force all governments to live under not just a balanced budget, but one with zero debt.  That’ll mean we can return to the days when our money became more powerful over time, not less.  Anything else is fraud and theft, just like Madoff’s actions.  Why is Madoff in trouble when the failed Federal Reserve does the same thing in much higher numbers?  The government hates competition.

Some quotes from Markopolos’ testimony to Congress:

About the SEC: “3,500 chickens and we need to get some foxes in there.”

Markopolos said he feared for his life because Russian mob and Latin America drug cartels invested with Madoff.  Markopolos said “I would not be long for this world,” in regards to Madoff.

Markopolos said he went to the Wall Street Journal to tell his story, and that newsreporters had his story ready, but that editors respected Madoff and did not want to anger him.

Markopolos said that the SEC didn’t have the ability or willingness to go after fraud funds such as Madoff’s and Arthur Nadel’s.

Markopolos mentioned that the feeder funds that sent Madoff money did not do due diligence in checking on Madoff’s investments.

Markopolos called the NASD “a corrupt organization.” 

Markopolos says he knows of 12 more feeder funds that invested with Madoff but have not been announced yet.

Related posts:

1. Harry Markopolos / Markopoulos smells a stink from Madoff
2. Who is Harry Markopoulos; why was he ignored re: Madoff?
3. Harry Markopolous / Markopolos Letter to the SEC 2005, against Madoff
4. Another Madoff-like hedge fund ripoff: Arthur Nadel
5. Robert Jaffe re: Madoff: Don’t testify, just shut up
6. Congress to confiscate 401k’s and IRA’s? Good!
7. Ron Paul and the BILLION dollar boost?
8. Robert Powell from MarketWatch cries: worth reading