Harry Markopolos on the SEC's 'Abject Failure'

The Wall Street Journal website has Bernie Madoff whistleblower Harry Markopolos' prepared testimony for his appearance before a House committee tomorrow, replete with copies of emails to the SEC.

It is absolutely devastating. Among other things, Markopolos says that because of the SEC's "abject failure" to do anything, because of its "investigative ineptitude and financial illiteracy," he was in fear for the safety of his family.

This is an infuriating document. Infuriating to me personally, because I can tell you that if Markopolous had come to me or to anyone at Business Week -- which at that time (May 2000) had editors who could actually understand such things -- he'd have been taken seriously and his allegations would have been investigated thoroughly.

Markopolos laid out the case against Madoff. He spoon fed it to the SEC, and they spat it out. Something needs to be done to prevent this from happening again, or else, really, what is the point of having an SEC?

Here's a passage of Markopolos's testimony, in his section on recommendations for SEC reform, that has a bearing on my previous item today on issuer retaliation and many other subjects I've covered in this blog and in my book:

Raise the Enforcement Bar to Incorporate Good Ethics in the SEC's Mission Focus

Just because it's not illegal doesn't mean the SEC should ignore unethical behavior in themarketplace, which it has been doing for several decades now by trusting the industry to self-regulate its way to good behavior. The SEC must change its mission toward ensuring full transparency, fair play, and zero tolerance for unethical financial dealings. . . the SEC needs to recognize that securities laws are not the be all and end all of regulation, they are merely thea bsolute bare minimum standard which market participants must follow.

It's tempting to respond to this by saying "fat chance," but Markopolos is absolutely right.

© 2009 Gary Weiss. All rights reserved.