The opening statement of his testimony to the House committee was controlled and scathing. Markopolos and his team fed the SEC evidence of the Madoff ponzi scheme for years--evidence that would have allowed investigation and successful prosecution long before the scheme achieved the scope it did, defrauding thousands of American individuals and charities of billions of dollars. In his testimony, Markolpolos charged the SEC with being "overlawyered" and with a scorn for true industry experience that amounts to nothing short of hubris. Unsurprisingly, he also notes that the SEC's regional rivalries made them even more clumsy and unresponsive (no shock to anyone who's worked at a large company).
But where Markopolos really shone was in the Q&A. As Rep. Kanjorski asked him questions, Markopolos answered with the air of a guy who's relieved that someone finally asked him. While the opening statement was scripted, the Q&A was a pleasure to hear--idiomatic, richly informed, and personable. When Kanjorski asked who the SEC should be hiring, Markopolos pled for seasoned industry professionals, people "with grey hair or no hair. You'd be perfect." He argued that the SEC shouldn't be a stepping-stone for young professionals, but the capstone to an illustrious career. He urged IT integration among law enforcement agencies, a herculean effort but clearly the key to better law enforcement in the 21st century.
My favorite moment came when Rep. Ackerman asked him what tipped him off that Madoff wasn't legit. Here's his answer:
"It took me about five minutes to figure out that he was a fraud--so it took extensive time and research.... I knew right away by looking at his performance chart, and--I wish I had a white-board and easel here, but I don't, so I'm going to give you a hand signal, and I'm going to show you what his performance line looked like. It was a 45-degree angle. Without any variation. It went in only one direction, up."Markopolos and his team did this investigation without compensation--when asked why he did it, they said they did it "for the flag of the United States of America" and to uphold the reputation of the capital market system, because one dirty player taints the whole game.
Markopolos is well worth my 60 minutes. I hope his testimony initiates the true sea change that should have come with Enron. What's needed is not a set of regulations like Sarbanes-Oxley. SOX's heart is in the right place, but conscientious companies comply with its spirit, and irresponsible companies can still get by complying with its letter and exploiting loopholes (not just in SOX, but in all of our federal regulations), allowing everything from shameless waste of shareholder dollars to out-and-out fraud. What's needed is a culture where anything less than conscientious and transparent management of investments is vilified and prosecuted with zeal and tenacity.
Listen to the NPR story on Markopolos's testimony here (less than 5 minutes). See video here (much longer, natch--the Q&A begins at ~15:00). And my next question is, what's the new SEC chairman (really, she should get to be the chairwoman) doing with her 13% budget increase?
1 comment:
That really was fascinating video. It's really rare to hear anything in the finance world described in such clear terms. It was also interesting to watch some of the questions of the congressmen - try to piece together who was grandstanding and who really wanted to know, and who seemed to get it. Seriously, it was almost uplifting to see people talking so plainly about economic issues. I usually end up confused and dejected when I listen to that stuff, so it was refreshing.
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