Madoff: SEC defends its role

The head of the agency told a Senate committee investigating the SEC's role in the Madoff scandal that it lacks the resources to follow up on all fraud tips.

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Julian Cummings

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ATLANTA (CNN) -- The Securities and Exchange Commission's director of enforcement told a Senate committee Tuesday that the agency lacks the resources to pursue all the leads and tips about possible fraud that come to it.

"The enforcement division receives hundreds of thousands of tips each year (and) while we appreciate and examine every lead we receive, we simply do not have the resources to investigate them all," Linda Thomsen said in her prepared remarks to the Senate Banking Committee.

The hearing was looking into the role the SEC played in investigating Bernard L. Madoff's alleged $50 billion Ponzi scheme. Thomsen appeared along with Lori Richards, director of the SEC's Office of Compliance Inspections and Examinations.

Thomsen, citing an ongoing investigation, largely avoided direct responses to committee members' questions, which included why Madoff was not investigated by the SEC earlier, despite red flags sent to the commission by tipster Henry Markopolos in 2006.

She said the SEC's inspector general is looking into who saw the information provided by Markopolos and whether that investigation was conducted correctly. "Some of the conduct in the prior investigation may itself have resulted in crimes," she said.

The fiery exchange of the day occurred after Thomsen told Sen. Robert Menendez of New Jersey, "We don't turn a blind eye to fraud. If we see it and we suspect it, we pursue it. We don't want fraudsters out there."

Menendez responded loudly, "So, Mr. Madoff was smarter than all of you?"

Also appearing before the committee was John C. Coffee Jr., a professor at Columbia University Law School; Dr. Henry A. Backe Jr., a Madoff investor; Stephen Luparello, interim CEO of FINRA, the nation's largest independent regulator of securities firms; and Stephen P. Harbeck of the Securities Investor Protection Corp.

Thomsen and Luparello agreed with a request from the committee's chairman, Sen. Chris Dodd of Connecticut, to come back every three months to provide updates on the status of regulations and safeguards to avoid fraud.

Madoff faces felony securities fraud charges for allegedly operating a multibillion-dollar Ponzi scheme that resulted in high-profile charities, celebrities, and many other investors losing their investments.

In a Ponzi scheme, money coming in from new investors is paid out to earlier investors as "profits," creating the appearance of a profitable fund.  To top of page

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