Witness on Madoff Tells of Fear for Safety

The man who tried unsuccessfully for almost a decade to spur federal securities regulators to investigate Bernard L. Madoff did not initially disclose his own identity to regulators because he feared for his life, according to testimony he has apparently prepared for a Congressional hearing Wednesday morning.

The witness, Harry Markopolos, will testify that Mr. Madoff "was one of the most powerful men on Wall Street and in a position to easily end our careers or worse," and that his fund "posed great danger" to those who investigated it, based on a version of his remarks that emerged Tuesday evening.

While the testimony, posted on the Fox Business and Wall Street Journal Web sites, mirrors statements he has made on his own site and elsewhere, neither he nor his lawyers could be reached to confirm its authenticity.

Mr. Markopolos, an independent investigator who works for institutional investors, is to be questioned about his frustrated dealings with regulators by members of a House Financial Services subcommittee led by Paul E. Kanjorski, Democrat of Pennsylvania.

The subcommittee has also called senior staff members at the Securities and Exchange Commission to respond to Mr. Markopolos's criticism, which he summarized in his prepared testimony by saying the agency "is nonfunctional and, as witnessed by the Madoff scandal, is harmful to our capital markets and harmful to our nation’s reputation as a financial leader."

Mr. Markopolos has been harshly critical of the "financial illiteracy" of the S.E.C. investigators he encountered over the years, and has accused them of failing to detect the fraud with which Mr. Madoff has now been charged - a fraud that he himself has put at $50 billion, according to a criminal complaint.

Much of the testimony that was posted Tuesday repeats information already available on Mr. Markopolos's Web site, but it provides a year-by-year account of the work he and several other researchers carried out and his many unsuccessful efforts to prompt the S.E.C. to open an aggressive investigation.

In the testimony, Mr. Markopolos also offers explanations for why he did not carry his concerns to other regulators and law enforcement agencies when the S.E.C. did not respond.

He and his colleagues avoided taking their allegations to the industry self-regulatory agency, now called Finra, he said in the statement, because he believed Mr. Madoff and his brother, Peter B. Madoff, wielded too much power with that organization. Peter Madoff worked in his brother’s firm but has not been implicated in the apparent fraud.

"We were concerned that we would have tipped off the target too directly and exposed ourselves to great harm," he wrote.

They did not turn to the F.B.I., he said, "because we believed the F.B.I. would have rejected us" without the endorsement of the S.E.C. staff. He did not address why he did not approach members of Congress, attorneys general in New York or Boston, or state or federal prosecutors.

The hearing is the latest effort by members of Congress and their advisers to use the lessons of the Madoff scandal to guide the overhaul of the nation's financial regulatory system.

The S.E.C. itself has ordered an internal investigation into the agency's failure to act on credible tips it had received over the years about Mr. Madoff — including those from Mr. Markopolos.

His efforts are laid out in extensive detail in his testimony, which runs to almost 60 pages, not counting 115 exhibits, ranging from itineraries for his investigative trips to e-mail exchanges with S.E.C. staff members.

The subcommittee is also scheduled to hear from five senior S.E.C. staff members: Linda Thomsen, director for enforcement; Andrew J. Donohue, director for investment management; Erik Sirri, director for trading and markets; Andy Vollmer, acting general counsel; and Lori A. Richards, director for compliance inspections and examinations. Stephen Luparello, the interim chief executive of Finra, is also scheduled to testify.

(Published by NYTimes - February 3, 2009)