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Congress Asks Regulators for Answers in Madoff Scandal

Congress questioned federal regulators during a hearing Monday about why so many warning signs surrounding the business dealings of Wall Street investor Bernard Madoff went unnoticed. New York Times reporter Alex Berenson details the latest developments.

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    Much of today's hearing focused on how much the Securities and Exchange Commission knew about Bernard Madoff's alleged $50 billion Ponzi scheme and when.

    The SEC was reportedly warned of Madoff's flawed investment plans years ago, when Harry Markopolos, a former investment firm employee, asked the agency to investigate how Madoff was able to provide steady market returns. At the hearing today was David Kotz, the inspector general of the SEC, who was questioned by Democrat Carolyn Maloney of New York.

    REP. CAROLYN MALONEY (D), New York: Many people threw up red flags, and one of them was that Madoff's returns typically hovered between 10 percent and 12 percent.

    People even wrote articles about "don't ask, don't tell," raising concerns about his investment strategy, one in May of 2001 by Arvin Lund, which was in Barron's. It should've thrown up a red flag to investigators, to the SEC, to the general public. Why didn't these questions that he raised alert the regulators?

    In addition, Harry Markopolos, he was in regular communications with the SEC, raising red flags, asking questions. He contacted them in 2000. In 2005, he sent the SEC a 19-page report entitled "The World's Largest Hedge Fund is a Fraud."

    Why in the world didn't anyone respond to his allegations? What happened to his report? And did the SEC investigate his allegations?

    DAVID KOTZ, Inspector General, Securities and Exchange Commission: Yes, and that's exactly what I intend to find out. Certainly the articles that you mentioned initially are things that we have to look at to see if the SEC examiners were aware of the articles, reviewed the articles, how they viewed the articles, and whether they factored that into their determinations, or if they weren't aware of the articles, why weren't they aware of the articles?

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