Mr. Chairman?

Reserving the right to object, I do not intend to

object. And I'm glad you raised the issue...

-- (inaudible) --

Would the gentleman yield on his --

I would just observe that everybody else here is

overdressed for this occasion. (Laughter.)...

-- I yield back to the gentleman.

I think I would ask unanimous consent that we

recognize that. (Laughter.)

Yes, Mr. Chairman, I'd like unanimous consent to

introduce my letter of December 17th calling...

And, thank you. Mr. Chairman, all I was pointing

out is that -- is the hearing, technically,...

And I commend the -- I commend the chairman for

calling this meeting.

I thank the chairman for convening this meeting to

begin the Committee's examination of the...

Thank you, Mr. Chairman-to-be. I

would note, according to procedural regularities here, that...

Thank you, Mr. Chairman. The ranking

member made some important points early on about the timing...

(Off mike, laughter.) Thank you, Mr.

Chairman, or whatever you are. (Laughter.) Bernard Madoff...

Thank you, Mr. Chairman. The -- as I

go over and review exactly what happened here -- at least...

Thank you, Mr. Chairman. The Madoff

scheme would still be in operation today and perhaps for...

And I thank the chairman for holding

this important hearing this afternoon. I also want to thank...

Thank you very much.

In contrast to the seeming ease with which Bernard Madoff vastly

overstated...

Thank you very much, Mr. Chairman, and

to the ranking member, for holding today's meeting and...

Thank you, Mr. Chairman. I thank you

and the ranking member for conducting this hearing today....

Thank you very much, Mr. Chairman. I'm

delighted you're having this meeting.

I think that...

Thank you, Mr. Chairman, and I thank the

ranking member for holding this committee meeting today...

Thank you, Mr. Chairman, for hosting this

hearing. I, Mr. Chairman, don't know what should happen...

Thanks, Mr. Chairman.

Colorado, we had a -- our fire and police pension fund was one of

the...

Thank you, Mr. Chairman, and I thank you

and the ranking member for holding this hearing.

Ponzi...

New Hampshire, New Mexico, Colorado; they all have

snow, Mr. Chairman.

Good afternoon. Thank you for the opportunity to

testify today before this committee on the...

Thank you, Mr. Chairman. Chairman Kanjorski,

Chairman Frank and ranking member Bachus and members...

Sure. Certainly with respect to my area, which is

looking at the SEC, looking at the potential...

Well, I hesitant to give you an exact amount of time

because we just started the investigation....

I agree with you, absolutely. That's not the case in

my office. That hasn't been the case in...

No, I'm not. I'm not. The change in administration

won't affect my position.

SIPC is not a government organization, and I will

be here as long as the board of directors...

Inspector general, let me ask you about four areas

for investigation. The first one that --...

I appreciate that, because you couldn't have a

fraud of this magnitude without involvement of...

Yeah, I'd be interested to see -- I'd urge you as

soon as possible to expand that to contractors,...

You know, it appears that's a red flag, and then

when you couple that with the fact that, although...

In fact, I guess that would be my last red flag, in

that Madoff claimed to do something that...

I appreciate that. Do you have the authority to

contact former employees as well as former commissioners...

I hope you will, because, you know, some of this

would extend back at least 10 years. Mr. Harbeck,...

Has Madoff supplied you with any -- or his

associates or the firm -- supplied you with what...

When they're one entity, does that create some,

maybe, opportunities for mischief?

Okay, thank you. You've got a $1 billion line of

credit with the Treasury.

You've had that since 1970. Obviously, is that --

Let me just close by asking you this -- no, that's

fine, I can --

Yes, I mean, I know that there's been an issue that

has been raised of the limited authority...

Yeah, I mean, it would certainly seem that if the

PCAOB had this information, that they would...

Right, no, absolutely, there's an issue there about,

number one, what was the reason for that...

I can only speak for the time I was as the inspector

general, but I agree that certainly if,...

Yeah, I mean I -- we have not looked carefully at that

specific exemption issue, so it's difficult...

Thank you very much. My district

is home to many of Madoff's victims and as a representative...

Also it has been suggested that Madoff's tiny and

little-known auditor was a red flag. What...

Now additionally, many people threw up red flags

and one of them was that Madoff's returns typically...

And when the key regulator is totally asleep even

when whistleblowers are calling and trying...

Well, many of us have lost confidence in the SEC.

It's pretty pathetic when a major newspaper,...

I look forward to your report -- my time is

expired -- on why no one read the report on the...

Thank you, Mr. Chairman. I'd like to follow up on my

opening comments to Mr. Kotz. The contention...

The budget for the SEC nearly -- probably doubled in

the last seven or eight years. I think...

Do we do contracting out? Could that have been

hiring individuals where they were not called...

Thank you very much.

Thank you very much, Mr. Paul.

Okay. The gentleman from North Carolina: Mr. Watt.

No.

I mean, I'm not aware specifically. Obviously, I

think it's the job of the inspector general...

Yeah, I don't believe that --

I don't believe that there is something specifically we

could have done. Now, we could have...

There are analogies and there also differences.

No. First of all, we do not supervise anyone.

Our board of directors is composed of five

individuals. Pardon me, seven individuals, five of...

Three must be in the securities industry; two are

not permitted to be in the securities industry....

No, sir. We do not. That rule is --

We're not permitted to.

We're not expected to or permitted to under the

statute we administer. That role falls to the...

I believe this committee would be among the first

to know that. But we have $1.6 billion in...

Well, speaking to your point about who is on our

board of directors, we also have a director...

We will come to Congress.

That would be the case if we did come to Congress.

We've not done so for 38 years and have never...

There is nothing explicit beyond the $1 billion

line of credit with the Treasury that's currently...

There really has not. And the reason is that this

event is such a remarkable outlier in terms...

Yes. And they are a regulator.

The question you've asked was asked in 1970 --

I don't think we could do any better job than the

people who are currently assigned to do it....

The SEC and FINRA.

I would have hoped anybody could have done it, but

I'm not confident, since it's outside our...

Thank you, Mr. Watt.

Mrs. Biggert.

Well, I think we'd need to look at both those issues.

First of all, how...

Well, when I mentioned that, I was talking about my

office, the Office of Inspector General....

Well, the investigation that the SEC Division of

Enforcement is undertaking, with regard to...

I think that's an excellent suggestion. I will

certainly take it under consideration.

Yes, I believe they do. And we have to look very

carefully at those rules to see if any rules...

Thank you very much.

And our next, Mr. Ackerman of New York.

Congressman, the Securities Investor Protection

Corporation becomes involved only after it has...

With respect, I disagree.

With respect, I disagree with your characterization

that we're not protecting investors.

And we are going to use the maximum extent of the

law to return funds to them. But we have no...

From SIPIC's funds.

We have $1.6 billion.

Most -- a great deal of those funds are false

profits that never existed.

Yes, sir.

I think -- I think your point on that is very well

taken, and I believe there are tax remedies...

Yes, well, I can certainly understand what your

concern is, and I'm going to ask those very...

Right. Well, we need to make sure that the SEC has

enforcement and examination divisions in...

Well, that's what my investigation and audits will

determine.

Well, I don't know that they had it --

Well, I could certainly say that if the allegations

are as they say, then there's great concern...

Yeah, I didn't have anything to do with instructions

about assets. That was the enforcement...

I don't have that information, but certainly

everything that will be in my report I will seek...

I know that the Securities and Exchange Commission

has it. SIPIC itself does not have the --

What I can tell you, sir, is that the trustee will

work with the SEC, get those assets, and...

I can promise to you that if it is the Committee's

pleasure to have that report, I will get...

Yes, sir.

If the SEC has not given it to me, they will.

Yes, sir.

Your question with respect to clawbacks is that,

under the law, all customers participate in...

He is part of that common pool and, unfortunately,

he will not get his $10 million back any...

No. Those funds are already in the Madoff

enterprise.

I've heard many such stories, and the answer to

your question is --

No, sir. We'll do it faster than that.

If he can demonstrate that he put money in, and did

not take money out, we will get money back...

Without objection, so ordered.

The gentleman from Nevada, Mr. Heller, for five

minutes.

That's, unfortunately, not in my area of expertise.

Absolutely. I mean, that's certainly the areas within

the agency, not the watchdog office, that...

I'm not at the moment. But, again, that's something

that we need to look at in the investigation,...

I believe that the standard rules -- standards of

conduct apply to SEC employees like every...

-- their decisions.

We don't do -- our office is the watchdog office of

inspector general, so we don't do audits...

Yeah, well, we would make recommendations regarding

the office's policies, potentially, about...

First, I think we need to determine that the

examinations would find what they're supposed to...

The gentleman from California, Mr. Sherman.

That is correct, sir.

It all depends on the claims, which we haven't yet

received, Congressman. And I --

They are protected. We don't use the word

"insurance" because of the fact that we don't protect...

Yes.

We look at the issue of our solvency every board

meeting. And what I can tell you is --

The answer to your question is that historically

these frauds have been found before it costs...

The first thing that happens when our fund falls

below $1 billion is we automatically institute...

I would expect our board will move on that in

January, sir.

Well, that's right. And what we are planning to do is

not just look at the tips that were provided...

Right. And so we need to look at all of the tips and

look at the process to ensure that --

I don't know, but will get back --

The gentleman from Alabama.

That is correct.

Well, we're looking at this as a missing asset case

because assets were put in; there's no --...

Yes, he did. Yes, he has.

Well, certainly the records are -- don't match one

hand with the other in terms of the actual...

The trustee has hired forensic accountant, computer

experts and attorneys who specialize in...

It is going to be hard and we're going to do it.

It is going to be hard and we're going to do it.

That's why I certainly have urged customers...

We have a meeting with the Securities and Exchange

Commission division of trading and markets...

Well, the investors who are going to have the

easiest trail are the people who have been in...

It is a bankruptcy and certainly, you know, if the

records are filed under seal, I cannot produce...

I don't know under what terms the Securities and

Exchange Commission was given the authority...

Yeah. I will get it to the committee as soon as I

legally may.

Mr. Meeks, gentleman from New York.

Yeah, I can certainly look into what the SEC does vis-

-vis these offshore operations and that's...

I have not looked at that specific issue, no, but I

certainly can.

Right.

Well, I can't today as we're sitting here, but part of

the process of the investigation and...

Well, I mean, that is an issue that's come up in other

specific investigations and that is an...

The bankruptcy proceedings of LBIE, which is the

European subsidiary of Lehman Brothers, are...

Thank you, Mr. Chairman.

Chairman Kanjorski, I want to thank you for having done this

congressional...

I would also like to insert into the record a

copy of today's Bloomberg, Wall Street Journal...

Thank you.

I have a question for Mr. David Kotz. Does your Office of

Inspector General...

Mr. Kotz, I'm sure that you're going to do a good

job. But like my colleagues have pointed out,...

At this point, Mr. Kotz -- Kotz -- (corrects

pronunciation) -- since you have already seen some...

My time has run out. And Mr. Chairman, I yield

back.

Thank you, Mr. Chairman.

Mr. Kotz, the question I want to ask you is -- an awful lot of

the...

Ten employees? Fifteen employees? Twenty?

All right, with that being said, say it was a

fairly large corporation, being that it seems...

From what I understand, they only had a small

firm with one or two people.

One other thing. Number one, I want to say thank

you both for your patience in front of this...

I think what's going to be interesting as we go

forward -- my husband worked for a brokerage...

My concern is, being that this went on for so

many years, how many other organizations, firms...

I think that also, as we go forward on the full

committee and the subcommittees, obviously the...

With that, I yield back.

Thank you. Now, with the greatest

respect to my colleague, let me just pick up on that point...

Let me ask you one other thing, Mr. Kotz. In your

investigations -- you know, a couple of weeks...

Thank you, Mr. Chairman.

You know, Mr. Kotz, I've been sitting here trying to grab my

hands...

And also, in each of the reports, even when the SEC

looked at some of this stuff, none of that...

So I think that there is something with this. I

think that -- and I would hope -- I think one...

Okay, so we're talking about ill-gotten gains, we're

talking about loss and gains that, to some...

Now, there are what we call -- there's a management

firm for these -- what's left of these assets...

Okay, does this cover liquidation costs?

All right, so that's a false figure that's out there

-- this $29 million?

Okay, my --

All right. Thank you, sir.

Thank you, Mr. Chairman, and again, I thank you for

hosting this event. Mr. Kotz, permit me...

Exactly, which means that you can receive

intelligence from sources about inappropriate conduct...

Is it true or not true that your office received

some degree of intelligence prior to the arrest...

The investigation that was begun with reference to

Mr. Madoff was never brought to the attention...

I understand, but you said that the investigation

that was begun with reference to -- and I'm...

And the enforcement division of which you speak is

one other than the enforcement division that...

And so the enforcement division of the SEC received

its complaint, made its investigation, but...

So the allegation is made by whom?

Uh, there's a difference between why and whether.

Okay, so which was it?

To your knowledge, has there been any report, or

complaint, I should say, against the SEC with...

And did Mr. Marcopolis give his report -- his report

was forwarded to your agency?

But not -- yeah, this is not about you, personally,

okay. It came to the attention of your office.

Or your agency, all right. I'm sorry, your agency

-- I'll get my diction correct. Sometimes,...

But you said you received the same report that we

are contending the SEC should have acted upon,...

Not your office, your agency.

Okay, so your office never received the report from

Mr. --

Mr. Chairman?

Could I ask unanimous consent that the gentleman

have one more minute so that the witness can...

I will yield that one minute that you have asked

that I receive to you.

Right. Right, no, we are not the --

Right.

I mean, we would never see a document that suggests that there

was...

I think it's a very good point taken, Mr.

Ackerman.

Thank you. And I would adopt the comments of the

gentleman and I have one final question, Mr....

But prior to this investigation, Mr. Harry

Makopoulos or no other person concerning the Ponzi...

Thank you.

Thank you, Mr. Chairman. Most of

the questions that I was going to raise have already been raised.

Actually,...

That we need a holistic and comprehensive

approach. You said that earlier. Give me an alternative...

How long do you think the investigation is going

to last? Of course, I guess it's difficult...

Mr. Harbeck, do you have any idea, how do you

assess that, the assets? I mean, it seems to me...

How do we know -- I mean, how will we find out who

is owed what?

All right. Thank you, Mr. Chairman.

Thanks, Mr. Chairman. Mr. Harbeck, a question

was asked of Mr. Kotz whether he knew what a split-strike...

I guess kind of what we're talking about here

-- and Mr. Paul sort of talked about personal...

Okay. And just -- let's talk about the claw-

back and then I'd like to move to Mr. Kotz, real...

So my firefighters who, say, got nothing back

-- I mean, I don't know what the status is, but...

All right. Next question: Does your agency

every talk to the SEC about fears that you see from...

But here's where the SEC, I think -- and we're

all saying the same thing -- has fallen down...

Should the Bear Stearns incident have brought

this Madoff kind of thing to anybody's attention?...

Yeah, I think that they are different, although we did

find in the Bear Stearns case that there...

Thank you, Mr. Perlmutter.

Next we'll have the gentleman from Indiana, Mr. Donnelly.

Yeah, I mean, that would be that particular office.

But as part of our investigation and audit,...

Yeah, I mean, in my view it would be one of them.

It would be one of them.

So if that's the case, either there are problems in

terms of how the forms are being used or...

Well, we will certainly, as we produce our reports,

incorporate the forms, cite them and analyze...

Right. No, we need to look at whether it's the forms

that are problematic such that they need...

Right. Well, I certainly think we need to look at how

the SEC deals with those organizations,...

Mr. Chairman?

Could I just make some information before this

panel leaves. And I know Mr. Foster is yet to...

Something that I think is of critical importance

at this junction, based on our colleague's...

You're talking about red flags. Up until now,

nobody has seen any of the monthly statements...

Thank you.

Inspector General Kotz, I was interested in a related question,

but it has...

Okay. And you'll be getting us copies or

references of just how you handle complaints so we...

Okay. And in Mr. Markopoulos' November 7, 2005

complaint or tip to you guys, they had the sentence...

Okay. So this was more than 10 people and less

than 100, as a guess?

Okay. Oh, one other question. What is the scope

of your e-mail that you'll be looking into here?...

All right, and you have the authority to do that?

All right, thank you. (Inaudible.)

Thank you.