The Senate Banking Committee’s hearing on the “Madoff Investment Securities Fraud: Regulatory and Oversight Concerns and the Need for Reform” occurred today, and ran for about three hours.  I watched the video feed, and tried to capture as much as I could in the notes below (which were originally "Tweets" on my Twitter feed).  They are presented below from most recent to oldest, so it is probably best to read from the bottom up:

  • Sen. Dodd--Expresses his respect for SEC and its work despite this glaring exception. Hearing adjourned.

  • Thomsen--Ponzis hard to detect because nobody complains until money stops flowing out. Hard to detect before it stops.

  • Harbeck--Experts say Lehman Bros. and Madoff are cases that should occur every 5,000 years and they occurred in a one year period.

  • Sen. Menendez--"So Madoff was smarter than all of you?" Thomsen--can't answer.

  • Sen. Menendez--Builds Madoff "hypo" and says use subpoena power in such a case? Thomsen--we do a lot without subpoena power.

  • Thomsen--Can't talk about details. Sen. Menendez--not satisfactory!

  • Sen. Menendez--Specific allegations going back many years. 2005 showed misconduct by Madoff. Why not use subpoena power??

  • Coffee says it may turn out that Madoff was paying feeder funds. Should be a focus of inquiries.

  • Someone finally asks Prof. Coffee a question!

  • Sen. Reed--Decision not to pursue Markopolis complaint go to Commission? Thomsen--No, do need Comm. for subpoena power.

  • Sen. Reed--at what level would decision not to pursue Markopolis complaint be made? Thomsen--Branch chief and AD level.

  • Thomsen--Enforcement can't do anything until someone breaks the law.

  • Thomsen--we have huge amounts of information. Need to find best ways to mine it.

  • Sen. Merkle--29 point argument here why fraud. Did you analyze carefully? Thomsen--Sorry, can't discuss.

  • Thomsen--Don't know how often we get Markopolis-type docs. "Will get back to you on that."

  • Sen. Merkle--Markopolis doc is extraordinary. Can't imagine you get these regularly--right?

  • Stephen Luparello--FINRA had no red flags, no complaints, etc. to go off of.

  • Sen. Warner--SEC's risk assessment methodologies failed here, do they even work? Many red flags should have bumped this up.

  • Thomsen says SEC gets 100,000 unsolicited tips/complaints per year.

  • Thomsen--gravity of claim, specificity, jurisdiction, source of claim all are taken into account.

  • Unknown senator--How do you prioritize given the resource constraints? Has this case changed methodology?

  • Unknown senator says OK, but when the investigations are over he will be back to get concrete answers. Thomsen--We welcome that.

  • Thomsen deflecting all detailed questions about who knew what, etc. by saying she can't answer due to investigations.

  • How can you ensure us you are paying attention now? Thomsen--We want to bring cases. That is our mission and passion.

  • Thomsen--Who knew of Markpolis report is what IG is looking at right now.

  • Unknown senator--Who saw Markopolis report and what was response? Did SEC's IG and Gen. Counsel engage? Trace who was involved.

  • Dodd--why didn't tiny Madoff auditor raise red flags? Thomsen--Don't know what SEC knew about auditor.  Red flags do not equal fraud.

  • Thomsen says it gets MANY tips that look like what it got from Markopolis. Need to decide where to deploy resources.

  • Thomsen says can't discuss specifics of SEC's response to Madoff because of ongoing investigations and criminal case.

  • Dodd--Markopolis told SEC that top execs on Wall Street all agreed Madoff a fraud. How does SEC not react?

  • Richards--We're studying various solutions. Dodd--We want more than "study" and we want it VERY quickly.

  • Dodd--Why haven't anti-Ponzi measures been implemented before now? Richards-We've been looking at this "forever."

  • Prepared testimony over, here comes the pain.

  • Stephen Harbeck says $100 million recovered, $830 million identified as available from Madoff.

  • Stephen Harbeck, CEO of SIPC, says Madoff case is "theft, pure and simple."

  • Linda Thomsen says more resources needed, and would allow SEC to do much more.

  • Linda Thomsen says Enforcement Division "lives to bring cases."

  • Linda Thomsen says Enforcement Div. cannot pursue all tips it receives. Resource constrained, even in cases it pursues.

  • Lori Richards says SEC is now reviewing the frequency of its inspections, regulatory structure, unregulated products, and custody requirements.

  • Dr. Henry A. Backe, Jr., Orthopedic Surgeon from Fairfield, CT, explaining the huge impact of Madoff fraud on pension plan.

  • Prof. Coffee say no mutual fund has ever failed because of a Ponzi scheme because an independent custodian holds funds.

  • Sen. Schumer says SEC needs more resources. Stretched too thin to catch Madoff. Also need to move OCIE to NY, not in DC.

  • Sen. Schumer says Madoff fraud "obvious" and inexplicable that SEC missed it. "Giant elephant" SEC failed to notice.

  • Sen. Shelby says he doesn't want to hear about lack of resources but he's about to hear that from Thomsen. (read her prepared testimony here)