When Harry Markopolos testified before the House Financial Services subcommittee this month regarding Bernard Madoff’s $50 Billion Ponzi scheme, what surprised and angered House members most were the numerous and detailed warnings the former investment manager had given the SEC since 2000.

“Nothing was done,” Markopolos told lawmakers. “There was an abject failure by the regulatory agencies we entrust as our watchdog.”

Markopolos, who is now a private fraud investigator, told committee members that his experience with most SEC officials “proved to be a systemic disappointment, and lead me to conclude that the SEC securities lawyers, if only through their investigative ineptitude and financial illiteracy, colluded to maintain large frauds such as the one to which Madoff later confessed.”

In a 65-page document detailing his repeated warnings to SEC officials, Markopolos points out that he resubmitted evidence of Madoff’s financial scheme several times over a period of nine years.

Additionally, Markopolos outlined recommendations to fix the problems at the regulatory agency:

Dramatically upgrade SEC Employee Qualifications & Educational Budgets

“Amazingly,” Markopolos says, “the SEC does not give its employees a simple entrance exam to test their knowledge of the capital markets!”

The SEC needs to adopt Industry Compensation Guidelines

“Compensation at the SEC needs to be both increased and expanded …[based on oversight by SEC Commissioners] because it would be a clear conflict of interest to have the enforcement and examinations staff set the fines that lead to their own compensation.”

Raise the Enforcement Bar to Incorporate Good Ethics into the SEC’s Mission focus

“Just because it is not illegal doesn’t mean the SEC should ignore unethical behavior in the marketplace, which I has been doing for several decades now by trusting the industry to self-regulate its way to good behavior.

“Given that there is no way to keep a set of securities laws on the books that is up to date and fully accounts for al the bad behavior that financial predators can and will engage in, the SEC needs to recognize that securities laws are not the be all and end all of regulations, they are merely the absolute bare minimum standards which market participants must follow.”

In his conclusion, Markopolos makes the case for a stronger SEC by adding an “Office of the Whistleblower.”

“I believe that by adding such an office, we would see honest firms sending in evidence against their crooked competitors.  Getting rid of the shysters is in everyone’s best interest and restoring trust in the US capital markets is imperative if we are to restore our nation’s economy to health.”