ARI SHAPIRO, host:
This is Morning Edition from NPR News. I'm Ari Shapiro.
STEVE INSKEEP, host:
And I'm Steve Inskeep. Today Congress looks more closely at the agency that did not protect investors from Bernard Madoff. Madoff is the Wall Street trader accused of a $50 billion fraud. And the agency is the Securities and Exchange Commission. Its chairman says his staff never informed him about the trouble with Madoff. Democratic Congressman Paul Kanjorski will be looking into that claim by the SEC chairman, Christopher Cox.
Representative PAUL KANJORSKI (Democrat, Pennsylvania): I don't think Chris has an excuse. He's supposed to know those things. It's shocking when he says - it's somewhat like a general saying, well, we lost the division because the bomb fell on top of it, but it's not our fault because nobody told us the division was going to be there. You know, spare me that type of excuse that we didn't know at the very top level. They are clearly responsible whether they know or don't know. And if they don't know, we want to know why they don't know and make sure that doesn't happen in the future.
INSKEEP: I also wondered if Chairman Cox's version of the story was the only version of the story, or if we might come to hear from some staff members who said, hey, I was waving a red flag on this.
Representative KANJORSKI: That's possible. And that's why one of the witnesses at the hearing will be the IG...
INSKEEP: Inspector general of the SEC.
Representative KANJORSKI: Right. And he, I hope, will be able to reconstruct for us exactly what he found. At this time, this particular case establishes everything that we need to do a case study of what may be wrong with overall regulation in the securities industry of the United States and in the financial industry of the United States, see what the problems are and go to respond to those problems.
For instance, there were banks that were involved here that made investments with Madoff. Where was their due diligence? And when they lost money, that may have subjected the American taxpayer to some obligation, because they were under federal regulation if they were an insured bank.
INSKEEP: Oh yeah. If they fail, the U.S. government is the one that ends up picking up the tab for the other depositors.
Representative KANJORSKI: Where were the regulators, the bank regulators? When you're talking about $50 billion or multibillion-dollar transactions, you just assume that regulators are going to take an extra time and extra effort to understand that to its thoroughness.
INSKEEP: Two things have seemed interesting to as an average guy reading accounts of what Madoff's investors did and what Madoff himself did. And one is that it seems that some individual investors and fund managers didn't seem to have much trouble figuring out that something was suspicious here. They asked Madoff how he was making his money. They weren't satisfied with the answers. And so they put their money someplace else.
Representative KANJORSKI: Yeah, yeah, very true. And why didn't - what's the level of the other financial people that they didn't react the same way? And what are we doing? There's a licensing problem here too. We find that in certain size organizations, they aren't required to be audited by necessarily the top accounting firms. And that may be a problem in this case. And that's something to look at very seriously. We don't have serious auditors.
INSKEEP: Although the other thing that seemed interesting to me, Mr. Kanjorski, was that if I understand these accounts correctly there some people who put their money with Bernard Madoff who had no idea that they were doing so. They invested in some fund, they were paying a fund manager to manage their money, and basically all those people were doing was handing it on over to Bernard Madoff's firm, and Madoff was doing whatever he wanted with it. Is that a really common practice on Wall Street that if I put my money in a mutual fund, the mutual fund might just be buying another fund, which is buying some other fund, and nobody really even knows where their money is.
Representative KANJORSKI: I suppose outsourcing now has become a disease that's permeated the whole financial world. And that's something, I think, seriously to look at. But I have to say, look, it's first and foremost the responsibility of the private individual in this country to due diligence, and not to turn their money over to people without keeping track of it or watching out what's happening.
But one of the things that annoys me most about this. Even the people that may have caught onto this scheme and withdrew their money may find that if that has happened in the last six years, they will able to be caught after to get that money back.
INSKEEP: Oh, because Madoff was effectively stealing money from other people to pay them their imagined returns.
Representative KANJORSKI: Right. And boy wouldn't that be a shocker and a double whammy when, you know, say five years ago, you spent a lot of money, made an examination and came to the conclusion you thought this wasn't a good deal and decided to take your funds out, and did. And now you've been going on your merry way, investing those for the last five years, to find out that you lose all of that. That could be a shocker. So that's where we don't even know where the secondary ramifications of this will be.
INSKEEP: Congressman Paul Kanjorski is chairman of a House subcommittee that's examining the Bernard Madoff case today. Congressman, thanks very much.
Representative KANJORSKI: Thank you very much.