Markopolos said he submitted evidence of Madoff’s scheme several times between 2000 and 2008 and that the SEC did nothing. “Because nothing was done, I became fearful for the safety of my family until the SEC finally acknowledged, after Madoff had been arrested, that it had received credible evidence of Madoff’s Ponzi scheme several years earlier," he said. "There was an abject failure by the regulatory agencies we entrust as our watchdog.”

After giving a detailed explanation of how he proved Bernard Madoff’s investing scheme had to be a fraud – his performance numbers were impossible given the split-strike conversion strategy he said he was using – Markopolos said Madoff “was a ‘no-brainer’ investment but only in the sense that you had to have no brains whatsoever to invest into such an unbelievable performance record that bears no resemblance to any other investment managers’ track record throughout recorded human history.”

When he submitted an eight-page mathematical analysis of Madoff’s investment activity to the SEC and met with its Boston Regional Director of Enforcement in May 2000, Markopolos said, “I was shocked by his financial illiteracy and inability to understand any of the concepts presented in that submission.”

There were a couple of SEC heroes in Markopolos’ testimony: Ed Manion, a CFA at the Boston office, and Mike Garrity, branch chief of its Boston office. Both understood his reports and supported his investigation.

They were stymied, though, by higher-ups in the New York branch of the organization who “failed to grasp any of the concepts in the report” and lacked the interest to ask questions about it. “As is typical for the SEC, too many of the staff lawyers lack any financial industry experience or training in how to conduct investigations,” he said.

“For those who ask why we did not turn in Madoff to the FBI, we believed the FBI would have rejected us because they would have expected the SEC to bring the case as subject matter experts on securities fraud,” he said. “Given our treatment at the hands of the SEC, we doubted we would have been credible to the FBI.”

In his suggestions about rebuilding the SEC, Markpolos wrote, “Today, thanks to the lack of effective regulation and oversight, our capital markets are barely functioning.” He described the SEC as “a group of 3,500 chickens tasked to chase down and catch foxes which are faster, stronger and smarter than they are…As currently staffed, the SEC would have trouble finding first base at Fenway Park if seated in the Red Sox dugout and given an afternoon to find it.”