are on to something that's important. i also believe the department of justice should be taking the lead in staying d.n.a. and how it can be better applied, just as you said, what kind of protocols, best practices should be out there. what kind of new techniques are developing now in d.n.a. that can make or help local officials identify repeat criminals much earlier in their processes and stop victimization and actually reduce crimes. i think there are a lot of things we need to do. i don't think that this federal government should be bearing the responsibility of paying for every rape kit in america. it just doesn't strike me as a smart thing. we need to be figuring a way to get our local law enforcement up to where they need to be. and if we can help though

creating the data base and infrastructure, the protocol the research, that would be our first choice. and i have supported and will continue to support additional federal resources to accelerate and improve our state and local forensics capability. i think that's an important matter. i look forward to this excellent panel. thank you. .

>> i got you in the airport to tell you the good news. as i remember, we were both very emotional during the phone call. we authorized this in and if you will please go ahead, i will ask the senator to introduce the next witness. >> let me say that i am honored to be included in the panel before you today. as a victim of a sexual attack, i understand the importance of the work that must be done. i did not bring a professional perspective to this table, but what i can offer you is, first- hand knowledge of the importance of testing dna evidence and the elimination of the current backlog for the suspect and the

victim gets. i would like to ask each of you to remove the political hats, and i would like to tell you to take your place as a husband or a father or brother, or a mother or sister or friend. you have just received news that a loved one was taken to a secluded area and was raped. he said he would return and kill her if she told anybody. she cries hysterically, asking you not to call the police. but you know that this is the right thing to do. you call the police and she is asked calloused -- asked countless questions. you watch her try to struggle to make sense out of what has just changed her life so completely. this hurts beyond measure.

you feel helpless, wanting to take away the pain. and a search began. there has to be something that you can do to make this better or easier. but the search is in vain. you convince her to go to the hospital to have the only visible evidence taken. she is begging you not to make her go. but you have to deny this, and you are hoping that your help the bird to do the things that she would do, decisions that she would make if she was able. this is what you have been told is the right thing to do. as you are going into the hospital, you try to make her understand that this is necessary. this is the only way to catch him and prevent him from hurting anyone else. she is walking like a frightened child.

she hears you tell the receptionist that she was raped. rape does not happen to people like her. your take into a room where the questions begin again. we begin to wonder if you have been helping her to do the right thing after all. the look in her eyes shows the desperation, needing to know that someone is on her side and believes her. but the nightmare continues as he is asked to lie down on the table, to put her feet in the stirrups and spread her legs. a doctor begins to scrape and swab her as her face shows her humiliation. what is left of her self-esteem

has completely vanished. she has been violated all over again. the only hope that one day, this procedure will bring justice. you hope that things will be better, but it does not take long before she shows that she has been robbed any joy in life. you watch her struggle to leave her house or even allow children out of her side, as the threat will not leave her mind. you know her so very well and you are afraid that one day, you will find that she has taken her own life. all that she wants is for freedom, and she wants to feel safe and feel justice. my husband and i have lived this nightmare. when the victim deals with this, she knows that she has done

everything that she has been asked to do. but there is a chance that the evidence will be on the shelf, with each box holding vital evidence that is crucial to the safety of women everywhere. the statistics show the average rapist will rape eight or 12 times. i was waiting for the rapist to be identified, trying to stop the sound of his voice in my ear. but being afraid of my fat -- being afraid for my family and my -- myself -- i became suicidal, looking for a rest from the pictures in my mind, constantly. but finally, the identity was given, and i was given validation and promised justice. i want every victim to

understand -- to experience the gift of renewed life. i am here on behalf of the thousands of people with cases that are still on the shelf. i am here for the future victims, and for those who have been wrongly accused. i speak for the victims -- there was a little dna evidence for amy. she was trying to find peace, but the therapy -- and the drinking, by 2004 the technology had changed. the evidence was tested and gave the profile of the attacker and has connected him to at least two other cases. she says that the day, she has hope. he is still haunting me, but she has a hope and a new purpose. she is also there for people who

can no longer speak for themselves. there was a victim who waited until she could no longer wait anymore. this was the case that was being worked on for some time, and the day that the match was made, the scientists went to deliver the news in person. the detective did for a very solemn face and said, this is great news, but the victim committed suicide last night. this is not isolated. it is the time i will ask you to put your political hats back on. this gives the the ability to make a real difference. it is within your capacity as a legislator to make certain that these are taken off the shelf and reviewed to ascertain if there was any forensic evidence with them. can you imagine going through this horrible examination, only to have the results sitting behind locked doors.

everything is done to find the person who has taken what does not belong to them. the guilty is made to return what was stolen to the honor. but you are powerless today to return was taken from the victim of this crime because you cannot restore her innocence or her dignity, or her peace of mind. you cannot remove those pictures that appear without warning. i you can give for justice by making the rapist pay for his crimes. lady liberty is standing proudly in new york harbor, offering freedom within the borders. equal justice under law is etched in stone across the supreme court building, and the flag is symbolizing the pledge of liberty and justice. sexual attack victims are waiting for that pledge and the freedom from the chain of guilt and fear.

she anticipates the promised justice to be imparted with a crime against her. i ask that you use the power to give her what is promised to all americans. liberty and justice for everyone. thank you. >> by now you so well -- we have listed the testimony in people to understand why when i called you, if humans after the passage of the bill, while this was such an emotional phone call for both of us. i thank you for being here. robert, i also thank you. the next witness is someone that you know very well. lsd to introduce them.

>> thank you for the moving story, and your courage. but only for telling your story, but for being the voice for so many of the victims out there. on behalf of all of us, we welcome stephen redding, the next witness. when i became the attorney of minneapolis and 45 suburbs, i did not have a lot of criminal experience and i wanted to put someone in charge of the violent crimes division with the trust of the people in the office. most important for the hearing today, this is what the experts on dna, and this means that he is not only a trial lawyer that is able to convince a jury like so many good prosecutors. he also has the determination and the intellect to learn the science of dna, which is not

that easy for so many lawyers to read the scientific articles. we have to be sophisticated with the science and the people on the other side. his wife is here as well. you can use this new found science to convict the guilty and to protect the innocents. >> i am a senior assistant account the -- a senior assistant -- a senior assistant county attorney. we encompass minneapolis and the suburbs. the office serves 1.1 million people. i want to thank the members of the judiciary committee for inviting me here. i also want to thank the senator who was the county attorney for eight years. when she was elected, she understood the power of dna

testing to help prosecutors to convict the guilty and protect the innocent. i also want to thank my boss for his involvement in dna issues. dna testing has solved many cold cases in the united states. the prosecutor the first two in the united states in 1992 and 1993. one was the homicide of a recent college graduate, the other was an attack on a young woman by a serial rapist. neither of those men will ever be released from prison. this was not the result of anything special that i did, but rather, the foresight of the state legislature, which was finding the dna laboratory in the late 1980's. they became what they are today, the testing laboratory

and a pioneer in dna testing. there are large number of untested sexual kids, and disparities between the local laboratories and their ability to process the dna gets. this may not be as severe for the details i give, but many of these kids are untested. we were able to obtain a list of 99 cases where the victim reported a rape by a stranger. identified 33 with the kit was not tested, and it appeared that if dna testing was going to identify the suspect, prosecution may be possible. in seven cases, there was not a sufficient amount of biological material for testing. 13 gave john doe profiles. third team went to a convicted offender.

10 of those ads were too offenders with previous histories. of the 13, three have been convicted, five have been charged, and we are still looking for the victim. two of the cases found the dna from a consentual partner. we see how fruitful it will be to test this kind of case. the additional funding, similar to the project i am working on right now, will yield similar results. one year ago, it became mandatory to test all the cases where the victim has identified the perpetrator and indicated that he was a stranger. we need more for the evidence gathering. prosecutors provided training to the experienced prosecutors. this was crucial, however, in

most cases, this is no longer available. this is most often performed by specially-trained nurse. the perpetrators are trying to -- they try not to leave their evidence. he took the pants of his victim. he said he was taking them for dna purposes. he thought this was the only evidence that could connect him to the attack. but the nurse who was taking the evidence from her -- she revealed that he was talking on her cellular phone. she obtained the cellular phone and change the receiver of the cellular phone. this profile was entered into the data base, and it went to this man. her training made this a

responsible. he is now waiting for trial. for similar reasons, police and prosecutors trading would enhance the regulations. if there's anything i have learned as a prosecutor, when the police and prosecutors are working together, we improve the outcome, significantly. the team work is very crucial. the roadblock may exist for this cooperation, and i have detailed this in my submissions and suggest solutions to overcome this. the crime-solving ability of the national database is amazing. a young woman was stabbed to death in south minneapolis. as part of a project, the police sergeant found evidence and this evidence was submitted for dna testing. this went to a man with a felony conviction for drunk driving.

the senator was responsible for the law that made this a felony. i charged him and he is doing 25 years in prison for a crime that never would have been solved but for the fact that he was in the convicted offender data base. this is a great example of how the an event -- the consequences led to the outcome. i am fortune to be part of the revolution in the dna evidence. i have made suggestions to the committee and i believe that the use of dna to identify rapists can be enhanced and this can be brought to justice. i have a number of areas that i think may be helping us. i want to thank you for inviting me to testify before you. i look forward to continuing my word on maximizing dna technology in this area.

>> thank you very much. the next witness is the director of public policy since 1999. she has joined the organization in 1991. this was from 2002 until 2005. she served for the committee on violence against women. she received a law degree from georgetown university. some of us in this committee find -- never mind. there are two of this on this committee. please go ahead. >> good morning.

good morning to the ranking members of the committee. i am the public policy director. this is a national, non-profit advocacy organization. the members include victims service providers and professionals at the state and local level. we advocate for sexual attack victims with the understanding of dna evidence. i am appreciating the ability to appear before you today. sexual attack victims call us when they cannot find what they need at the local level. they remind us of undergoing the examination can be interested in violating, exhausting and confusing. when the examination is

complete, the victims have no idea what happened to the kit. every kid is taken immediately, and they're confused about what can i get information about the -- about the case. nobody is telling them why. they become discouraged. victims believe these kids are destroyed before -- kits are destroyed before they are used. after she had done everything that she could to promote the investigation, nobody else was caring about bringing the offender to justice. another person was outraged that the previous victims had languished for years without being tested. she is wanting to file a lawsuit because she says she would never have become a victim if they

were captured. many jurisdictions said that they do not have the kits. we would like to offer a clear policy solution, and we need to know if this is a lack of understanding, about the power of the dna evidence. or a lack of funding to process the evidence, or lack of will with more sexual attack cases. each of these would call for a different solution. we need to know if there is any benefit to test all of this. even if the identity is not part of the issue. many people are trying to test this and the experience to give us the ability [unintelligible]

we are reluctant to say that this should be tested. there may be no evidence and no value in processing this. if he is later convicted, the dna will be captured and submitted into the data base. because the capacity for forensic evidence is limited, to require the testing of every sexual attack, even those unlikely to be used as evidence will lead the testing. many victims have a compelling interest in the testing. burglary victims can benefit from forensic evidence. families of missing persons can have more unidentified remains.

ne prioritization of a class of cases should be used effectively. first, congress could provide more support to make certain [unintelligible] and a bill of rights for dna with sexual assaults. this will give the victims the right to know whether the kit has been processed and the attacker identified. we're also asking you to have increased public awareness that they have the right to an exam even if they have not made the decision if it will report the crime. the victims learn about the examination from the police with

a crisis center, police some of them will report to the police. many may have a delay in calling until this is too late. we are applauding this committee for the commitment to justice and sexual attack victims and other members of crimes, and sen. franken for bringing attention to this issue. we look forward to using -- to enhancing the evidence and bring a response to the victims of crime. >> i am going to introduce stephanie, the commander of the miami police bureau. we tracie evidence and the biological evidence. she is a leader in forensics

science. she works for the national institute of justice and the chief of police. she is also the leader of the institute of crime laboratory directors. she has received her bachelor's in science fourth -- from florida university and her master's from 40 university. >> good morning. members of the committee. i am the crab -- the crime laboratory director and i am in charge of the managing operation of the full-service laboratory. those are working for the interests of over 500 crime

laboratory directors overseas. the integrity and the ability of a forensic laboratory. i am ever reaching the opportunity to work with you about the effective use of dna evidence for solving these cases nationwide. this provides investigative leads to remove dangerous offenders, or to exonerate an innocent suspects. and the interpretations from these investigations. cases must be prioritized. limit -- when we come to these decisions, the high priority is what is the greatest -- the greatest threat to society. this includes personnel training to meet the needs of investigators and citizens.

this is a critical component of the investigation. in addition to dna, we have evidence for controlled substances and firearms. the forensic service is 5% of the annual caseload, and there is a backlog in all areas of forensic science. this is impacted by a lack of funding to support the needs of the forensic laboratories, nationwide. as a result of the dna requests, this is made because the jury expects the event. the head into the of the suspects may not be in question. if the identity is not in question, why should you use this? you have to say that there is a

fictitious representation on television. they can analyze every factor from every case. the reality is different. there are resources nationwide for every case. each case is different. with the consensual sex case, -- should they receive the same level of attention? the crime laboratory's did not treat these the same way. we clearly understand the value of analyzing the sexual assaults. this means our position is necessarily different. if the laboratories would look into every case, others would go unexamined. backlogs to exist. there is the single exclamation.

there are cases in progress but not yet complete. the crime laboratories can only manage the cases that they know about. the policy allows the miami police department to look into the analysis of cases. there is a constant juggling of priorities to meet the needs of the additional system. this is not performed in an arbitrary manner. this is for all the cases -- with the violent crimes. this is a trial factor for these crimes. they have the dna analysis of the crimes. 52 percent side of the violent offenders had a burglary in their past. the idea is the prevention. they have less opportunity for violent crimes.

congress has allocated funding for current technological advances and the police department is working to solve the cases in dna and have successfully made -- successfully raised $1.5 billion to look into these crimes. 68 dna profiles were applauded. 32 bids were made, until all leads have been exhausted. training is important with the submission of evidence, with the analysis and the testimony. we have the collection and preservation of dna evidence, with what everyone knows about dna. we explain the importance of dna evidence. this should be common knowledge among the personnel.

the curriculum should include procedures for the proper storage of dna evidence. this is not only a law enforcement problem. this must be addressed for the entire system. the expectation is that every case will be work is unrealistic. but every case is to be analyzed. crime laboratories do not have the ability to out -- to find out every case. this is not just the people who work on this on a daily basis with the crime laboratory directors. case management involves the entire dish -- the entire judicial system. why should use these? you can use this in a timely

manner for critical information. there is no one-size-fits-all approach to the case management. this must be used to meet the demands of the judicial system. i appreciate the opportunity here today. >> the last witness is the advocate for mandated dna testing. the tragedy of the rape and murder of her daughter at mexico's the university -- she has led the effort that resulted in the adoption of the law in new mexico. she founded a non-profit organization with the testing law across the country.

she has been honored by the governor -- and she was a button to the new mexico women's hall of fame. i am sure that you hope the reason is -- you wish the reason was not there. >> members of the committee, i appreciate the opportunity to speak to you about the issue of forensic evidence and dna testing, and i am here as the mother of a murdered daughter. i am here representing the surviving parents coalition. i am here for the parents of people have been sexually assaulted. we're here to protect the children and young people.

forensic dna is important to solve these crimes as children are not able to defend themselves. this is a legislative priority. in 2003, my daughter was a joyful and loving graduate student in new mexico state university. she was attacked outside of her house, in a safe neighborhood. she was brutally raped, sodomized, strangled, set on fire, and her body was left on an abandoned dump site. it is never easy for anyone to bury their child. but the pain of losing her in this pilot matter is beyond description. there were no strong suspects in her murder, but she fought so hard for her life, but she had

the blood of her attacker under her fingernails. this contained his dna. i now know how lucky that we weren't that the murder was so high-profile. the district attorney did not want to send the dna sample to the crime laboratory because this was going back for one year. she was using her budget to outsources to a private dna laboratory. we sent this to the data base and this gave bright hope to the family. we knew the killer of the daughter and we had his profile. all that we had to fight was a match for the data base. there are so many families that also have this hope, and there are so many more who are waiting, waiting.

it is painful to me to think about all of those rape kits all across the country. when i think of those, i think of those faces and i feel the pain of the mother's who have buried their daughters and are waiting for justice. they deserve justice. they deserve evidence in their cases tested and applauded. there may be no hope for justice. without justice, these monsters will remain free, on the streets to victimize people again and again. the cost pain again. what i learned about the evidence, i thought, this man was such a monster that he will

commit another crime and he will be arrested for something else. we will know who is and we will stop them from killing again. that is what i learned that as every state takes fingerprints from individuals who are arrested, most did not allow for the dna to be taken from somebody. we do not allow the law enforcement to check the data base for a possible match before the people accused of the most horrible crimes to be released on bail. we do not even bothered to check the base. we just release them. that is what i began researching the issue of taking dna. i became an advocate for taking the dna and we founded dna saves. this is advocating these laws nationwide.

we cannot bring her back, but we can work to change the law, so that will be able to prevent this agony from being put on other parents. in 2006, we were fighting for her in the state of new mexico. this would into effect on january 1 at midnight on 2007. since that day, we have registered 104 matches for unsolved crimes, with the individual profiles. in less than three years, the total population is about 2 million people. one hour and 40 minutes after the law went into effect in new mexico, the first person who was arrested matched a double homicide. that man has been convicted of murdering these women.

three months after the murder, one man was arrested on aggravated burglary charges for breaking into the house of two young women. his dna was not taken. it was over three years later that he was finally convicted of burglary, incarcerated, and the dna was taken. the dna was matching what they worked so hard to provide as she was being murdered. -- what she had worked so hard to provide as she was being murdered. he will spend the rest of his life in prison. if there had been a dna test, the murder would have been solved three years sooner. three years that we were praying for justice, waiting to know that the killer was off the streets. during that time, i have been

told by the district attorney that over $200,000 was spent investigating the murder. this money would have been saved. but more importantly, this man would have been in custody three years sooner, and he would not be able to victimize the other young women. the data base has two times. -- two sides. the evidence in the data base. without the data base of the offenders, we will limit the ability to have these matches that can be made. then we will have the -- will not be able to limit the matches that can be made. in the past, i have come to meet so many families have lost their daughter, so many families that have their children of the

dead. and a great number of victims. we go to these people to have the evidence tested in a timely manner. more importantly, we owe this to the citizens to stop these monsters in their tracks before they murder again and again. we have been given a wonderful, scientific tool in dna, that is ultimately the truth. this can not only solve crimes, this can also prevent crime. in doing so, this can save precious lives. this will be able to exonerate the innocent. we must make the full use of the scientific tools. to do something else as criminal. >> thank you for your courage,

the stakes as far away from the statistics and brings us to the reality. those of us to have the privilege to serve as prosecutors before we were here know that many of these cases -- when we see the personal side, these are not just statistics. they have human faces. we have crimes and victims, for these committees. what you do -- you are speaking out, and you tell all of us what this is. i am going to ask a question to the commander. at the institute of justice -- you are reducing the backlog of

victims across the country, getting this to the police department in the laboratory. we have the creation of the uniform procedures, improving the training of the police officers for the benefits. i will start with the commander and your experience and what you played in educating the law enforcement about dna testing. and how about the priority of these cases, where the dna analysis is most useful. >> let me talk about the first part of the question -- the second part. prioritizing is something that would have to occur in order to -- i mentioned this in my statement. to remove the offenders who are the greatest threat to society.

if you have a homicide to come in with the burglar of someone's vehicle, most people in december. because that is what is common to society. the greatest threat would be the rapist or the murder. this is very clear. this is in laboratories, nationwide. >> this should be a uniform standard? >> there should be a standard, with all of the offenders that are threatening. for the violent offenders, absolutely. all the laboratory directors say, that is part of the funding, and everyone understands that these are the highest-priority.

>> what about the national training program? can you go from something as large as dade county, going down to the smaller jurisdictions, which are the majority of jurisdictions? will the national training program on dna evidence, will this be helping them? >> the program with help from the perspective of law enforcement. this is the small agency, that is not aware of what dna can do. this is on the side of what we can do, to know what to correct or cement. you had one chance to submit everything. that does not mean that this is analyzed right away, but this is

preserved. i think that there should be some training with what the capabilities are. there is a lack of understanding, whether you have the expression, but the old- school police, who believe that the investigation will solve every crime, and with the physical evidence can do, that is one part of this. this should be mandated. >> before my time, you see the point of view of the prosecutor. this is part of the uniformed standard, with the dna handed over to the laboratories. these things are helpful.

>> i think some kind of national standard would be something that would be very valuable to law enforcement. i have noticed that there are significant differences between the police departments in what they will send to the laboratory, and the people who collect the evidence. we have tried to bring those standards with the law enforcement's in the county. this may be kind of helpful. many officers are not aware of the capabilities of the dna typing. dna has changed drastically in the years i have been working on this. 20 years ago, we needed a large

sample to get the dna and we obtained this from a murder victim by simply working on the area that we believe that the perpetrator had taken the victim, and we were able to go to the area where he had been touching her, then we came up with a profile to know who he was. >> i will turn the gavel over to the senator from minnesota, and there are several things going on here at the moment. in case i do not get back, i want to thank everyone for your testimony. i want to thank your support. this is very difficult to give

this testimony. >> thank you for your testimony. particularly from the description that you have given, from the real-life situations that are so painful, i want to ask with regard -- this strikes me as having to have the data base to check against this. was this a factor in the person who assaulted you? >> with my case, this was just beginning. we were catching up, and trying to get the data base set up, and all of that. there was really nobody at fault. that was not in the time that my case was sitting. there is nobody at fault right now.

there is a tremendous amount of this that we have to figure out, to find the best way to finish this. i am certain that everyone is wanting to get this done. >> this is good advice. we have to figure out how to do this, correctly. you see that you were leading the effort to pass law in new mexico, and this turned out to be the reason, it seems to me, from your testimony, that he will identify the person who killed your daughter. they were doing the test on this person when he was arrested, three years later for the burglary. >> actually, they could have had this three months after --

three months after she was murdered. it was three and a half years after she was murdered that he was convicted. the law did not go into effect after -- until one month after this. we have had tremendous success, since this would into effect in new mexico. >> one thing that we should all remember is that this individual was not arrested for a burglary. that is what told the tale. use of the case -- you have solved the case where someone was arrested for driving while intoxicated. you have been based -- you have been doing this for a number of years. do you think that these

different states that are currently -- they are testing with each arrest, is as good public policy -- is this a good public policy? >> the larger the data base, and the larger that you can get the data base for a crime, the more a response that you will get. this is good public policy. i see no constitutional barrier. i know that the trend is going in this direction. this will cause a rise in the number of the samples on the data base. this can be handled, and i think that this should be handled. >> with regard to the victims, you talked about the victims -- even if they know the person who

was attacking them, either upon the rest of this person, from the dna itself, the test should be run because they may not know that this person has a tendency. how would you discover the value of even testing this information. this is based on the case where you know the victim. >> when this is known to the victim, we know that so many sex offenders are repeat offenders. the ability of blood this sample will depend on their being -- them being convicted. if you were going to run this on a known defendant, this

information would not be uploaded. you have been known defendant. >> this would be a policy error. >> when we talk about the demand on these things, we have to be careful going forward. if this person is arrested, we would get this in and we could start to see this. >> if the victim is examined properly, will you have to do multiple checks to make certain your getting the right

information? how much dna you need to gather for each victim? >> when they respond to the treatment center, there is a protocol for the selection. when we analyze this, unless this is tested for court purposes, the analysis is only done once. >> they will have to do this multiple times. >> we would do this -- >> if you knew that the person was arrested, and you did this, you'd only have to have one specimen of the dna to put this into the data base.

>> is i am understanding correctly, the information that is obtained from one of the items -- we would need to test the multiple items to put the profile in. we do test multiple items, and the profile is only entered one time. does this satisfy your questions? >> if you identify the victim, you know the perpetrator and i think that they can be put in and they may not cost quite as much. he may be able to obtain this sample. >> we had to have the sample to prepare this, to know the information that is there. sometimes, the details of the case made necessary a comparison to the victim. we always take this standard for

the kit. we take every case even if the subject is still continuing. in florida, we put the standard in. this would go into the data base. we do not know when they arrest this man -- we have no knowledge of the disposition unless we have testimony. >> thank you. >> thank you very much. thank you for your moving testimony. thank you for coming forward. you have mentioned in your story the need for a well- trained nurses. and collecting the evidence and making certain that the victims do not feel victimized when the evidence is collected. the note we could do to better train the nurses in these areas

, getting more nursing students to go into this area? >> there is a wonderful program for people who are trained to take the examination. my doctor was actually reading the instructions as we were going along. that is not very reassuring. .

-- money for investors. >> this hearing of the subcommittee on capital markets will come to order. i ask unanimous consent that permission be granted to anybody who is a non member of the subcommittee who is present today to sit with the subcommittee. pursuant to committee rules, each side will have 15 minutes for opening statements without objection. opening statements will be made

part of the record. the morning, everyone. one year ago, federal authorities arrested mad bernardoff -- bernard madoff for perpetrating the largest ponzi scheme in history. we are examining for the third time this massive securities fraud. this is a case study to guide our work in reshaping and reforming our financial services regulatory system. last month, our committee hashr3817, the investor protection act. the house will begin to consider it does today. both bills contain a number of provisions that directly

swindles.. . the bills owed -- also provide for an expeditious, independent, and comprehensive review of the entire securities regulatory structure by of high caliber entity with experience in organizational change. this study will identify specific reforms and

improvements that the commission and the other entities that oversee our securities market must put in place to ensure superior investor protection going forward. the madoff episode also revealed the need to elevate the importance of whistleblowers like mr. markopolos -- who made repeated entreaties to the commission regarding mr. madoff s common -- by establishing incentives so that more of them will come board. our regulatory reform package therefore includes a bounty program to help identify wrongdoing in our security markets and reward individuals whose tips lead to successful enforcement actions. with a bounty program, we will effectively have more cops on the beat. in studying the madoff case, we have additionally learned that the public company accounting

oversight board lacked the powers it needed to examine and take action against the auditors of broker-dealers. our legislation closes this loophole so schemers like -- schemers like madoff will no longer be able to rely on inept or corrupt accounting firms to rubber stamp their criminal activities. through our investor protection reforms, we are further sought to strengthen the secured her -- the securities investor protection act, law that helps investors to recover funds when a broker or dealer fails. weaving please the resources available to the securities investor protection corporation to fund liquidations, boosted the level of cash coverage an investor is entitled to, and raised penalties on brokerages for violations of the wall. we have also broadened the eligible types of investments covered. we can do more to reform this law. if we will continue to move this process forward as we examine the ongoing efforts of the

securities investor protection corporation to mitigate the sizable losses suffered by mr. madoff's victims, as well as the casualties of the $8 billion stand -- stanford financial fraud. we will also explore the intended and unintended consequences of several proposed changes to the securities investor protection act that aim to address problems that some madoff and stanford financial victims have encountered. what each of these amendments seeks to fix a perceived deficiency in the law, each proposal -- each proposal will also benefit from a robust debate in order to identify potential problems and possible refinements. some have advocated that the securities investor protection corporation should not claw back the profits taken by early investors who unwittingly partook in a ponzi scheme. i have concerns that such a

plan, if implemented, would treat later investors unfairly. that said, clawing back profits already used by charities could prove especially devastating. as such, we must walk a fine line in determining how to proceed, if at all. in closing, i would like to extend my appreciation to my colleagues from new york, mr. ackerman and mr. maffei, as well as mr. ellison of minnesota, mr. klein of florida, and mr. perlmutter of colorado who have helped to select today's witnesses and advance discussions on reforming the securities investor protection act. together, i hope that we can learn more from these terrible events and figure out how we can further improve our regulatory system. now what would like to recognize the ranking member for his opening statement. >> and i thank the chairman and all of the witnesses for joining us today to testify before our

subcommittee. from people situated similar to yourself, i have been all aware of the suffering inflicted on so many investors, and in my area, that the district of new jersey and across the country as well, due to the madoff situation and the stanford situation as well. it is important that we hold this hearing today to hear first hand from some of the victims. not only to get a better render standing of their situation and their plight, but also to hear your ideas. having been to this experience personally. how to make this process work better and perhaps more importantly and appropriately for all the injured parties involved. let me take a moment with the statement, and i would like to enter two statements into the record from constituents of mine.

both of them have been adversely impacted by the madoff fraud. >> without objection, so ordered. >> thank you. the frauds themselves were tragic for so many innocent victims. the purpose of today's hearing is to examine ways to improve the process so that the victims do not have been needlessly supper once again. as the chairman says, we're looking to reform the process. one idea is to offer a pension fund or other fines bonds. others are talking about this clawback process in which they are seeking to recover funds recovered by some of the madoff investors. there are also calls for a more timely process in extending coverage to affiliate's that we

should consider. all of these ideas deserve to be fully explored and vetted by the subcommittee with a private discussion of the pluses and some of the minuses as well. this belief that we can do for the many investors affected -- affected by the past fraud as well as the future ones as well. unfortunately there will be future schemes that will try to bilk unsuspecting investors. and the specific failure to detect -- or the sec spell your, i should say, to detect the -- the sec's failure, i should say, to detect this fraud is well documented. this could happen in the future. and as fortunately -- and unfortunately, as prof. coffee has indicated, it could be worse. i am committed to exploring

other ways to explore the efforts of that agency. i may welcome any insight you will have on this in regards to the hearing today. one thing i think we should not be doing as far as the solution to the problem is saying if we can throw more money at the sec and not asking for any more results from them. unfortunately, as you all know, as part of the investor protection act approved by this committee, part of the package of bills that will be going to the house for this week, there is an authorization for the sec to be doubled with no strings attached basically on where the money goes. my colleague offered an amendment that i co-sponsor to scale back increases for the sec and what of tied increase is going to the sec to -- for them to half of the recommendations

made by the inspector general. you have an organization that did not do his job. we will not reward you by sending more money unless you can prove to was that you have over the last year now begun to implement some of those changes. if you want additional funding in the future, if you will have to continue on that better path. i appreciate your comment on that. i have a number of other questions related to the witnesses' written testimony. and with that, i yield back. >> now what i'd like to recognize the congressman for three minutes. >> thank you very much for your continued pursuit of this issue and this series of hearings that you have cheered. it is an awful years as bernard madoff told his own house of cards and and added that he had operated the largest ponzi scheme in history. you would think that by this

week, a full 12 months removed from his admissions, our financial regulators, some of whom have admitted they were negligent in protecting investors from his fraud, would have helped them -- as many victims as they could. with the enormity of his ponzi scheme in the human tragedy that it calls, they would have been generous as possible. and you would think that the causes investors receive detailed statements, his victims had every expectation that the money in their accounts was really there, belong to them, and that they were fully protected by the security laws. sadly, you would be wrong. instead, in the years since he turned himself in, largest, most sophisticated financial system and the world, rather than providing restitution to the investors were the largest fraud in history, has manage to create classes of victims who have turned one another, offered

pennies on the dollar on what they reasonably thought belonged to them, and there is no end in sight. if there is anything we have learned in the year since bernie madoff turned himself in is that the confidence that the investors had in the system to police our markets, the specific protection against fraud, was misplaced. today's hearing begins in earnest the process of providing additional legal remedies to madoff's victims. in my view, there are two issues as the subcommittee must address as we clarify this act. the limitation of specifics ability for callbacks for victims who were never -- who are neither complicit or necklace said in a ponzi scheme, and finding insurance for defrauded investors. i look forward to looking together with you, mr. chairman, to address these issues in the coming weeks and to hear from

our witnesses today. i would also like to win knowledge that our witnesses, madoff victims, thanking them all for appearing before the subcommittee. there are scores of others who wanted to appear. most of them just could not afford a car fare or the bus fare, the train or plane fare, to get here. we appreciate the witnesses who are with us here this morning and i testified. i look forward to hearing their testimony. i would ask unanimous consent that at the appropriate place, that this folder of statements from additional witnesses be placed in a witness. >> without objection, so-called -- so ordered. and i will hear from mr. king for five minutes. >> let me thank you for holding this hearing and your attention to this matter. but we also thought -- thank my colleague from new york, mr. ackerman, for the energy he has shown in this matter. the first time i heard the name

bernard madoff was a year ago tomorrow night, december 10, i was stopping by a holiday event on the north share to speak with constituents. the person hosting the event told me that shot was through the room because they had just learned that day that they're like it's fortunes -- they're like fortune's handled by mr. madoff had been part of a ponzi scheme. the next day, the story broke. i could see the shock on people's faces. and since then, the situation has only gotten worse. i have a number request since regarding what has happened over the course of the last year. like mr. ackerman, you see a tragedy like this unfold and did you see over the course of the next year the victims being victimized again. i know that there are no easy answers, but jimmy there has been imputation of fraud to the victims themselves. -- but to meet there has been imputation of fraud to the

victims themselves. somehow that they should have known, that there were co- conspirators with bernard madoff. and yet there is no evidence to suggest that at all. we have their redefinition of net equity, and the clawback which could be devastating, and that taxes paid for many years on nonexistent properties. we have a bond issue, including a former member of congress who said he had never heard of bernard madoff, and it turns out that his life's savings had been invested by bernard madoff. and he has lost everything. and then the entire issue of unfettered power being given to the trusty to change definitions, decide who was born to go after, why people go after them, whether they're specific authority to do that are not -- and these are all issues because this will not be allies

ponzi scheme. this will not be the last massive fraud. i don't think enough attention -- and all of us should have enough responsibility to this -- what you do when a massive fraud like this develops? we have to address this. we also have to find ways to protect those who are currently the victims. i look for to the hearing and to working with all the members of the subcommittee, trying to come up with legislation to address the real needs of victims and also to do what we can to ensure that there is better and more strict enforcement in the future to make sure this does not happen with the spirit and with that, mr. chairman, i look for to the testimony. i thank the witnesses for being here today. i think that victims it took time to be with us here today. and i yield back my time. >> now we will hear from the gentleman from florida for two minutes. >> thank you, mr. chairman, from holding -- for holding this

important hearing. i'll also like to thank the witnesses and the victims who have come forward with their stories and their rights to be made whole in different ways. mr. madoff's ponzi scheme, thought to be the largest securities fraud in modern history, has defrauded thousands of people in my district, charities, lots of people around the indicted states. this episode was not only an embarrassment to the sec as they allowed this massive fraud to continue for well over redacted, despite repeated warnings, but time and time again the sec "investigated" mr. madoff and pronounced his business to these crown -- and pronounced his business to be sound. if you are an investor, if you would think that this would be a sound investment with the sec stepping its regulatory approval. there have been a lot of issues already mentioned, clawback, taxes paid, how were we made

whole from this terrible situation? the fact that this is, of -- that this has gone on for over a year is an outrage. the most important thing we have to recognize as citizens and as members of congress and even the victim's it that we have a rule of law and the united states. we have responsibilities as members of congress and americans to make sure that the sipc and the sec are living up to their statutory right and responsibility. it is important in restoring confidence in our entire investment system. and yet some investors we know were in -- were complicit and they should be prosecuted to the fullest extent of the lopper and yet most others were not. many hard-working americans have invested their life savings, and the sipc symbol and the symbol has to mean something. the sec reported late -- repeatedly gave mr. madoff a

clean bill of health. it might has to mean something when you move forward and make an investment in the united states system. to go after the investors who lost everything now violates a sense of fairness. how can they be held to a higher sense of standard than a professional analyst at the sec? or investors to drew more money out of the account are not entitled to full sipc coverage? i again, i see an inconsistency in interpretation here which needs to be resolved. the purpose of the sipc is to make knowledge load your the month expectation of customers. it is important to provide this protection of the five and a thousand >> not only for the victims of this fraud but to ensure on a going forward basis that americans can have confidence in the security markets in the united states. outlook for to the testimony and a productive discussion and an appropriate conclusion. thank you, mr. chairman.

>> and now as unanimous consent -- and now i ask unanimous consent that congressman ellison provided the opportunity for an opening statement. he is recognized for tw of minutes. >> beattie mr. chairman. let me thank all the witnesses as well. i do not think i will need two minutes. i simply want to say that the amount of disruption that this massive ponzi scheme has caused americans cannot be overestimated. in my on congressional district of minnesota, i have heard from people who thought they were a unqualified to learn that things that now things are not going to be as they were ex -- as they expected. five people -- i heard from people who run charities who had been devastated by the impact of this lapse.

i look for to this hearing and from hearing from the witnesses. i want to thank the witnesses for all the work that they have done. and i want to thank the members of the committee as well. i also want to thank the work of mr. mcveigh. kn#rr investor in the mott family investors and an indirect investors and mr. madoff's fund.

>> chairman kanjorski, ranking member garrett, and members of the committee, thank you for holding these hearings and looking into the sec's complicity with bernard madoff investment. my name is jeannene langford and i live in san rafael, california. as one of the more than 16,000 victims of the madoff ponzi scheme, i am grateful to have the opportunity to present how financially devastating scandal was to me personally. it shattered my trust in my government's ability to serve and protect us. my hope is that congress would choose to recognize and protect all indirect investors such as myself who were victimized by this scandal. i have worked for 30 years as an

art and design professional in the stationery and craft industry for the past 17 years have been as a single parent working to provide for myself and my daughter. in the areas where i have little expertise, i recognize the necessity to hire a specialist. personal investment was one of those areas, and i knew that there were systems such as the sec employees from my research, there was no reason to believe that this investment was not a viable place to put my life savings. i had no way of knowing the partnership where i placed my money was invested with madoff. the money i had invested with madoff represented my life savings. it was my retirement, a down payment for house, investment for the business i was starting, and it was my daughter's education.

in short, it was the foundation for my future. i do not have another 30 years to earn this money again. if the sec had done its job, i would have my savings and i would not be looking at working the rest of my life just to get by. i was shocked to find out my money was gone, and i was outraged to find out that the very governing body that sanctioned this business i need help in understanding how the sec could ignore expert testimony, be lax in its investigations, be influenced by the aura of madoff, and not carry out its duties. i find it tragic and ironic that the interpretation of the language by the sipc leaves out the indirect, hard-working people like myself who are not

wealthy and who are now struggling to keep up because their lifetime of hard earned savings or their pension has been stolen. these of the very investors for whom the sipc insurance protection is most important. congress needs to take action to restore confidence for all future investors. i understand an update to the definition of the word "customer" in the sipa to include indirect investors would ensure that the sipc symbol protect both indirect and direct investors in the financial markets and would begin to restore a sense of trust. if nothing is changed, the current situation would be similar to having a catastrophic landslide, and the government came in to assist those on one side of the street but not the other. i cannot believe this is the

intent of this committee or of congress. though i appreciate extending the sipc coverage through the amendment to investors in er i saw -- erisa plans, this does not go far enough for it -- are not. all of us who invested are also victims of the sec's inability to find the fraud. we are all victims of the same crime and we all need to be granted equal protection. the sec's website reads, the missions of the u.s. securities and exchange commission is to protect investors, maintain fair, orderly, and efficient markets, and facilitate capital formation. i urge you to rectify this current disparity of protection by carrying out the mission you

set forth. thank you. >> thank you very much, miss langford. i like to recognize my colleague from minnesota to introduce our second witness. mr. ellison? >> thank you again, mr. chairman. i am pleased to introduce one of the witnesses, mr. joel green of upsher-smith laboratories, a pharmaceutical company in minnesota. i've heard for many people in my district and state who are victims of the madoff scandals, people who are not high rollers but regular people, ordinary people who work hard and make america great. people like the ones mr. green represents and his colleagues, who were part of a pension profit plant that invested with bernard madoff. they thought that they were protected by the securities investment protection corporation, and unfortunately it sipc held itself out and has not followed out on the petition

in many cases. that is why employees to work with my colleague on an amendment to clarify the protection. i look forward to hearing -- to continue to work with you, mr. chairman and members of the committee, on this reform and others to ensure that sipc makes good on its promises. mr. greene. >> thank you, congressman ellison, and mr. maffei, and chairman and members of the committee. as congressman ellison said, i am told greene, and i work with upsher-smith laboratories of minnesota. i'm here ask your support for legislation that will protect working people throughout america whose retirement security is imperiled by the madoff fraud, including -- including current and former employees of upsher-smith laboratories. i urge your support for the legislation prepared by a the congressman for individual

members of qualified plans lost in the madoff fraud. hunter smith laboratories is a family-owned pharmaceutical company. it has approximately 550 employees in the twin cities, denver, and around the country. in 1974, our owners established a profit sharing plan to share the profits with our company's employees, and beginning in 1995, plan assets were invested with mr. madoff. over the next 12 years, the company contributed over $8 million to the plan for the benefit of our employees and on december 11, 2008, mr. madoff was arrested for fraud and approximately 615 of our current and former employees lost their retirement savings that had been in a profit-sharing accounts invested with mr. madoff. our plan and our plan participants are representative of the average american workers whose retirement savings was

intended to promote and his investment sipc was intended to protect. of our 615 plan participants, approximately 550 -- 89% -- had contribution balances of less than $650. this plan covers the average american worker. yet sipc has stated that only $500,000 is available. is it because the plants account with mr. madoff was held in the name of the plan trustee. but this was required by an administrative requirement imposed by erisa. our plan lost in excess of $8 million in contributions in the madoff fraud, and it could be in excess of $18 million. i symbol sipc recovery of $5

million will not go far enough to recover the losses of our plan participants. the rule under erisa cannot be allowed to defeat individual investors. for most americans, their primary retirement in are in these plans. if the administrative role is allowed to defeat protection for the losses of individual plan participants, then sipc fails to invest -- protect the investments of the individual investor, as when congress created sipc.

the fdic offers a parallel for what we propose here. if a profit sharing plan invested its azides and, even though they were held in the name of the plan trustee, the fdic would cover each plan participant out to the fdic limits. we had been asked by congressional staff in the spring whether it was possible as a matter of policy to extend sipc protection to individual participants, and not also extend such protection to in the individual investors of feeder funds to invested with mr. madoff appeared with great compassion to those individual investors, and great compassion for ms. langford, we believe that the answer is yes, as a matter of public policy, a distinction can be made. but we support any relief they can be given to the individual

investors in feeder funds. the result -- erisa's situations differ. they are not prevented by a federal investigation from investing directly in their own names. nor is their investment governed by the public policy of encouraging worker savings. for these reasons, if the distinction must be made on a policy basis, we believe that it is possible to provide sipc si coverage for the losses of plan participants of erisa plans. thank you for your time and attention and consideration of this important legislation to extend protection to the plans of in the drugstore -- to the individual participants. >> thank you very much mr. green. and now turn to my colleague from florida, mr. klein, to

introduce the third witness. but thank you mr. chairman. it is my honor to introduce helen chaitman, an investor in the limited liability partnership in new york. she is the author of the book. she is counsel to the madoff coalition for investor protection, a combination of a number of investors who lost assets in a ponzi scheme. she has been someone who has had a fairly good view of the issue and it unhelpful to many others in understanding the nature of what went wrong and what should be done to resolve it. miss chaitman. >> thank you, congressman climb. congressman kanjorski, thank you for having me here. this time this representatives, i think you as well. it was a year ago that i learned that i have lost my life savings and my grandson's college fund in mr. madoff's limit liability fund.

it took me a little bit of time to get over the shock and devastation. when i did, i realized that i was one of the lucky ones. i am still working and able to support myself. i devoted myself to the next six months to working completely on a pro bono basis helping hundreds of destitute madoff investors and their 70's, 80's, and 90's, who had been hit by financial tsunami who can never recover. this committee has dealt with that financial tsunami in the investor protection act of 2009, and i'm not here to speak about that. unfortunately, the madoff investors who i represent, and i represent hundreds of them, have been hit by two financial tsunami is that this committee can do something about. my client profile is a person in

his 17's, 80's, and 90's who worked hard his whole life, who trusted this government -- many of my clients served in the second world war with distinction. i have climates@@@@@ @ @ @ @ @ m been repeatedly investigated, and always come out clean. these are people of whom we should be proud and whom we

should be protecting. and instead, these people have been victimized by the government since december 11, 2008. the sec it tsunami that hit my clients was the announcement by sipc with the blessing of the sec that the statute that this committee played a key role in drafting in 1970, that statute does not mean what it says. my clients relied upon the promise of sipc insurance as required by the securities investor protection act. they invested in madoff, noting that the first $500,000 in their accounts was insured by sipc. they invested in madoff, now weighing that congress mandated that upon the liquidation of a

broker, sipc was promptly paid $500,000 by replacing securities and a customer's account. the statute mandates how customers claimed is to be determined. net equity is clearly spelled out in the statute. it is clearly spelled out on sipc's web site. even today. and yet sipc has decided that it does not in short the first $500,000 in these accounts. if only ensures the net investment going through generations of investors, because a lot of my clients are people his grandparents invested in madoff. and what sipc is doing is going back three generations to net out investments, and they are discounting inherited balances unless the investor can come forward and prove how much the grandfather deposited into the account in 1970. a virtual impossibility.

no one keeps records going back that far. and now where did the government put people on notice that if they want to happen sipc claim, they have to keep their records going back 30 and 40 years. the sec that tsunami was sipc's defiance of net equity. we know from mr. connolly testimony, posted yesterday on the web site, that the sec does not feel it is bound by the statute. american citizens have to trust in the loss. if the statute gives them a promise of insurance, they have to rely upon that. and how can we as a country instill confidence in the capital markets, if we do not stand by our laws and if we won the governmental agency but defies the law? the sec has not taken a persistent -- has now taken a

position that people would delegate to their broker and faster decisions do not get insurance as defined by the statute. they do not get net equity. the sec announced yesterday they get their net investment plus some adjustment for the increase -- a decrease in the buying power of the dollar over period of 30 or 40 years. "what is the purpose of this committee deliberating so carefully on a statute, if the sec can then after there has been a big loss this side, we don't think congress got a right and we do not feel we have to go back to congress. we are going to decide what the law is. how can we make people feel comfortable that they are protected by this government, which days serve and to whom they pay taxes, if the sec, funded by taxpayer >>, can thumb its nose at this institution?

the third tsunami that my clients had been hit with is that the sipa trustee has taken a position that he could demand repayment of all withdrawals within the last six years, even mandatory withdrawals from ira accounts on which people pay taxes, if the net investment going back for generations is a negative number. let me give you one very simple -- -- one simple example. my time is up? you'll have to look to my wrist and testimony. -- to my written testimony. the oilers if you want to state the example, go ahead. >> my grandfather put $500,000 in 1970, and he died in 2003. at which time, the account was worth $3 million. and i took $1.5 million at that

account to pay his estate taxes, and then from 2003 to 2008, it would to $2 million. mr. picard would be saying to me, "pay back $1 million. you owe me $1 million." my clients, who have a lot -- who lost their life savings, who were forced to sell their houses and a down market, and work cherishing the tax-free funds that they have received as the only funds they have to live on for the rest of their lives, now are faced with giving up those moneys in order to do what? nobody wants that. i never took money out of my account and i am receiving the beneficiary of the cloth bags? i and many of my client just like me, never took money out, we do not want this money. this is blood money. these people are entitled to

keep what they took out. thank you very much. [applause] >> the rules do not allow demonstrations. i know that these are emotional times. we will be lenient with the rules. and now we will hear from our friend from colorado to hear it -- to introduce the fourth witness. >> i appreciate the witnesses being here today. and the strait for testimony that you're giving to all of us. -- and the straightforward testimony that you are giving to all of this. there are four things that we have to consider. one is on the floor of the house today. where was the examination? where was the investigation? where was the oversight? and where is the prosecution of swimmers, croats, bombs, cheats, what everyone to call them? in colorado, we had at least

three in these last eight or 10 years. the victimized hundreds and hundreds of people in colorado, some of my closest friends and colleagues who lost their life savings to one of these three crooks. what kind of environment led to these giant ponzi schemes and frauds? and i would like to thank the chairman and the ranking member for bringing for the investor protection act and some of the precautions and safeguards built into that that we will hear on all four of the house today. the other three aspects of this, which is what this testimony in this hearing is about, the bankruptcy aspects and the call by. the reach of sipc to anybody who was swindled and victimized by this, and finally, what tax ramifications are there?

can someone take an immediate loss? we have today a constituent of mine and a friend, mr. pete leveton, from lakewood. he is a share -- a co-chairman of an investor committee, which represents over 200 indirect investors of a lot -- of a colorado investment group. i had been working with them and members of the investor committee for months, trying to develop remedies to the inequities between direct bond investors and indirect investors like the actual group. -- the agile group. many others who invested in the securities are ordinary people who invested their life savings on what they thought to be safe pension plans, trust funds, an investment account. they did their own research to determine the best investment group, and they believe big

birds like agile invested their savings plans. they trusted groups like these investors to turn investors in the safe legal funds. unfortunately, agile and other investment firms were defrauded by bernard madoff, by stanford, by others, and all of -- all the savings were lost. many are eligible to recover $500,000, but indirect investors are not. mr. chairman, we have the opportunity to restore at peace of dignity to the indirect investors. through no fault of their own, they lost their life savings and some are losing their home. i look forward to the testimony of mr. leveton today to describe some of the travails of the

people in colorado. >> thank you, mr. perlmutter. mr. leveton. >> members of the committee, as congressman perlmutter just said, my name is peter leveton. i live in lakewood, colorado, a denver suburb and congressman perlmutter's seventh district. i am an unpaid co-chairman of the and agile group llc investor committee. agile was a hedge fund manager based in boulder colorado. thank you for giving me this opportunity to testify on behalf of agile's 205 investors, several hundred ponzi victims, from more than 20 states, and by extension, all made out indirect

investors to file more than 11,000 claims -- sipc claims honored before the date of july 2. -- on or before the date of july 2. it is clear that you have a clear understanding of many of the issues and i will try not to belabor those. the indirect investors are not a homogeneous group. it includes farmers, doctors, teachers, lawyers, businessmen, entreprenuers, and other hard- working americans who have over a period of years diligently saved for their retirement. many of us are your constituents. many of us are now devastated financially and psychologically. many of us have sold or are trying to sell our homes just to obtain money to live on.

many of us are retired. some indirect investors have had to beg for support from our siblings and our children. discrimination is not a word that any of us in this room would use lightly. however, because only direct investors are considered such sipc customers, discrimination is what indirect investors are facing. that is clearly not congress's intent when they created sipc in 1970. pursuant to the current interpretation, direct investor victims who knowingly invested with madoff have an opportunity to recoup up by the thousand >> for each of their accounts. indirect investors, many, maybe most of us, had never heard of bernard madoff until it was too late and they were not

considered customers. we will recoup $0. i ask you, where is that justice in that type of interpretation? because the sec has admitted extreme culpability in missing the warning signs of the madoff scam and others, and because the irs essentially endorsed madoff in 2004 by naming his firm as a non-bank custodian of ira's and other tax referred -- tax- deferred retirement accounts, we believe that congress has a duty see that relief be provided to all victims, not just some victims. the concepts outlined in the maffei/ellison amendment would be a wonderful solution if it were expanded to include all indirect investors. unfortunately it addresses only

erisa plan victims and excludes thousands of other indirect victims, including those in self funding retirement plans such as ira's. i ask you again, wheres@@@@@@@@ financial devastation as be erisa plan investors and the direct investors. we firmly believe congress should in this discrimination, not for patrick -- not

perpetuated as the current amendment would do, if passed as is. we ask congress to enact legislation which clearly defines investors to place their money and sipc-protected funds. we endorse an amendment that prohibits clawback from investors who withdrew their money in good faith and can prove that. with regard to the 60-day payment amendment, we agreed that sipc payments should be based on the customer account balance as of their last day man. again, assuming that they had no -- that they did not know and have no reason to believe that the madoff operation or other ponzi schemes were fraudulent operations. regardless of what processing

period is determining -- determined to be reasonable, we suggest street parameters and guidelines be established and that sipc be required and be held accountable for meeting those standards and guidelines. in closing, i suggest that this could happen to you. and congressman perlmutter mentioned that it did happen to the one that -- one of the agile members who was a previous member of congress. we look to you and your colleagues to carry out congress's our original intent to protect all investors when it enacted sipc a and help us recover a portion of our -- sipc a -- sipa and abbas recover portion of our savings. i would be pleased to answer any questions. >> now we will hear from our

friend from new york to introduce the next witness. >> thank you very much mr. chairman. thank you for holding this important hearing and allowing us from other subcommittees to sit in and and and listen. i want to thank all the witness, and mr. leveton, i assure you that we will be discussing with mr. pearlman and others your suggestion. we are informed by the plight of our own constituents and did not necessarily know all the different aspects of this. to represent some of the folks in my constituency today, i am pleased to introduce a good friend of mine, of business manager for the local steam fitters union. he has served as the chairman of the employer trust fund since 2005. he is also the president of the central and northern new york building and construction trades council, representing 16,000 pensioners and their families from other unions inside europe.

mr. lancette, thank you for coming to speak with us. i want to thank local 26677's counsel for coming down as well. they suffered serious losses because of the madoff council. while the headline said been full of wealth and prominent investors who lost money, the pension funds of approximately 60,000 union workers and retirees in central and upstate new york were also exposed and suffered great losses. central new york unions loss at least $350 million, and as mr. lancette will tell us, local 267 loss $37 million. it is important to help them recover some of the funds that they have lost. i urge the chairman to continue working with me and others on the committee to address these issues after regulatory reform has passed the full house. currently the securities and

investment -- sipc is only allowed to restore five and a thousand >> per fine. -- $500,000 upon. i have introduced an amendment helping those to recover those money. i want that my colleague from minnesota from working with me and others to relieve victims of madoff. again, i want thank the chairman for holding this important hearing. and for mr. lancette sharing his story with us. >> thank you very much. i like to thank chairman and kanjorski, and the members of the subcommittee on capital markets, insurance, and

government sponsored enterprises for having me here. my name is gregory lancette, currently the business manager of plumbers and steamfitters local 267 in syracuse, new york. i am chairman of the jointly administered multi-employer trust fund. i've served in this capacity since 2005. local 267 is a chartered local union of united association of journeymen and apprentices in the plumbing and pipe fitting industry in the united states and canada. i am here today on behalf of not only by 1115 pension participants and their families, but they also stand here today as president of the central and northern new york building and construction trades council, which represents nearly 16,000 pensioners and their families also from central new york. today gallup like to discuss the direct relationship between sipc and bernard madoff's ponzi scheme. sipc today provides coverage to individuals with an individual and of $500,000.

my members pension funds have no real coverage. my members, like millions of workers across the country, rely on pooled coverage which sipc does not currently protect. when i was elected in 2005, the madoff investment was approximately 30% of our pension fund. we receive regular confirmations that our money was invested in s&p 500 cos. while the return on the account slightly trailed the s&p 500 index, we were assured that the strategy offered adequate there's a versification and lower volatility. we believe that the u.s. securities markets monitored by the securities and exchange commission provided protection for our members. the plumbers and steamfitters local 267 benefited fund had out

market value of approximately $34 million invested with madoff's direct brokerage. local 267 had $6.5 million invested with bank and an associates. beacon is a fund consisting of a basket of investments which comprised of the 40% of total assets invested in madoff. on to the current formula of sipc reimbursement, local 267 will receive $500,000 from the madoff direct account and the reimbursement for the be can i count will only be $900, due to the fact that the amount of local 267's portion consisted of only 1.8% of beacon's total assets. to summarize, local 267's pension loss $236 million and expected to recover $500,900 from sipc.

. the reason behind the amendments is that pension funds would be made closer to call to compare what is being compared back in central new york. currently, if all 30 funds received by kucinich thousand dollars reimbursement from

pacific, $15 million will be returned to the new york area compared to $350 million in losses. $50 million returned, $350 million returned. the pension loss of nearly $37 million to equate to $33,183 per participant. this protection would not be unique. a similar path is available to retirement plans for funds in the fdic insured banks. the portion that would be required to reimburse within 60 days would benefit all plans. it to be accomplished by returning assets or paying benefits to retired members. funds that were affected by the backs of 30 madoff are facing insolvency. the securities and exchange

commission was not able to defy fraud in a timely manner which led to significant losses. the pension protection act of 2006 requires funds to a more tight debt area. i would ask for consideration of the tension protection act, allowing the plan to immortalize the losses at a 30 year rate. fthe plant could recover and naturally. it may lead to the plan being turned over to the guaranteed. is john a consideration for multiple investor groups or participants or any multi employer. i strongly urge the pension

plans be allowed the proper time frame before the pension protection act to a more a ties -- amoratize losses. >> for we will hear from a professor at columbia university law school. >> thank you. i am pleased to be here but disappointed on this first anniversary of mr. madoff's debt. they have done so little to prevent the reoccurrence of ponzi schemes. ponzi schemes are predictable. they cost investors on average something like a billion dollars a year. before we even heard of mr. madoff, in 2002, the ponzi scheme losses in that year were

$9.6 billion. this is a recurrent problem. it will continue as long as the government persists in allowing advisers to be their own custodian. i will put this in a sentence. mutual funds used an independent custodian. so do hedge funds. set mr. madoff used his own brokerage firm. his own brokerage firm was serving as the watch dog as a burning madoff the investment and pfizer. when you are your own watchdog, and nothing works. the sec has taken some effort to discourage the use of self- custodians. they have backed off under pressure. we need a true watchdog. that can only come from an independent custodian. that is not a topic today. i will move on to the protection

act. i want to make three suggestions. all of all compromises and a line drawing and will be painful. insurance is costly. i remember this panel has told you that the definition of " customer" is too limited. is understandably been the tip of the fifth -- understandably limited. in looking at who to protect, i think we should look at the continued big dent in the u.s. been the most injured and least able to protect themselves. for i think that is the pensionr

and small pension funds. they suffer the most concentrated loss. they are losing their requirement@@brsn ã@ @ @ @ @ @ @ @ @ the individual pensioner. -- -- where the loss falls on the individual pensioner. you have to put a pension limit on it.

i will not tell you what that number should be. this second point is equally controversial. this is callbacks. sica appointee will use the fraudulent conveyance actions under the bankruptcy code to go after those people who received a very large distributions with in the statute of limitations. this morning's "wall street journal" indicates that it will bring suit seeking a total of $15 billion from people who receive distributions within the statute of limitations. that is $15 billion against total losses of roughly $19 billion. in other words, fraudulent conveyance has the capability of restoring as much as 80% of the investor's total losses. that is not to say he will get the 80%. he has the capacity to prevent

these losses. maybe he will get 30%. that is held litigation is settled. even $5 billion [unintelligible] i am advising that you should be very careful before you disabled the trusty and cut off his effort to restore it these alleged fraudulent conveyances and put them in one common pool for the benefit of all investors. the language that has been offered and says you cannot bring a fraudulent conveyance action unless "the customer did not have a legitimate expectation to the assets in the account" is language that means you are going to have to show that this person was a co- conspirator of madoff before you able to bring a fraudulent conveyance action. that will reduce his recovery from $15 billion to under $1 billion.

the cautious about stopping the trusty and going against the larger source of recovery. i would suggest we start with who are the victims who might be most injured by a fraudulent conveyance actions. i would focus on charitable organizations. the bankruptcy code has long given an immunity against fraudulent conveyance actions to charitable contributions. charitable contributions are not an issue here. here they are charities with accounts. they are trying to get their own money back. the principle is there. congress has recognized that charitable organizations are a special category. i would suggest that if you are doing anything to cut back but to extend the immunity of charitable organizations beyond

the contribution and say that a charitable organization cannot be sued for fraudulent conveyance unless it can be shown that either they have actual knowledge of the fraud or the charity was established by the clerk himself. no one has explained the purpose of fraudulent conveyance. they serve one fundamental purpose. they prevented the crook from choosing the victims that will bear the loss. we do not have fraudulent conveyance statutes, they can still decide to permit some victims to recover and letting other people bear the losses. if we do not have a fraudulent conveyance that too, we will put strong incentives for the crook to direct to be the real victims in who will be the smaller victims. i do not think you want to do that. i think you can use is that he that has a different language.

some the case law has construed to mean that you not show just good faith, but yet a good faith of a reasonable person. it is a negligence test. i think my time is out. for the first time, congress is trying to move from being a rather strange non insurance system to a true insurance system that will charge risk adjusted premiums. for other was, a good brokers are subsidized and crooked brokers [unintelligible] we want the risk your broker to pay more. i will stop. >> each and every one of you has

told a compelling story. you of colleges being to some of the core issues that you are trying to decide 1/5 sell off home run into whether you are a victim of a fraud or the market. people want to be made whole. that is a natural human instinct. our problem is that the losses was somewhere between $7 trillion and $14 trillion in capital. if you had been an investor for one of the major banks in the

united states, you go from $50 a share to $2 a share because of bad judgment or investments in the wrong area for potential fraud or participation in fraud, we do not know, there would have been great disappointment and temptation of every shareholder to 6 "i want to be made whole at the price i got made in at or the high price because i was counting on that for something, " obviously, it was their savings or requirement. that is not a bad argument. foa few among us and the population will turn over the assets to their pension funds or bank accounts, a fellow citizens, to make them more whole. i do not see a long line out here in front of the capital. they have not shown up to suggest that they are willing to provide their fair share of your

loss. i doubt that they will. our system and our decision will go to the question of "is it intended to have a system that has no risk?" that may not be the worst system in the world. if we are that, we should not have pension funds investment and visors. we should have a governmental pension fund and somebody lens that to the united states government at a guaranteed rate. if you have very little upside or downside. if you want to get to the advantage of the free market system, there are risks to the market. you may say "but we did not lose our money in the market, we lost to a broad." that is part of the market. it may be vicious. it may be because she did not understand or know you were

investing your money. there is no way in the world you can say it was the government's responsibility. our system does not say that. our system says it is each individual's responsibility to do and protect assets as they will. i was here when the enron disaster happened. they are people invested their life savings in their 401k that disappeared overnight to the tune of hundreds if not millions of dollars. we were all sorry for them. they had to take their risk. that was the problem. that is our system. it is not the best. i still think it is the best system in the world. it is not a good system if you are on the losing side. if you are on the winning side, it is the best that we ever discussed. our problem is, how do we lessen the impact on everyone?

we just cannot. it seems to me we cannot guarantee everyone is insured or guaranteed their return. i do not know how we do it. if we were to tax the payment of loss of $14 trillion in capital for the last recession, what would it be per head? q. is the mathematician? it would be extraordinary the amount of dollars. and probably all of us have lost in some way. you have lost a great deal. there is no question about it. what do we do? we have done several things. we have provided changes in the investor protection act that will require certain actions go more in depth. we have a chain of command.

information will go up the information ladder at the sec. all of those things help future legislation. there is not a lot in there that will help your cause. can we come up was an equitable position? -- with some equitable position? that is a tough situation. if we were to honor $500,000 per pension member of the pension funds, we would soon end the guarantee appropriation. we do not have the funds in there to do it. i do not think that was ever the intent. i think we probably have to have much more lively -- and i think it will result -- we have to have closer eyes on the subject. we do force pension fund to do certain things with the

assumption they will be able to carry them out correctly and they probably cannot. those individuals that did not know that madoff even had a touch on their funds. that is a tragic thing. that is the responsibility of each individual to find out. my time has expired. if you think realistically, you can go out and buy a 5 and a thousand dollars home. you can buy it from your lawyer, doctor, minister, priest, rabbi, or friend. if you are not smart enough or clever enough or sensitized enough to have its search out that the individual has title to your home and to buy the home and pay your money in any find out that the person that reported to be the owner did not own it, i have news for you. you lost it. you cannot sue the government. you cannot hold anyone else

response ible. what a difference is that in a pension fund it? it is really the same policy. our hearts go out to someone who pays five and a thousand dollars for a home that they do not owner cannot live in. our hearts go out to the people who lose their life savings because of a fraud. it was perpetrated by someone appeared to have all the respectability. the federal law does not provide that because you have to register with the sec and the sec is supposed to test out and investigate, it does not say the guarantee that it has are that if we eliminated. we cannot afford to do that. in some respects, if you look back historically, it is a hell of a lot better today than it was in 1929. i hope it will be a lot better tomorrow when we passed a new

reform regulatory bills than it was a year ago. it is the going to be perfect. we are not going to accomplish that. those of us that have the desire or wish are going to be grossly disappointed. i now plan to ask any particular questions. i have exhausted my time. so many members have expressed their thoughts on the subject of the losses of their constituents. they have suffered. they are looking for a remedy. we are going to work as hard as we can to close some of the holes and weaknesses in the system. we are not one to solving create a perfect system. the possibilities and exposures to the government and people are far above what we can possibly provide. we will work toward getting

uppity. there will be fairness. there ain't no equity or complete fairness in this world. it is a tough world. @@@@@@@@@ @ @ @ @ @ @ @ @ >> thank you. there may -- i agree there will be fairness. what we can try do from the government's per expect s.i. to try to make sure that there is justice, however. no, no, no. did i use up my time? we need to strive in order to get justice and i do agree that at the beginning of the day everyone should be held accountable for executing their own due diligence in their investments and part of that due diligence, as professor coffee would say changes who you are, if you're the proverbial little old lady at one level conversely

the union official who might have more resources to a fund of some or an association somewhere in between, sort of the level of due diligence is going to be responsible but we expect in this country that everyone exercise due jill dense to the extent that doesn't work out as far as investments going up and down, that is your responsibility. added to that, that is, when that due diligence in relinet upon the government then that is responsibility to have government to come forward. to look to the sec, you are relying on the sec to do their job. when you look to [unintelligible] after the fact, you should be able to look to sica to do their job. they are quite government

entities. there is a bill on the floor this week which is in essence what occurred here. it creates a moral hazard by relying on the government. the government says they will protect you with the sec. you have a right to rely on them. we told you you can rely on it. you should. we said you can rely on it. you did. have you never said those things, he may have made other investments. because we set those entities of, and now we have created a different investment strategy or decision. in the bill we will be voting on, it expands those involvements or activities by the government. in the future comic you may be more reliant on the government.

fourth and nothing that is a good thing. one of the comments was in regard to callbacks. everyone except fomr. believes d not have calawbacks? one of the testimonies entered into record said any clawbacks should begin with the ftc. -- s. you see. you were in reliance upon them. -- the sex. -- sec. you were in reliance upon them. we are doubling their salary and their appropriations. we are saying hopefully in the future you will make some changes but we will increase the. we might want to take a look at

what is coming down on the floor tomorrow. we should be holding them accountable for what they did wrong in the past and humming the people for tivoli accountable for the failures they made. before we give them any more money, we should make sure there are changes. use said that the trustee is running expenses of $100 million a year. they say the trusties have only paid $1.2 million so far. >> i can clarify that. the trustee's legal fees have been approved for the first 15 weeks.

it is running at dollars a week. -- at $1 million a week. at the net investment is not required by the statute. they have said that the expenses are running at the rate of $1 million a week. >> i see my time has come up. it is almost an incentive for things to move at an expedited basis. we have they could be there that is guaranteed to pay. >> there is an inherent conflict of interest in the way the statute is set up. >> some of these aspects may have impact upon getting more fees getting in or broker deals.

we did suggest that sica may want to testify or be it the hearing. they declined to do so. we would certainly like to hear from them at some point in time at what they see as the impact. i think i am on board with where most of you are. for we really have to be real tight in a language. why you do not want to do is come up with language that does not have been you will -- that has wiggle room in it. you will have to hire a lawyer with the release should not have to go to that aggravation. i think you probably agree. lawsuits would be very targeted. i think the target would be very limited. there was the potential for pollution. is that where you are going on that? >just for any other losses that

they would have potential? >> i think you could move from the current good faith in defense, which is based on a reasonable person, to a lot of recklessness standard. it to make it harder to recover on fraudulent conveyance. >> you do not want an overly zealous [unintelligible] now they have a reckless standard. >> mr. picard on behalf of small investments. there is no villain here. i hope he is able to recover a good deal from some of those larger investors to benefit the smaller investors. >> some of those are not the villains. i would assume the best majority of them are not violent either. >> he could have been reckless. >> the error not villains. then have to make that case.

we do not want to have the other people being swept into that and incur the expense. but right now they are simply negligent. >> i agree with that. >> we will hear from the gentlemen from new york. but thank you. we do not really know the full extent of the number of victims. what we do know is that the first victim was the public trust, the trust the people in their government, the trust the people in the us, the trust in the system that we set up that they believed would protect them and have every reasonable right and expectation that it was going to. we know the number of claims that have been filed. we know the number of people who

have been named. we know the number of entities that are on view this. as we can sneak -- on the list. as we can see from one local union, they are named as a victim but a lot of these groups and organizations and investment groups represent thousands and thousands and thousands of americans, some of whom think they are lucky because they had no stake in madoff. they do. 11 people do not understand this issue. -- a lot of people do not understand this issue. they do not look sympathetically at victims that have more money than they did. if they were getting a high interest rates. they should have known better. this is part of what we used to call blame the victim mentality. it is the victim's fault there in the predicament that there

and when nothing could really be further from the truth. chopin's, how many new mr. madoff? -- show me hands, how many people knew mr. madoff? not one of the victims knew mr. madoff. that is the problem. how could they do due diligence? they relied on the government to do due diligence. maybe we should take away the right of the government agency to do diligence and enough people like mr. madoff free of sen, crime, culpability, el intention and anything else. maybe we should let the little old lady from peoria be able to do due diligence and go in personally to mr. madoff. every citizen should be able to do due diligence how do we do

it? we do it by doing what we do. we do it by empowering government agencies and entities and people with badges to go in and investigate and make pronouncements that other people trust. that is what we do in a sophisticated financial system hig. everybody can investigate anything. the only people have the blame the victim mentality are the people who are not victims. they think they were lucky. some of them or not. there are so many victims here that we do not even contemplate right now. you put money in your bank. you have brokers. you put your money somewhere safe. you know the line of defense, because those are all public. if your bank went through brokers, so many other thousands

of people may lose money that we will never hear of any end. fourth the system loses all the money. there is not enough money in this insurance fund that people thought that they had. -- to make them whole to the extent of $500,000. we have a mess on their hands. we have a large group of american investors who were first robbed by mr. madoff, abuse by the governments in the system into thinking that they wear and -- they were insured. they were not. there were devastated by the irs. they were taxed on the money they thought they had.

they did not have the investment returns. the government robbed them by charging them a tax. they can only go back a few years and not the full 13. the government illegally robbed them of taxes. so many are now being raped by the clawback decision. it the think they have this money in their account that they did not have and they spent it to live on. that is what it was for. i have met people who have content for the victims because they should have known better. how? i represent the north shore of long island. it is paces from where mr.. operated. country club see belonged to. thousands of people who thought

they were likely to know such a nice man who is so reliable received all the alkylates did alkylates -- all the accolades. these people thought they were lucky. they were probably the unluckiest people of all. they were further ripped apart. they knew this guy they thought was a wonderful human being. how lucky were they? now they are personally devastated. to ts#@@@ @ @ @ @ @ @ @ p@ @ @

and some of them are involved in this fraud personally around with their finances as well. we have to be able to somehow do better. i think it is interesting, and i see that my time has expired also that, so many of us have strong opinions b, maybe that because almost everybody on the panel, most of us at this hearing have suggestses witnesses so that we understand who the victims really are. is try to fix the system so it makes sense. we cannot treat everybody equally. we said people upon themselves

like a bunch of piranhas. which group is luckier? it behooves us to figure it out. i think that despite the fact that this is the more marketable panel i think we will have a lot more questions on the next panel. i think we look forward to hearing from them. i think the people who come here today to share their tragic stories with america. keep in mind, we all bear some culpability here in the situation which we all find ourselves. i will yield back the balance of my time. >> thank you. >> if the loss that we just

suffered in the last recession, $14 trillion, was broken down into $46,666 per man, woman, and child in america. we have to bear in mind what i would mean to make up for everyone losses and failings. that money was made -- lost by a lot of people. i just want to throw that out. even if it does have that, that is $23,000. that is a lot of money. mr. kean of new york. >> thank you. i do not want to revisit the anxiety of law school class. have questions for you.

i agree with the overriding principles. we also have competing principles. one of the main purposes of sica to maintain consumer confidence. it gives some reasonable assurance that if they invest in good faith for and use reasonable diligence, that they will be protected. if the stock collapses, that is part of the game. you lose. when i look at this specific web site, it had a specific mission. customer assets are missing. without it, investors might lose their securities are monies for ever. it does have a caveat in there. there is certain limitations. but every investor is protected,

no fewer than 99% eligible to get their money back. it is stating that if you play by the rules he will be protected. when we have people that have played by the rules, it appears to me we have a trustee that is trying to make villains. he is creating a one category of villains and victims. 99% of the people are all victims. let me ask you a question. are either of you aware of any instance where they have defined equity? >> do you want to go first? >> i would be happy to. i can assure this committee that there has never been a change where a they get taken the position that they do not have

to comply with the law. this the first time in spic's history where they have taken the position that net equity does not apply to sipc. >> they should not misrepresent what they are doing to the american public. until recently, sipc was underfunded insurance. broker-dealer firms paid only $150 a year. that is awfully cheap. when you look at this insurance system, you should look at what most of businesses do. they may spend 1% of their revenue. this test been an awfully cheap insurance. it has never been under great stress before. it could happen again. in the old days when this was set up, most investors were individual investors.

that is change. only 25% of investors are individual retail investors. most of them to invest collectively through pension funds, etc. we cannot give insurance to everyone. it to look like socialism for the rich. i do think there are special categories where we could recognize that if we are willing to make any change, we should start at the end of the continuing. i think there has been some misrepresentation about what s ipc can do. i think the sec is probably consistent with what they are doing. it has never come up before in this way. >> i would comment on that. anytime you get beyond the specific of the law, they are

more deserving. it is a risky path. my time is starting to run. if all of you could address the issue of reimbursement of people who pay taxes. they pay taxes on money they never received. >> i do think the legislation that is being proposed would allow you to carry these losses forward. that would be a way of reducing some of the bite. i think we should be very sympathetic. it was a phony tax that you were paying. >> thank you. we are not seeking a total bailout or restitution. all we are seeking is that the sec and sipc comply with the law. we are seeking the five and a thousand dollars of swipc insurance that we were promised. -- $500,000 of sipc insurance

that we were promised. i do not think the present statute contemplate that. the statute clearly caught and tapes -- contemplated that a customer that deposits with a broker is entitled to buy from a thousand dollars in sipc insurance and based upon the customer's last 8 them. -- entitled to $500,000 in sipc assurance based upon the customer's last insurance. the customer was entitled to replacement securities up to five and a thousand dollars, even if they have tripled in value. how come we trust our government if the president of sipc can assure a court that even if the securities, which were never purchased, tripled in value,

sipc would replace the securities up to $500,000. we had a bright to rely upon that statement and rely upon the ball. with respect to taxes, there is no question that economically the irs was the largest in this area of madoff's ponzi scheme. used in treating short-term capital gain and people were paying taxes on the income they thought they were receiving at the highest tax rate. the internal revenue service and congress have done a great deal to help investors on the tax side. it will give madoff investors a great deal of relief. it is not 107. we are asking that they be

retired -- required to comply with the law. >> i want to make one final statement. from i have real concerns about a trustee who received $1 million a week in legal fees. it is an encouragement to keep litigation going. it does put an appearance of a conflict of interest there to pay someone for the more energetic going after one class of victims as opposed to another. [applause] >> do you have something to throw in in a response? >> i want to take a conversation in a different direction. it seems there is a dialogue going. it is an excellent dialogue. the attorneys of this panel are, with all due respect, dominating

the dialogue. >> point well made. >> can make a couple comments? >> yes. >> thank you. thank you for holding this hearing. i agree with some of my colleagues on the committee. i disagree with others. the bill that is on the floor today and tomorrow. it was put in place mainly because for the government has failed in many ways. it is our job to protect the average citizen. i will keep you a chance to talk about what you want to talk about. my husband was a stockbroker.

he used to come down. come home all the time and say brokers should not get commissions. and he said they should get a good salary. what we have seen in the last few years, let's go back to an rahm. there has been a slow deterioration of moral obligation with large corporations. we have seen that with the meltdown of the economy the victims. they do not have any money left to pay taxes. they do not even need a tax credit. the money is gone. the ones that are injured are people that did everything right. as far as consumer be where, --

beware, i will read everything that comes into my house. i'm not a lawyer. i do not understand it. if i ask the broker a question, he has to look up the answer. we try to trust businesses. unfortunately, it has not worked out. >> do you remember the camel trying to put their nose in the tent? that is with the indirect investors are. -- where the indirect investors are. i understand the issues of net equity. a number of things are valid. for the injured investor, unless they are in the customer definition, none of the things are relevant.

they are not going to get any benefit. i think this is not a legal issue as much as it is an issue of fairness. your distinguishing between the direct investors on one hand in the indirect investors on the other hand. now there is a further definition. that is the pension fund has separated from the other indirect investors. everybody lost their money in the same way with the same fraud. i cannot speak about the wealth of the direct investors. i can really only speak about the wealth of the in directors in our particular hedge funds. these are people who have worked all their lives, played by the rules, saved diligently, and accumulated enough money to invest in hedge funds at a level

that was over the minimum requirement. they are not rich by any means. to the extent that they might have more liquid assets fund those who were only able to scrape $50,000 and pension fund. that may well be right, but from the standpoint of this, discussion, to distinguish between those people who by the way, have created many, many jobs over the years, but distinguish between the hedge fund investor and the direct investor seems to me to be totally unfair and not appropriate. i think congressman ackerman, that you understand. i think what you said was right on.

the -- the intent -- let me say that another way. my reading of the discussion in 1970 when senator muskie, for example, said the sipc legislation would protect all americans, it didn't say direct investors, indirect investors, all americans from brokerage firm fraud is what was intended. sipc legislation did not do it clearly enough to indicate that. that was the intent. now what is happening is what you have said.

i think there is no way that sipc could rectify that, regardless of how good they are. congress can. it can start right here, the committee had taken the time and effort to allow this group to talk with you very freely. thank you. >> thank you very much. i think it is clear that the heart of every member takes for the experiences that the indirect investors have suffered. there is no doubt about that whatsoever. i think we also a because despite the fact that he tipped to the sec of almost a decade ago to the fact that madoff was

trying to play ponzi scheme, they ignored him. he was allowed to do it and allowed to do it . although i do not believe it is realistic to have laws that guarantee people will not become criminals and a one not try to exploit individuals, the deterrent to that is flaswift punishment. i am sad to say that to this day, despite the numerous inquiries and testimony, investigations, i do not know that anyone at the sec has had to risk that yet. i didn't even believe there has been a verbal reprimand. i do not believe anybody has been fired.

i just do not know how they have addressed it. the only way to deter criminal activity -- i mean you police is the best you can. when you find it, you must have swift and sure punishment, even if the government is in on it. he must have slipped in sure punishment. -- you must have swift and sure punishment. from we have plenty of laws that were violated. made of would not be any more of a creeook if there were more violations. for a think we need to focus on having a day of reckoning for the bad behavior. they referred to in run earlier. -- enron earlier.

it boils down to one word, agreed. it is a lack of respect for the process. it is a lack of respect for your fellow man and investors. it is a lack of respect to everybody. and led the people have the right to be greedy -- a lot of people have the right to be greedy, but they do not have a right to steal from other people. besides bernard madoff, until we see there is justice, everyone eligible of that scheme is just going to encourage more activity in the same, despite the many laws we enact. i yield. >> thank you very much. >> thank you.

i have some specific questions. part to the frustration i think most americans have is the fact that there has not been enough punishment. accountability is one thing. there is irresponsibility to follow through. this people need to be removed if they cannot do their jobs. they are not in the people providing regulation. the quality people they needed were pushed out. bad decisions were made. it should have been shut down a long time ago. people did not make good decisions. they need to be punished. there is a second line on this that goes into the private sector. i do know believe there is enough criminal punishment that people -- for people who defraud the american public. sure madoff is in prison.

he could have done this by himself. i cannot accept that. there are too many other people involved in this process. there needs to be some punishment. i agree with that. let's get to the specifics. thank you for your testimony. and one of the problems i see is that there seems to be some inconsistency in interpretation by the sec and the sipc. one thing i said before it is people need to know that on the website the sec symbol means something. it means something. if we look back at the regional language at the series rules it says rules provide for the classification claims in accordance with the "legitimate expectations or the customer based on the brand transactions

sent by the broker-dealer to the customer." it seems obvious to me. did you get a statement that was it a reasonable expectation that your statements would look like any of the statement to got from merrill lynch? i think the answer is probably "yes." there probably were not any big signals going the other way. i think the set of expectations that you had. . f.

>> they hire financial advisors and go to brokers and invest through fidelity or vanguard and they make investment decisions for them. >> is it your view that this interpretation were held up and this was the s.e.c.'s interpretation throughout that it would seem to me that millions of investors who just give a more general parameter of investment authority to an investment house may not be covered by a failed account, a failed broker who sipc steps in on. >> precisely. they wouldn't be covered for the full amount and the purpose of the statute was to instill

confidence in the capital markets if the fdic tomorrow in the next bank liquidation decided, you know what? we don't insure the accounts except for the net investments so we're eliminating all interest that may have accumulated over the last 30 years and we're only going to pay the net deposit, there would be a run on the banking system. and the s.e.c.'s filing yesterday for this committee could create a run on the securities firms because no investor in this country has any idea what kind of coverage they have in the event that they're dealing with a dishonest broker. >> professor coffee, you had a comment about zero sum game if they assess the members to provide for the cover. i agree with the comment that it's like actual cash in the bank. we -- what did you say, sir? >> i congratulate this commit

because you are raising the assessment from 150 to 0.2%. >> well, it seems to me, professor coffee, is one of the problems is there's a certain amount of money and we're sort of backing our coverage into that amount of money as opposed to -- >> it's funded, you're quite right. >> the law is the law and it happens to be underfunded, there ought to be an assessment or some way of making the people whole. it's not to say it's not $500,000. and again, i go back to how important it is and how strategic and essential it is for the public to know that if they invest, that the money -- there is a fund there to protect them if there's fraud, insolven insolvency, and those things throughout. >> i think you are quite right. i want to make one little comment. to the extent you rage assessment that the brokerage industry has to pay, you give them an incentive to organizations to cut back on risky behavior by brokerage

firms such as mr. madoff. right now they have no interest in stopping mr. madoff from being a cowboy and doing what he's doing, but if they have to pay higher assessments and the prospects of higher payout to erase those, then they'll have an interest in controlling the outliers in the brokage community. >> mr. chairman, just to conclude, let's follow the law. if the $500,000 protection is there, the people should be given the full $500,000 and the claw back, we have been through this discussion. nobody is looking for $8 to $10 million back and if they are, it's not reasonable, b the s.e.c. and the spic has a responsibility to make sure the law is followed correctly. >> may i just make one response to something mr. klein said? >> i think we're going to hold because he did run off and we allowed that courtesy, but let -- maybe he'll come to you with a question. >> thank you, mr. chairman. and like to start with mr. green. he has had his hand up a couple of times, so if you, sir, would

sort of share what you were going to share and then i'll launch into my tirade. >> thank you. i wanted to comment, well, two thing. one is i wanted to acknowledge because at the beginning of my remarks i did not comment that i was a lawyer, so i just wanted to comment that i'll participate though i did not before as a lawyer in the dialogue. and in the discussion about how decisions will be made, mr. chairman, you raised the issue that some tough choices are going to have to be made. i would like to, again, try and focus on some of the prior public policy considerations, particularly embodied in arisa which was created as one of the three legs of the stool to promote the retirement savings of the average american worker. the other one being individual savings, social security, and qua the concept of qualified plans was the public policy was to

encourage employers to create plans to put funds into retirement instead of having profit sharing funds go into dollars for workers to spend. there was a keen observation by congress that workers were not saving those funds for retirement so incentives were created that there be qualified funds to put into retirement. the type of fund we have is known as an eligible individual account fund which means for each participant there has to be an individual account providing for individual income and accounting for expenses. aggregated is for investment purpose. it's an administrative requirement. and it is for that reason alone that the investments go in the name of the trustee. now, the consequence because we have talked about consequences of decisions that will be made by this committee and by

congress on this issue, if, in fact, we undercut the confidence in the qualified plans because we do not extend civic protection to them, then we will discourage the confidence of employers of putting those funds into the qualified plans and will instead encourage them to give them directly to the workers which is phenomenal for those employers who do profit sharing like that. >> all right. so let me ask you a question on that, then. so for each person in the plan, there should be $500,000 in insurance? >> what i would say is for each participant there ought to be coverage for the plan up to the account for each individual subject to whatever the specific limit is. >> okay. so under today's specific levels, it would be up to

$500,000 per person in the plan. >> i am not going to comment on the net equity issue. i am not qualified to do that. >> right. that is okay. let me just -- then i have questions for ms. langford. just so you all understand my background, i represented bankruptcy trustees in ponzi schemes. and i represented investors who were victimized. and who were either had received more than they put in, had invested $1 h00,000 and got $50,000 but other people got zero back, so i understand where mr. coffee is coming from and some of his comments. so where i -- what i am trying to figure out is going back to the three things that i brought up earlier. bankruptcy, how far and who should be subject to the claw back. specific, how far should the insurance reach. so in my state and in my area i have the indirect investors that

mr. leveton that didn't nomadoff or peters and they invested through a fund that then invested in these particular entity. how far should that insurance reach? that is the policy decision we have to make. a&d tax wise, when can somebody take a loss? a net loss operating carry back to give you some recovery? those are the three big policy questions i have, but i also am just interested, like ms. langford, how did you get into the madoff network? >> how i got in is looking for a vehicle -- i had just sold my house and it was -- it was my retirement. and i asked a friend. i said i want something safe,

liquid, and diversified. he said, hands down, this is the safest place you can put your money. so i entered into it that way. >> you were a direct investor with madoff? did you come through something else? >> it was indirect. it was a partnership. and limited partnership. and so technically it wasn't technically retirement account, but it was my retirement money. >> okay. thank you. and i just -- one more point to mr. coffee's statement. the bill that we're going to hear today and tomorrow and friday does, i think, add a $10 million level separate custodial accounts from investment advisor accounts to try to separate those things so somebody isn't posting you phony statements and advising you at the same time.

hopefully that kind of separation will work as you've suggested. >> thank you very much, mr. perlmutter. we're at the point where we're waiting for the house to go back into session at which time we'll have three votes. certainly rather than tie this panel up with any further questions, my intention is to dismiss the panel. thank you very much for your examination. and then to stand in recess until 30 minutes after the call of the next vote. so we anticipate the call may occur within the next 10 to 15 minutes and the return to take the second panel 30 minutes after that call. without any other further comments or objections, the committee will stand in recess.

[captions copyright national cable satellite corp. 2009] [captioning performed by national captioning institute] >> this hearing will come to order. i'm pleased to welcome our second panel, but before i introduce members of the panel, may i caution the audience that is against rules of the house to have demonstrations of emotions. now i'm pleased to recognize mr. michael connelly. mr. connelly?

>> chairman, ranking member garrett and members of the subcommittee. thank you for the opportunity to appear before you today on behalf of the securities and exchange commission. i am the s.e.c.'s deputy sy solicitor. there are a number of issues being discussed here today but i wish to focus my legitimated time on views of liquidation of bernard madoff's funds. we are keenly aware of the devastating losses incurred by the investors who entrusted their money to madoff. many if not most of his victims have had their lives up ended. experience and reform the way we operate. over the past year we have taken significant steps in that regard, reinvigorating the enforcement division, enhancing our inspections, bolstering the training program, revamping our tips and complaints process, and hiring personnel with new skill

sets. and we will continue to reform. with regard to the madoff liquidation t commission and its staff have been analyzing cipat legislative history and case law to determine how to properly value the claims of the investors. while claims for losses suffered by investors are determined, the statute does not address how to address the net ebbing neck a customer's account when a broker-dealer has engaged in the sort of fraudulent scheme madoff perpetrated. as a result, the bankruptcy court will soon hear arguments on the various series proposed for valuing customer claims. in the end the court will decide how the investors' claims should be valued. the madoff liquidation raises a new question. specifically, how does cipa apply when a customer's brokerage statements show nonexistent positions in real securities that the broker concocted after the facts to support predetermined fictional investment returns? two primary approaches have been

proposed. the first is known as the final account statement method. under this method, the net equity in customer accounts would be based on the securities position shown on the final account statements customers received before the firm was placed in liquidation. the second principle approach is the cash in, cash out method. under this approach, net equity is determined by crediting the amount of cash the customer deposited in the account and subtracting any amounts withdrawn from the account. based on our analysis, the commission will recommend to the bankruptcy court the customer claims in this case should be determined through the cash in, cash out method advocated by the trustee. however, we believe that the amount should be adjusted to constant dollars to ensure that investors' claims in the long-running scheme are valued most accurately and fairly. the commission decided not to recommend the final account statement method on the facts of this case because it believed it would result in claims based and

account balances that madoff himself concocted and bore no relation to reality. madoff essentially promised customers he would pick winning stocks for them, did not tell them which stocks h he would purchase, waited to see which stocks did well and falsely reported he selected stocks that met their investment expectation. through no fault of investors, the account statements madoff sent were illegitimate tallies of a fraudulent scheme. neither cipa or any of the cases interpreting it can be read to support an approach that values claims based on the fictitious returns of such a scheme. as a result t commission has concluded that the fairest and most reasonable way to measure the value of the madoff customers net ebbing second to look to the money the customers invested as a proxy for the unspecified investments and securities madoff told them he would make for the accounts. to do otherwise would have the effect of favoring early investors, many of whom withdrew

all or more of the principal they invested over later investors, some of whom will not receive a distribution equal even to the principal. at the same time, the commission is sensitive to fairness concerns raised by the cash in, cash out method. that method favors later customers at the expense of earlier customers by treating a dollar invested in 1987 as having the same value as a dollar invested in 2007. in our view it is appropriate to convert the dollars invested into constant dollars. we believe that approach, rooted in the economic concept of time value of money, will result in greater fairness across different generations of madoff investors. and in effect, treating early and later investors alike in terms of the real economic value of their investment. the commission understands the total pool of money available to distribute claimants is limited and there will not be enough to compensate all victims. that means that money allocated to one madoff victim will affect the amount of money available to

compensate other victims. the bankruptcy court's task and the commission's goal in making its recommendations is to arrive at the fairest way consistent with the law of dividing that limited pool. i thank you, again, for the opportunity to appear before you today and would be pleased to answer any questions you may have. >> thank you very much, mr. conley. next we will hear from steve harbeck, president and chief executive officer of securities investor protection corporation. >> thank you, mr. chairman. chairman, ranking member garrett, members of the committee, thank you for giving me an opportunity to discuss the work over the last year and discuss possible amendments. my name is steven harbeck. i worked at sipc for 34 year. sipc has no role in the investigation of the firms. when sipc is informed that a

brokerage firm has failed, we institute a customer protection proceeding and refer it to the bankruptcy court. customers of brokage firms are protected within statutory limits. the first such source of protection is a pro rated distribution of customer property as professor coffee noted this morning, that makes ate zero sum game. sipc can supplement customer property by as much as $500,000 per customer with a limit of $100,000 for cash. sipc has overseen the return of approximately $160 billion to customers and has advanced more than $323 million prior to the madoff case to do so. about 11 months i appeared before you to report on the lehman brothers and i would refer you to my written report which i think is subtannial. in the madoff case, unlike the lehman case, a transfer of

accounts was simply impossible. through the claims process, the following is the status in claims. the trustee is allowed $4.6 billion worth of claims. that represents returns to 1,600 claimants. sipc has committed and advanced most of $559 million. this is more than in all previous sipc liquidation proceedings combined in the past. there have been 16,000 claims filed and there have been 11,500 claims determined or 71% of the claims. the trustees thus far electric $1.1 billion and these filed 4 lawsuits seeking the return of $14.8 billion and we will discuss that again in just a moment. the subcommittee has asked specifically for information on the fees in this case. as you heard this morning, the trustee has been paid $1.275 million.