i remind you that this is the largest ponzi scheme in history and most of the trustee's and legal fees' efforts are for the purpose of recovering assets. in terms of the legislative initiatives that are before you, sipc has proposed a number of amendments to sipc and these include increasing the amount for cash to $16,000 and to index that dollar figure to inflation by a specific formula. . . wh it 1970 to $2.5 billion. we would increase the number of cases where sipc can use a streamlined procedure. and i would suggest to you that the members of this morning's panel should agree with all those change. but there are other proposals that i must address. one is extended coverage for participants in pension funds

which was extensively discussed this morning. on a going forward basis this, certainly deserves study. however t proposal lacks any analysis in terms of risk management or possible cost to management or possible cost to either sipc or the treasury. and it's both the chairman and the ranking member implied this morning, it is imprudent to enact a measure without that analysis and knowing that what it will cost as o possible drain on the treasury. sipc cannot take a position on this without the appropriate due diligence and my written statement contains a great deal more on that issue. sipc is a complex law, but the pension fund issue shows that the current state of the law is somewhat in accord with common sense. if you have an account and you can call your broker and make a purchase or trade and get a statement, you're a customer. granted, the statute was drafted in a simpler time when that was the standard, but that is still the law. in terms of extended coverage for other indirect claimants, one of this morning's panel

members testified he is an indirect victim and he certainly is, but i think i have to elaborate. he placed his money with -- he placed his money with a hedge fund which invested in another hedge fund which invested in another hedge fund which invested in madoff. and again, as professor coffee said, it would be very, very difficult to craft legislation that would cover that situation and expand the coverage of the statutes beyond what was ever intended to be. now i'd like to address a point that i feel personally very strongly about. and that is depriving a trustee and the prospective legislation of the right to recover preferences and transfers in certain instances. ms. chaitman testified about this issue. mr. chairman and members of the subcommittee, i can not urge you strongly enough to reject this amendment. if enacted, it would deprive the

victims ms. chaitman represents of literally million of dollars. mr. coffee noted that this morning and he is absolutely correct in that regard. the madoff trustee had used the avoiding powers granted him by the bankruptcy code judiciously. he has not sued small investors. he's sued 14 large investors. he has urged any madoff customer who has received more money than he placed with mr. madoff to ep o open discussions with him and he is open to reason. this is a man who is extraordinarily practical. he served as a trustee in more of the cases than any other human being ever and instituted preference against large investors who deafed disproportionate returns but the rp p weapons in the trustee's arsenal is he must prove disparate return. ms. chaitman's written statement on page 17 says that the trustee in madoff has sued several

elderly, virtually destitute investors. ms. chaitman is a vigorous advocate, but she is factually incorrect. the only situation in the madoff case where small investors have been sued were three instances where the claims ignored the claims filing procedure that has been in place for 39 years and initiated a lawsuit against the trustee. in short, the trustee was required to institute mandatory counterclaims and those are the only small investors who have been sued. in short, the proposed legislation addresses a problem which has not arisen and will not arise in this case or any other and would do extensive damage to the very people it seeks to help. indeed, it would actually encourage ponzi schemes in a real sense because it would allow people to be free of the prospects of what you have heard today of claw back and what are more accurately described as congressionally manned dated equitable distribution.

and it would deprive trustee of the ability to get the money back from someone who has gotten all the money back, someone who has kept stolen money from others and who will share in that common pool of assets at the direct expense of other people who have not gotten all their money back. that is wrong as a matter of both law and policy. in the written questions submitted by the subcommittee, you have asked if extending sipc coverage to the victims in situations like the stanford financial group makes sense, and there is legislation to deal with that situation. sipc protects the custody function that brokerage firms perform and in the stanford case, investor assets were not located. instead, in the stanford case, investors sent money at their own request to a bank in antigua and the bank issued certificates of deposit. the investors have physical possession of the cd's and the bank defaulted due to fraud.

these investors are not covered by sipc. i do not believe the subcommittee should make the sipc fund and the united states treasury the insurer of the underlying value of any security and i don't believe the subcommittee wants the united states treasury to guarantee the deaths of an offshore bank. retroactive legislation would b change the advantage from one group to another in a completely arbitrary way. for the reasons given in my written statement, any amendmen amendments, should you consider them, should be perspective. i want to mention the constant dollar theory and the first time sipc was presented with this was november 23 and the concept isn't in the statute. congress knows how to write a law in constant dollars and we

have asked for an index with respect to the cash perspective under our statute. it creates arbitrary results, different ar trash results from the ones that the statute now has. and the consequences for your constituents are if you back a concept of constant dollars, you would have to say that a person who received all the money back and the stolen money would get more at the direct expense of people who have not been made whole. in a limited sample of 2,000 of those accounts, we locate d in new york 138 people with $19 million less and we don't think that is the best of all possible worlds. it is a zero sum game. that said, because this is an issue of first impression, we will continue discussions with the s.e.c. on that matter.

what that, i'd be pleased to answer your questions. >> thank you very much. i am just going to ask a few questions perhaps unrelated to the testimony this morning, but in the particular instance you were mentioning about stanford financial, did they at any time advertise they were insureed? >> the sipc member may have, but the sipc member with respect to actual customer assets custodied them at a clearing brokerage firm and people who had the assets at the clearing firm now have them all back. the folks who are missing -- and i met with the receiver last weekend to discuss this mat we are them and i have had extensive discussions with the s.e.c. on this subject. and the problem is since it protects the custody function and since they have physical

possession of the c.d. that is the security, what you would be giving them back is the initial purchase price of a fraudulent security and that has never been the law. >> i understand, but those that bought the securities at the offshore banks, in their place of business or on their stationery, do they indicate to the customer that they were insured by your corporation? >> i don't know the answer to that. >> i think it would be sort of important that you do know that. >> on the facts of this case, no, because the the determining factor -- go ahead, i'm sorry. >> why isn't it important for you to find out whether or not there are some people fraudulently using your potential insurance to entice customers into their establishment? >> it would be interesting but we could do nothing about that because we don't have any enforcement powers. that is the s.e.c.. the fact of the matter is even

if people are defrauded into believing they have coverage, that does not make it so. >> that is true but i don't recall -- i have been sitting here a long time and sometimes we miss all the mail that comes into the committee or into our various subcommittees, but i don't recall any letters from your organization indicating that you needed additional authorities and felt there were loopholes in the law and there were failures in the system and in all 25 years that i have been sitting here. did i miss a lot of that communication? >> of course you didn't, mr. chairman, and the reason you didn't is until september of last year the system was gliding along very, very well and we had protected 99% of the investors who went into liquidation. >> when times were good, it was no problem. times get bad and that is usually the case when the water goes down in the flood, that's when we find the bodies. didn't anyone in the organization anticipate that the

water wasn't going to stay up all the time and there may be victims to the flood? >> well, again, if you are rp referring to stanford, the fact of the matter is even if the bank was in the united states, i don't think you want us to and we have never been in the business of giving people back money when the value of their investment goes down for any reason. >> i'm sympathetic to that. we want fairness as best possible. what i am getting to is did you hear the outrage of the panel we had earlier this morning? >> mr. chairman, i hear it every day. >> i have to believe that that outrage was sincere and somewhat based on reason. there was a statement by the

people that they felt there were representations made by the individuals they dealt with whether they were dealer or banks or whoever they were that the united states government in some way was watching out for their best interest and, in fact, in some instances under the law insuring them and it wasn't until after the fact they found out they were totally misinformed or misunderstood or just weren't supported. i guess they are asking us to look at this and that is one of the things we clearly can do. >> certainly. >> what we can do to prevent or recompensate them for some of losses is very questionable. i don't know how far we're going to get there, but there are probably some things we can do and we will be directing them toward that end, but i think what i am particularly disturbed about is this whole last 15, 18 months of disaster that we have been in is an attitude at the

governmental level or quasi governmental level that it's not our problem. we don't have to take preventive steps, investigative steps. and i think you do. it is our problem. >> it is the committee's problem. it is the congress' problem. it's the president's problem. and we just as a matter of course cannot accept in this country that some people feel their government let them down wrongly so and that they weren't acting in as best -- and in many of the instances and i hear the testimony, there's very little that they could have done. i raise the question and that i'm a great believe in and that by god, some of the instances i don't care how they took the actions -- and i won't identify mr. ackerman by name that during

the stock market crash mr. madoff was getting calls from officials of the united states government and asked what his recommendation, should they close the markets? that's understood. he was the president of the nasdaq at one time and a substantial person in this country, but after we see what happened, what are we doing to prevent this in the future? are we checking out some of the these very substantial people are involved? are they trading on that? are they enticing relatively innocent people to trust them? what has your company done? we have asked them how are they getting advice on where to invest and what advice is being made and who are they using and are we finding some way to check

the people out and if they get creamed, they get creamed. it seems that once you see something like this happen, being either in the government or quasi in the government, we have more of a responsibility to do something. we can't cure it all. we can't save everybody. we can't prevent all injury, but obviouk@@@@@ @ @ @ @ @ @ @ @ @ " >> when i first started this long discourse, i see my time is up, i feel offended that more federal agencies and was i-but federal agencies like your own are not coming forward to tell us what they need. what authority do you need? what could we do better? how can we change delonte how can we better educate people?

it is not enough to say tough $60 billion, 15,000 people clipped by a very professional artist. we have to learn from that. we have to take actions to find out that there are not other bernie madoff out there. on that. i think i have taken actions and legislations on the floor against the s.e.c. on that very substance. you all have to -- let me point out, mr. solicitor, that what i found so damn offensive in this thing that you are so channeled over there that you have no chain of command. i can not believe that you can do three, four investigations over more than a decade and come up with really important questions of the credibility and viability of a person who, although very high thought of on the street, but it never goes up beyond one or two levels in an organization that's 10 levels. what the hell would we do to a

four-star general who put a lieutenant in the field that killed 150 innocents? if he didn't know about it within 24 hours about it to take action, he'd be gone or should be gone. now, sometimes if i think about it, we haven't had a discipline in any way, but we have to have a chain of command whether it's in the military or civilian life. if it's the government, we have to find out what's happening at the lowest level and if it's of good sense and acceptable practices. we have to take action. we have to make sure that that chain of command has good communication. and i think the s.e.c. -- and i saw can commission the other night, or the chairman, and mary and i are very good friends and we had a heart to heart discussion and we wrote in this law something i want you to take back to the s.e.c.. we want you to do a study not inside but outside of the most

thorough type and the study where the distuksal nature of the s.e.c. exists and if there is anybody over there that doesn't think that the organization is functional, read the inspector general's report on madoff. it is the most classic bit of evidence i have ever seen that shows distungsal operation and it is not madoff, but it is in other areas and we have to clean that up. i don't believe that you can do it from this side. and i am not going to speak for the chairman, but my impression is she tends to agree, too. you have to do an honest thing here and as i said to her, i don't want to stop at the s.e.c.. all related agencies around the s.e.c. should be so studied and investigated and disclosed and the reports sent to congress for remedial action, but i think that should be the beginning point for what i am sensing from the person people that they are not going to take it anymore that we in government just said, well, we can't do anything about

it. it happened. we're sorry. well, that's nice. we didn't lose. these people lost. that doesn't makel this feel good. it wouldn't make me fee good if i lost a $5 million, $10 million, or $50 million. it doesn't matter. i lost it and i shouldn't have. if even had been performing their function in the ideal way, it wouldn't have happened. but they obviously weren't and the number of security people that were sleeping on the switch were incredible in this instance. so i want you to take that message back and i have eaten up more than my five minutes and i will be very lenient since we have no republicans, how lenient i can be to my friend from new york. >> notice, mr. chairman, i didn't tell you your time was up. i could not agree with more of

what you said and how you put it, mr. chairman. everybody, including the people testifying in this panel have been trying to get us out of this muddle somehow and i think all of their intentions are beyond question. i think this is a very difficult knot to untie and trying to make some sense in understanding it listening to what you have just said, mr. chairman, i just wanted to note that for a long number of years nobody came to us to front our obligations and responsibilities from any federal agency including that which is before us today saying

we need more resources. as a matter of fact, the previous administration seemed to have a philosophy, if not an agenda, for deregulation rather than more regulation and did not want to provide the resources. chairman frank, as a matter of fact, had a proposal to more fully provide assets to the s.e.c. and sipc for additional resources to be able to do the kind of investigations that were obviously needed and that was moving forward until it was scuttled by mr. delay during a different congressional leadership. it wasn't until chairman shapiro came along and doing the fine job that she's doing started asking for additional resources so that we could do a better job

prospectively but that does not necessarily resolve the situation that's. us right now as it has already regrettably occurred. i think there's a divens between the average citizen investor being told that they didn't do due diligence which certainly many of them did to at least 100% of their capability and legal limits of what they could do for due diligence, but certainly the agencies could have been doing a little bit more of a better job including coming to us and telling us over a large number of years, or a long number of years, that they couldn't handle the workload and with the complications and the large number of investments and

investors and the complications of the system, that they needed additional asset. we did not see that. we did not hear that and we rely upon the administration. we don't have the tool. that is not the function of the congress. we do oversight and we try to supervise whether they were applying the resources which they didn't ask for this this case. i have several questions to ask. in what we just heard in our testimony from this panel about the smaller investors versus the larger investors, there a distinction in either of your mind in the morality of larger investors versus middle size investors versus small or is one

more immoral than the other? i am not talk about specific individuals. if you're wealthier and make investments, does that make you immoral? >> absolutely not. >> are they more suspect? >> absolutely not. i think that is why the trustee in the madoff case in particular has done a rig route investigation of very complicated facts and started 14 lawsuits. some of those lawsuits assert knowledge or a new er standard. others do not. and so certainly with respect to the former, the trustee is doing his job and he is trying to return to the common pool of assets to find in this case the customer property and the largest amount to distribute to the largest number of people

with the law. and to get to the point on morality, this is a case of practicality and compassion. the trustee has taken the position that he sent a letter to everyone who received more than they put into the scheme and said come and talk to me. and if you're -- if it's something that you withdrew over time and can't pay, the trus see isn't going after you. >> what is the difference if you withdrew it over time or if you withdrew it late in the game rather than earlier in the game? >> the answer to that is in in all ponzi schemes going back to the original ponzi scheme with charles ponzi, people who get out the day before, and professor coffee spoke this this rather eloquently -- should do no better than the person who didn't have that good luck.

and that is just been the law as enacted by congress since at least the 20's. >> so it's a matter of luck? >> it should not be a matter of luck, sir. that's the whole concept behind bringing money back in and i think in this case the trustee has exercised his avoidance authority with discretion and compassi compassion. he hasn't reached back to the small investors. >> is it possible in your mind, speaking of compassion, that there are large investors -- and i am not at voe kating for anybody here. there is a problem because this is a zero sum game and it's coming out of the same pot of money as people who are all losers. and is it possible this your mind that you can conceive of situations, many of them, where larger investors are more

desperate than some of the smaller investors? >> i haven't seen that in this case, sir. >> you think there are no larger investors of someone with $100 million whose doing something and invested the rest of another $100 million that big an investor is now upside down in their real estate or house or business or property despite the fact they took money out and now they wind up paying and having paid $50 million in tacks to which the government should not be entitled and have borrowed from the banks to do thing on a business and have informsed other people's money along with their own to do something and are being told that not only do they have nothing but they go back $200 million? >> i can speak to a number of those points. >> that is at least as desperate

as the other people for whom i've great situationthy who had $200,000 and invested $100,000 and lost it and they only lost $100,000. a lot of people aren't sympathetic if they think that is a lot of money, but they might still have some. how do you morally make a distinction here? is it possible in all this formulation that snou you can come up with a solution that kind of splits, according to some formulaic way, how to deal with all these people? >> congressman ackerman, i don't think formula is the answer. i think analyzing individual situations is the answer. >> each case individually? >> yes, sir. >> if i was getting paid $1 million a week, i'd like that.

[applause] >> i believe this trustee -- >> i am just pointing out the irony in this situation. >> two points. first, no customer money goes to pay attorney's fees or trustee's fees. that is point number one. >> where is that money coming from? >> from the securities investor protection corporation. every paper clip that gets sold will be designated as money to go to the victim. the second point is looking at these cases individually, our statute was designed to protect the small investor and i think that's what mr. bacard is doing.

>> as i understand it, brokeers and investment advisors are required to put into the fund to be covered by sipc $150. >> that is not correct. currently the assessments by our bylaw require each brokerage firm to be assessed one quarter of 1% of their net operating revenues. when we started paying mo#@@&@@ >> april 1. >> april fool's day? some people think that is when you identify people -- identified people. that was after the bernie madoff party scene pull apart because he turned himself in.

before that, it was $100? >> when we reach $1 billion -- >> before bernie madoff, it was $150? i don't have a lot of time and from 1990 to april of this year it was a flat fee. >> of? >> $150. and we have -- we will have -- >> that is not the question. before then it was $150 and if i was one of the brokerage firms or investment advisors i would have to pay $150 to get that $500,000 worth of insurance. >> investment advisors are not part of the statutory program at all. >> if i was a brokerage, i would pay $150 at that time? >> at that time, yes. >> if i had 600 clients or custome customers, that would, give me a

second. i'm a junior high school math teacher, but 25 cents an account. for each of my accounts, in premium i was paying, i'd get half a million dollars? somebody should have done down here and sounded the alarm and said i'm paying too little insurance. how much insurance can i really buy for 25 cents an account? somebody was charging me 25 cents an account for my car insurance, i would suspect i wasn't getting a lot of coverage. no? >> i can answer. >> let me go on to something else. if i may. thank you.

>> people relied heavily on sipc and the s.e.c. and the stuff you can't expect them to do themselves. that is the reason for sipc and for the s.e.c. and people can't become attorneys and investigators and spend their whole life investigating something whether or not -- so if you don't know if something is kosher, you ask the rabbi. if the rabbi says it's kosher, then to me it's kosher. you guys are the rabbi. when you say he was legitimate, they relied on that and it was your agency and my government that was on the products that, and the present who presented them, that said they were fine. people thought they had the insurance on money and whether or not it was the interest and if any account is insured, i don't differentiate between how

much i put in. i figure it is insured for up to $100 out this in the bank and now $250,000 for the rest of the year and i don't say the interest is insured and only the principal is insured. everything is insured. it becomes a different number for everybody who has an investment over a long period of time and as a matter of fact, it was you and your agency that testified in a time space where you say we're a claimant or this is a quote. reasonable and legitimate claimant expectations on the filing data of controlling even when inconsistent with transaction reality. i'm quoting you. thus, for example, where a claimant orders a security purchase and receives a written confirmation which every madoff vick did with every statement and reflecting that purpose, the claimant generally has a reasonable expectation that he or she holds securities identified in the confirmation

and therefore, generally is entitled to recovery of those securities within the limits imposed by cipa, a financial limitation of $500,000 or whatever it is, even when the purchase never actually occurred and the debtor instead converted the cash deposited by the claimant to fund the purchase. these people were again reassured that the way we wrote the law, the way the regulations existed, and the way you interpreted them, telling them that they're entitled to that money even if -- and i won't go on reading, but even if the money triples and there was no money there and if somebody fraudulently stole it. what has happened is there is a different court case and you say the money was stolen and not invested. this is a shell game that you're

playing with investors. this is over the heads of most of the people on our committee i would think have this happen and that this is being done. people relied on you and they were let down and we have to all collectively figure out a way collectively to make them as whole as we can make them. >> thank you, mr. ackerman. now to the gentleman from new jersey. >> thank you. i have a couple of questions. mr. harbeck, you raised this as -- you are here to help the small investor and i think that's what the message is throughout the hearings that that's what we're trying to look out for and raise the three questions of time, money, and who. the time aspect is if we're really trying to help out the small investor and we can define who that is later, how long does it take and still say that we're

helping them out? obviously if it takes 10 years to do it, we're not helping out the small investor. obviously if it takes five years and now it's been about a year. and at some point in time you can just say we are not helping the small investor. what is the timeline if we were to say we invite you back here for another hearing such as this that you can say we're done and folks have been compensated to a large extent? >> there is two points to that response. first, in the two largest cases prior to madoff case, the overwhelming majority of investors were in complete control of their accounts within 10 days of the failure. and we're very proud of that result at lehman brothers and m.j.k. clearing which collapsed -- >> i understand that. >> in this case the utter lack of records makes it very, very difficult to answer your question. there are still 7,000 boxes of records in the control of the

prosecutor that is difficult to access and they aren't digital records. we're working with that as fast as we can. 71% of the people have had their claims determined. and we will get the rest of them out as fast as we can. the complications involve when accounts are tied to others and when accounts are tied to insiders. when accounts are split. and those are very, very difficult accounting procedure. >> there is problems with getting the records from the prosecutor? is that what i am hearing? >> i think we have transparency back to sometime in the 80's but we don't have complete transparency on all the records. >> because? >> the sheer volume and it is one answer. >> what about the prosecutor? you said 7,000 records are -- >> tibbi believe the prosecutor on the ongoing criminal investigation still has a large segment of the records. we access those, but we don't have complete access to them. >> to try to give me a short

answer, which i am sure the folks behind you and watching would be your anticipated -- in light of the constraints and the fact this is the largest case you have ever handled this and in light of the difficulties and a reasonable answer to a reasonable time frame would be, in light of all those hardships would be? >> a year. >> secondly, with regard to the money and i think i was just coming in on this question as well. and the gentleman from new york was asking about the old fee and the new fee and what have you. the new fee that was out there, two questions. one, base and what you know now and i understand from the last answer you don't have all the information, but based and what you know now, is that fee an adequate fee to compensation that you are planning to pay out? >> the answer is yes, the fee is adequate to pay on what we anticipate paying as we understand the claim, sir. >> you have heard the testimony of the panel before you and i

think some of the questions were along this line of in some of us would take that view that to go back to your point of helping the small investor should be more expansive than what you are intending to way out right now. if the definition of -- the third point of who should be paid and the question of saying that -- as the gentleman was saying over here before, again, i'm sorry, and it's not just the direct investor but one who has gone through a fund and what have you and that point of saying it's not just for this -- each case could be a small investor. each case could only be up to the $10,000 in the fund direct or through one of the funds, and if the definition is broadened as to who you should pay out, would that fee be adequate to cover it for that? >> if the definitions are expanded in some of the ways we heard this morning, the answer is no. >> would you be able to come up with an estimation of what the fee should be to adequately cover that? >> it's probably doable, but it would be difficult because of

the way some of the large hedge funds have their claims and how often how many iterations you would have to go koundown in term of treating individuals. it would be very hard. >> and i would suggest that if you could, is to try to give some sort of ballpark to least go to one of the other questions and i invited someone else and the brokers-dealers to come in and if we were to go down that road, that would have impact on not only what you have to do and impact on who the fees would be assessed gwen and they might want to have some input on that as well. if you are able to do that. i see my time is up. i think some of the other questions were touched on and the fallback provisions and the -- i don't want to repeat myself on the other comment that i made earlier that we are obviously not looking for fairness that i don't know that you can get fairness, but looking here for the focus is the justice and realliance they made not on

independent investment decisions but on what the government assured them through both this program after the fact and through the assurances that being registered and the fund is coming under the s.e.c. as well. thank you. >> all right. gentlelady from california. >> thank you, mr. chairman. i guess my first question is to you, mr. harbeck. i have only been around here for less than two year. but my take on what happens is basically that the industry gets a license do a lot of things and then fails at it and we're left to pick up the pieces. if you look at why sipc was created, it was created because there were huge bankruptcies that occurred in the early 1970's and money was taken from investors and we wanted to make investors whole. so sipc is created and as you

pointed out for a long period of time because you thought you had ample funds, these brokers were only paying $150 a year. for 19 years they were paying $150 a year. you have increased it recently because of the madoff scandal, but i have one question, which is, i think the insurance product is out of date. and i think that it's very important for you to go back and reformulate an insurance product that reflects the way people invest today. and people invest today through mutual funds and hedge funds and if you're going to offer an a product that has no relevance to today but had relevance to 1970, i don't believe you're doing your job. secondly, i have a question for you, which is if you are charging one quarter of 1% of the revenue, then that revenue

that's generated by a broker to refill the fund, what would prevent you from coming up with a 1/8 of 1% of revenue to create a fund to pay the madoff victims some kind of compensation? there's nothing that precludes you from doing that, is there? >> it would have to be statutory, congresswoman. >> you were able to make this change from $150 to 1/4 of 1% with no trouble, right? >> yes, by bylaw. we can only expend our money in one particular way to supplement the fund of customer property in the way that the statute describes. the bylaw says when the fund is in danger of reaching $1 billion

or less, we could reinstitute for that purpose. but what you're saying is we would have to repurpose the statute to create a@ @ @ @ @ @å, >> you are saying that is not something you can do. i am having a hard time understanding what a u.s. corporation cannot decide that because of this travesty and because the insurance product you offer is inadequate today and it should have been reformulated anyway that you cannot create a new fee that would be imposed broad it would be most people it would help immeasurably many people. >> we are a creature of statute great we are not a government organization. the statute creating this was a federal statute.

>> we are great at passing laws, creating these entities outside of government. and yet you have to come back to government to fix this. ty to act immediately or you should be an independent corporation to do things that you do independent of statutes. having said that, i have a question for mr. conley and we're about to go for a vote. from my perspective and this may predate your involvement at the s.e. s.e.c., but having observed over the course now of these two years the madoff fiasco and the travesty s travesty that it has created not just for the american people, but the federal government and the s.e.c. failed. it failed miserably. when we had the whistleblower. us, i was astonished at the degree by which he continued to

pursue this. i mean, he came before the s.e.c. five or six times seeking the s.e.c. to take some action against mr. madoff. and even when the s.e.c. went out to see mr. madoff, mr. madoff has now admitted that when the question was asked of him, who is your custodian, and he rattled off the name and he was convinced within next three days he would be shut down because the custodian did not provide those services but the s.e.c. never even made the phone call to find out whether or not whether mr. madoff was operating through that custodian. from my perspective, the government, the federal government, failed miserably and the s.e.c. in particular. so my question to you is this, since we were responsible for this travesty, shouldn't we take some responsibility now in

trying to make the people that were impacted by our incompetence and by our malfeasance by creating a fund to make them somewhat whole? and what would prevent the s.e.c. from doing that? >> congresswoman, thank you. i can respond in two ways. the funds that you talk about is certainly something that congress could do if it determined that that was the appropriate thing to do here and certainly you could do that. and with respect to the shortfall that the failures that you've identified, that is something which the commission has recognized and takes extremely seriously. and since chairman shapiro has come to the commission, in fact, there have been numerous reforms that have been put in place that are directly responsive to what you have identified what is the inspector general's report which identified very serious failings at the commission.

and among the things that have changed that on a going forward basis make sure that something like this will not happen again is that there has been the training of hundreds of employees to be certified fraud examiners. the requirement now addressing something that you raised here in all examinations of third party verification of customer assets that are held at by the investment advisor or broker-dealer. and we're also hiring more people with particular expertise to make the examination teams much more effective and working to deploy more people to the front line and more investigators who will be there and be able to root out this fraud in an effective way. so all that has happened and there are greater rchls that are coming down the road -- there are greater reforms that are coming down the road. next week the commission will be voting on rules designed o particularly to address the

situation of investment advisors and the custody situation that would encourage investment advisors not to have custody of and instead to have them with third parties to prevent the exact kind of stuff that went wrong here. >> my time is expired, mr. chairman, but i certainly think we need to appreciate that going forward by the government inaction and we should really reflect on what we can do to make whole some of these people. >> i have a couple of questions. why haven't you thought about making a back assessment for the increases in the premiums in the

future? you are going to punish the people who may not have been in the business when madoff was around and why shouldn't we put the assessment on the people who were in the business when it happened? and with the law professor coffee indicating that that would put an incentive on the dealers to be working more in conjunction with the s.e.c. and with your organization to see this wouldn't happen because there would be a payment they have to make and in order to accomplish an assessment in future increase in premiums, would you need legislation to do that? >> yes, we would, mr. chairman. >> prepare that request and get it to the committee. the second request is not totally unrelated to the e'p+e spent a number of days about the legal representatives about 1,300 claims in 23 countries around the world. and they tell me that under

present conditions to handle the claims that are out there under all the various laws of the 23 nations involved that it's going to take something like 30 years to resolve these claims. and i was going through the roughly $100 million a year in the trustee's fees that you prepared to pay out $3 billion over the next 30 years as trustee so he can be around to settle the claims? and quite frankly, i think it's going to end up the fees are a hell of a lot larger channel the claims. what i am saying to you is, what are you doing in terms of establishing some sort of method of arbitration for international settlement of claims? and why shouldn't that be before the congress and shouldn't that recommendation be coming from your organization? you know what you face and you know what your problems are and that we're going to be doing more international business and not less. these frauds will continue to occur in the future. why don't we have a simplified way of getting the issue before

an arbitration board or somebody on a relatively uniform basis instead of just spending this inordinate fees for trustees? i'm not against lawyers. i'm one moif owof my own, but dr $1.5 million a week, maybe they would leave the congress and take that trusteeship. naturally we would never do that, but seriously, can you make recommendations to the committee as to what should be done to facilitate international claims of this sort that will occur in the future and are existing now that we can act on? >> the one thing that we have done on an international basis is to enter into memorandum of understanding with our foreign counterparts to sipc in case a brokerage fails in jurisdiction and w canada t united kingdom, china, korea, and taiwan. we seek to expand that. what you have suggested is far

more complex, but i would be certainly willing to discuss it with any international expert that we can find. >> it is not a one-time deal. we're going to have these transactions and occurrences and let's not happened out fees to trus's the and lawyers that take money away from the basic account paid to claimants and that is going to happen in this case and it's going to be a tragedy. mr. ackerman one question. >> i wanted to follow-up on the fist question that the chairman just asked. your response was that you're a creature of legislation. and under the legislation under which you act, you have a line of credit of $1 billion as i understand which can be accessed if fund is depleted and there's still a lot of money in the fund. if you did, and therefore, can act by resolution, high can't

you generously and liberally pay out to the greatest number of people promptly as the statute requires, whatever money is in there and access your line of credit and at least have $1 billion and you don't have to wait for this legislative process to take place? everybody working on this and who are working hard and are entitled to whatever money they're entitled to earn on being trustees and whatever, all this money every week, but they expect to be paid promptly. and if the people who are victims were paid promptly a couple of months ago, some of them could have ridden the surprise and some of them could have gotten 40% in the market right now. everybody is losing and double losing and triple losing here because of the delay. can you spend that out and request it by resolution or whatever? >> no.

and the reason is the only people we can protect are those people who fit within the statutory definitions and -- >> which of your interpretations of that statutory message -- >> the same cases that have uniformly since 1973 held that with respect to fraudulent statements that are back dated d in all the of the cases including the new times case hold that those claims are not customer claims and the fraudulent documents should be ignored. >> thank you. we're down tole less than five minutes before the vote. >> i would like you to come back to the committee with a proposal of providing an insurance product that is really going to reflect the kind of invest iing done by average american investors today that do most of the investing through fund.

and who do not have the sophistication to know whether or not the actual stocks they purchased are indoed being purchased. that is where the s.e.c. comes to play. but we need a different product. the product that and the product that exists doesn't meet the needs of the american people. and what is 1/4 of 1% of revenue actually generate? >> this year, and again, it fluctuates, through i believe's $480 million. >> $480 million. and you came up with 1/4 of 1% on your own and it could have been 1/2 a percent or -- >> may i suggest that calculation be made and supplied so we can get this wound up and get the members over to vote. the chair notes that some members may have additional questions for this panel which you may wish to submit in writing. without objection t record will remain open for 30 days for members to submit written

questions to today's participants and to place their responses on the record. thank you, gentlemen, for participating and we appreciate it. and may i just make the request that i think all the members present right now and let's have a little better interaction between your respective organizations and the committee to get to the bottom of the substantive questions that have to be answered. thank you very much for participating today's hearing if panel is dismissed and this meeting is adjourned. /i ù-