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Executive Compensation; Debating Stimulus; Madoff Whistleblower Testifies on Captiol Hill
Aired February 04, 2009 - 10:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
HEIDI COLLINS, CNN ANCHOR: Your money, keeping their businesses afloat. So should the executives of those bailed out firms f ace big pay cuts? President Obama says yes and is about to announce a new corporate crackdown at the top of the hour. CNN White House correspondent Suzanne Malveaux joining us now with a closer look. Good morning, Suzanne.
SUZANNE MALVEAUX, CNN WHITE HOUSE CORRESPONDENT: Good morning Heidi. Well just within the hour or so, we expect President Obama, as well as his treasury secretary Tim Geithner to announce that they are in fact taking on the fat cats, that is at least part of the announcement, their message today, cracking down on the CEOs who make the highest salaries from these biggest organizations. And are getting the most money out of this federal bailout plan. First and foremost, he's going to say he's capping CEOs salaries to $500,000 for those big institutions that are receiving what they say exceptional assistance from the government, we are talking about the AIG's, Citigroups, that are basically receiving billions and billions of dollars.
Also, he's going to require banks to be more transparent in terms of their expenses if they get federal dollars. So, for instance, flight arrangements, as well as parties, entertainment, conferences, all those kinds of things to report that publicly. He is also going to require CEOs to hold their stock for a couple of years before cashing out. Another thing they're calling for is shareholders to have more say when it comes to all of this executive compensation. And then finally, Heidi, they're going to have a conference, an industry-wide conference sponsored by the treasury department to really take a look at the long-term reform of executive compensation.
The big question is, you know, how much should the federal government really be involved in these kinds of decisions that are being made by these corporations, and whether or not they're overstepping their bounds. There are some smaller companies that aren't comfortable with this, and they're not necessarily going to participate in this bailout program, accepting federal funds, because they don't want to be micro managed. But these are exactly the kind of corporations that perhaps with some federal dollars will turn around, be healthier and create the kinds of jobs that the president is talking about. Heidi?
COLLINS: Yeah, clearly some very tough questions to be answered, but need to be asked. To the other issue though that we've been talking about now, after two withdrawals from the president's cabinet nominees, both of them from tax issues, more questions about whether his vetting process is actually flawed or not.
MALVEAUX: And it really is quite a distraction for the president. He had hoped to really unveil this big executive compensation package yesterday, didn't happen. And the big question is, whether or not this was naivete or hypocrisy that he set the bar so high when it comes to his personnel, his cabinet positions, that he was not able to fill them without breaking his own rules or making some exceptions. But we have heard from the president in a series of network interviews and with our own Anderson Cooper, essentially saying, you know what, the process in some way was failed, and I take responsibility for it. I want you to take a listen.
(BEGIN VIDEO CLIP)
OBAMA: I'm here on television saying I screwed up. And that's part of the err of responsibility is not never making mistakes, it's owning up to them and trying to make sure you don't repeat them. This is a self-induced injury that I'm angry about. I think I messed up, I screwed up. Did I screw up in this situation? Absolutely. And I'm willing to take my lumps. That's part of the job here.
(END OF VIDEO CLIP)
MALVEAUX: And Heidi, certainly part of the hope is that this will diffuse the situation, and that it will allow them to move forward, perhaps looking at some other possible nominees in the days and the weeks to come. One of the things that he took exception to in the interview is he did say that he felt that there are some lobbyists, just a handful, that are in his administration. They have been given waivers, exceptions from this ethics rule that was set for the administration, day one for employees. He said he believes that that's ok. That there are some exceptions that can be made, but for the most part, hundreds and hundreds of people basically are meeting that standard, that ethical standard that they have hired here at the White House. Heidi?
COLLINS: And then there is, I'm sure, a whole contingent of people who say setting the bar so high to pay your taxes? I don't know. Obviously a discussion that will move forward here. Sure do appreciate that. CNN's Suzanne Malveaux in front of the White House today.
President Obama does sit down with CNN and other major television networks on a day he felt compelled to apologize. We'll get some reaction from an expert on public relations.
Day 16 of the Obama administration. Here's a look at the president's schedule now today. Less than an hour from now, he will announce those pay limits for executives of bailed out companies. His new treasury secretary, Timothy Geithner will join him for that. Later in the hour, the president will meet with secretary of state Hillary Clinton and his envoy, George Mitchell in the oval office. Then this afternoon, President Obama will sign into law the S-CHIP program it will expand government health care to about 4 million more low-income children. The economy once again driving much of this morning's news. Japanese electronics giant Panasonic is cutting 15,000 jobs around the world. It is also closing 27 plants. The reason? Consumers just aren't spending money. The lousy economy hits home for the parent company of CNN, as well. Time Warner reporting a fourth quarter loss of $16 billion. Most of it, from writing down the value of its cable, publishing and AOL assets. On Capitol Hill, the senate banking committee looks at modernizing the ways to regulate banks, that issue more important than ever. 25 U.S. banks failed last year and three banks failed just last week.
Right now, I want to go ahead and get to the New York Stock Exchange and take a look at the big board for you there. Above that 8000 mark now to the positive, about 52 points or so for the Dow Jones industrial averages, NASDAQ looks like it's up about 25 points, as well. We'll continue to watch those numbers throughout the day right here.
And more about your money this morning. The cost of President Obama's economic recovery plan, now more than $900 billion. The senate gets back to debating the bill in about a half an hour from now. CNN congressional correspondent Dana Bash is live this morning on Capitol Hill. Good morning to you Dana.
DANA BASH, CNN CONGRESSIONAL CORRESPONDENT: Good morning, Heidi. Well definitely the cost of the bill that they are debating is about $900 billion, but the question is, what's going to happen at the end of the day the in senate? Because the reality that democratic leaders have been facing is that they simply do not have the votes to pass the bill as-is. And that's why starting yesterday, we started seeing so many amendments and attempts to change this in various ways. To address the housing crisis in a more robust way. To address the issue of cars, and giving Americans the ability to buy a car that has -- a tax credit for a car that is -- that is better for the environment. Things like that.
But I think the most important thing to know here is, that part of the reason -- in fact, the big reason why the democratic leadership is having such trouble getting this off the ground is because of many in their own party. Heidi, we stumbled on a meeting last night here in the capitol of about a dozen democrats, and what were they doing? They were trying to figure out a way to strip and scrub this bill for what they call excess spending. In fact, the leader of that pact, Ben Nelson of Nebraska, he told us that they are working on an amendment that could cut tens of billions of dollars out of this.
In fact, maybe more than a dozen programs out of this bill. And the democratic leadership, they know that they have to listen to them, because otherwise they probably will not have the votes. And those are some of the things that we understand democrat Ben Nelson and two republicans, Susan Collins and Olympia Snow of Maine are going to talk to Barack Obama about later today at the White House. Heidi?
COLLINS: All right, Dana, sure do appreciate that. A lot to talk about here, obviously. We'll continue to follow the story right here today. In fact, want to get to another story that involves a lot of people's money. Bernard Madoff and the ponzi scheme. Apparently what we are learning today is the whistle blower in all of this, Harry Markopolos, is testifying, you see him there, we want to go in and listen for just a moment here.
(LIVE VIDEO FEED)
HARRY MARKOPOLOS, MADOFF WHISTLEBLOWER: -- if we hadn't had the financial crisis last year and ran out of money to pay off existing investors.
QUESTION: So that's basically the end game for -- I guess for any ponzi scheme, right, is that you can keep on running until you run out of investors and had the market actually been continuing on the up tick bubbles that we had, we might be seeing him be able to continue for some time to come.
MARKOPOLOS: Correct. The SEC would never have caught him. He basically would have had to run out of money first.
QUESTION: Right. You indicate on the second or third page of your testimony, a statement that you had here, how you were able to collect various different pieces of information along the line. You indicated to three or four other people that worked alongside you in doing this. Is there anything that you were doing -- I assume I know the answer to this, but I'll ask you. Is there anything that you were doing that really was outside the purview or parameters or authority of the SEC, that they had they committed the time, attention, resources if you will to it, could have picked up on those things as well?
MARKOPOLOS: Everything that my team and I investigated was a matter of public record. It was basically marketing materials from the Madoff feeder funds, and it was interviews collected of those feeder funds. We never had the access that the SEC had. We couldn't walk into his office, collect his documents, we never saw his smoking- gun e-mails, we never talked to any of his staff. We did not have the inside smoking gun evidence available to us. But the SEC certainly did.
QUESTION: Is part of the problem from your testimony that the euphemism that we use here is stove pipe conduct by an agency as far as the sharing of information and the like. I reference it in part as far as whether -- because every aspect here -- every part of Madoff's business was regulated by someone. The investment advisory arm, they're being regulated over here. Benra is taking care of the broker dealer section over here, and there is the euphemism of Washington stove pipe aspect.
Is that the crux of the issue here, and if the answer is yes, is that necessarily resolved by combing them under an umbrella organization, because sometimes as you already have indicated within the SEC, in the SEC you have one organization but different regions that are all within it. You had the Boston region, I believe it was, that was not sharing information, so would that be a counter factual as the other chairmen would say, sometime to show that even though when you're within one organization, the information is not always being shared?
MARKOPOLOS: I agree. I think you need the super regulator to supervise all the different, and I would minimize the number of subregulators I had underneath there. But I would want one centralized database of all enforcement actions, so that the banking regulators know what the capital markets regulators are doing, and also know what the insurance regulators are doing. Because right now you have these conglomerate firms that deal with all aspects of finance. They have insurance, they do banking, securities. And you need to combine the regulations database, so that people are aware of all of the infractions. You can't afford to be split into an army of ants. You need to be as giant as the conglomerates that you are regulating.
QUESTION: Part of the argument goes is that well until Madoff registered as an investment advisor, he really didn't appear on anybody's screen. Can you just comment on that?
MARKOPOLOS: He was operating and acting as an asset manager, as a hedge fund operator. But he was registered as a broker/dealer. He exploited the regulatory gaps, and he fell through the cracks. And no one knew what he really was doing, even though the regulators went in there multiple times, they never figured it out, because they went in piecemeal. And you really need to have a combined task force of regulators to go after the big frauds. You need to have people from each agency in there, at the same time.
QUESTION: I only have about 10 seconds left. How did you know -- you actually laid out the dollar figure --
(END VIDEO FEED)
COLLINS: Ok, just wanted to give you a little bit of a flavor there of this hearing that's going on, on Capitol Hill. You were listening to Harry Markopolos he has been sort of described as the whistleblower in the Bernard Madoff scheme, the $50 million ponzi scheme. We will continue to keep our eye on that, we are also watching this out of Washington today. We know on the other side of the screen there that there are several U.S. mayors that are there holding a meeting with White House senior staff regarding the economic recovery package. So we will continue to watch that as well.
Also, watching the weather situation, because there are some serious winter storm warnings coming up in some unlikely places. We'll get to it in just a moment.
(COMMERCIAL BREAK)
COLLINS: Blizzard-like in the sunny south. Take a look at Louisville, Kentucky. Can you believe that? Still recovering from last week's icy blast. More than a quarter million homes and businesses in that state are still without power. There are winter storm warnings all the way to the Carolina coast, even Florida is under a hard freeze warning now. Rob Marciano has been watching all of it for us from the severe weather center, and joins us now with an update. Not sure where you want to start, but it's kind of weird to hear this in these particular geographic locations where there is normally sunshine.
ROB MARCIANO, CNN METEOROLOGIST: You know how sometimes its the last push of something bad is the worst push of it? I think that's what we're seeing now. And we're going to change up the weather pattern. So there you go. Arrows pointing to the north and south, cold air driving all the way down to Florida and South Florida. We've got freeze warnings out for the Florida everglades, so pretty much everywhere west of south beach is under a hard freeze warning across Florida. We've got live Miami camera for you. Looks nice, WSVN, actually, it's not bad. Temperatures right now in the upper 50s. Looking good there. Sunshine. But tonight, you'll get down into the upper 30s there right along south beach, and, again, we'll see temperatures easily get down to freezing and in some cases below freezing.
It was certainly below freezing in Philadelphia yesterday, eight inches of snow, eastern Massachusetts, 6 inches Montclair, New Jersey, 4.5 Boston and the New York metro areas about four inches or so. And then you saw that video coming out of Kentucky. Indiana they saw about an hour's worth of snow and they got like 3 or 4 inches in some spots during that hour so it was coming down pretty good, albeit briefly.
Here is where that little impulse is now, it's heading to the eastern part of the low lands -- low country of the Carolinas. That's good news. We had some heavy snow across parts of Asheville, North Carolina, and there are winter storm warnings posted for parts of the mountains there along the Tennessee border. 45-minute delays right now at the Newark airport. So that's about the only spot right now we're seeing. Shouldn't be a terrible day for travel, but it will be chilly, especially if you're east of the Mississippi. Heidi, back over to you.
COLLINS: All right, Rob. Appreciate that. Thank you.
Meanwhile, we want to get you back to this that we have been telling you about, several of the U.S. mayors across this country are in Washington today. In fact, they're talking a little bit more about the economic recovery plan. We want to go ahead and listen in for a moment to the mayors of Miami and Los Angeles here.
(LIVE VIDEO FEED)
UNIDENTIFIED MALE: Talk about details and argue if you're a legislator, and stand back and not take blame, but there are 100 people right now who need to get in a room, set the differences aside, and look out there in the country and see what's happening and know that this is an urgent matter. Without regard to republicans and democrats, because I can tell you, there is executives all over who are being laid off, some of those are republicans, some of those in the suburbs, with very nice homes. It's not just the force of the four in Akron or in other cities. It's in the suburbs, where they're losing their homes. We need action now.
MAYOR DOUG PALMER, TRENTON, NEW JERSEY: Doug Palmer, mayor in Trenton, New Jersey. We're at the turning point where the revolutionary war began and we're at a turning point right now in our nation's history. I'm the immediate past president of the U.S. (INAUDIBLE) of mayors. All of my colleagues have said it's what we all believe in. But you know, sometimes habits are hard to break. It seems after the American public says we want change, we want bold leadership, it's just two weeks since the president was sworn in that we see the partisan bickering again. And the demonizing of a plan that will put people back to work.
We as mayors, we don't have the luxury and the time to debate how much is in this or in that. Our people need jobs right now. Mayors are where the rubber meets the road. When and if this package is pushed, we will put people back to work right away. Give people the hope that they need to be able to pay their mortgages, to help their families. That's why we're here, and that's why we're going to continue to be here. We are going to be as mayors a stone in the shoe of the senate or anyone else who gets in the way of getting Americans back to work. And that's why we're here, and that's why we're going to be here until we get our people back to work.
MAYOR GORDON, PHOENIX, ARIZONA: Thank you. Mayor Gordon, city of Phoenix. Let me just tell you the difference. Number one, people are being laid off. It affects everybody in this country. Families, young, old, seniors, and people, as you've heard, time (INAUDIBLE) are suffering. We can't wait. Can't wait another day. Everybody is hurting. We're also hurting on public safety. We put this in our economic plan. The more this continues to linger, the less safe we become as a country and as a city. Officers and firefighters are being laid off, because of the problems. We've got to get this done now. Cities -- my city, every city, every mayor and county, open and immediately in the next 30 days ready to put shovels in the ground. We will sign a contract, a contract with America, a contract with the senate, a contract with the house. We're ready to go. Put it to us.
(END LIVE FEED)
COLLINS: All right. There you have the mayor of Phoenix, Arizona and several mayors coming to the microphones. We actually thought we were going to have some tape on this for you, but then we were able to take it live and so we wanted to do that instead. Once again, just a reminder of what's going on there, several mayors from across the country have gone to Washington to the White House, to be exact, to talk with some of the senior staff regarding the economic recovery plan. Just wanted to give you a flavor of that, as well.
Before and after pictures of an autistic girl.
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Thirteen-year-old Marissa's behavior is out of bounds, and her family suffers. Now, some scenes of calm. A family's journey expert guides help. A CNN exclusive.
(COMMERCIAL BREAK)
COLLINS: Quickly want to get you back to something happening right now on Capitol Hill. We are watching some of the testimony on this hearing for Bernard Madoff, because the whistleblower in all of this, Harry Markopolos, is actually testifying. And just moments ago, we heard him say that he believes that some of the senior staff of the SEC should actually be replaced. We want to take you back there live now for just a moment.
(LIVE VIDEO FEED)
QUESTION: Thank you, Mr. Chairman. Mr. Markopolos, first of all, thank you for being a good citizen. It's not often that we get too many people at that table who I would consider necessarily good citizens. Second of all, more importantly, before my time runs out, we only have five minutes here, if you were offered a job at the SEC in charge of this whistleblower bureau, would you take it?
MARKOPOLOS: No, I have pressing family obligations at home that would prevent me from taking any SEC job for two years.
QUESTION: So in two years if you were offered the job would you take it?
MARKOPOLOS: We'll talk.
QUESTION: All right. Mr. Markopolos, my concern is a couple of things. The Madoff situation is one thing, and it's one item. But I'm just curious. I know how I feel. I want to hear your opinion. Do you think that the problems you have encountered with this particular case are isolated to this case, or are they endemic throughout all of the regulatory structure, particularly throughout the SEC, but not just the SEC?
MARKOPOLOS: The SEC is overmatched, they're too slow, they're too young, they're too undereducated.
QUESTION: So it's not just this case.
MARKOPOLOS: No. And it's with all of the regulators in the financial system, the fed did an even worse job of regulating the banks than the SEC did of regulating the capital markets.
QUESTION: I agree with you. And that's part of -- I like your concept about an overlord type of regulator with some substance below it. But I just want to make sure, are you just talking about fraud regulators? Because there's also regulators or an aspect of regulation that doesn't just deal with fraud, also deals with regular, ordinary everyday capitalization requirements, et cetera, et cetera, and we're all thinking about doing something about systemic risk, as well, in addition to fraud, and I would argue that some of those things may require us to have a little bit more complicated regulatory scheme. Is that something you considered or not?
MARKOPOLOS: I wouldn't say a more complicated, I would say a more simplified, more streamlined. Because remember, American business wants as few regulators as possible. They're paying for the regulation. They want to valuated proposition. For every dollar they spend toward regulation, they want to receive that value back. Because right now, without proper regulation, there is no trust in our capital markets, which raises the cost of capital or makes it unavailable to American businesses.
QUESTION: That's the other thing I want to talk about. The one good thing for years, I never thought that regulation as a swear word. I don't think you would feel that way, either. However, this country over the last 20 years has considered the word regulation as some sort of swear word. And I particularly want to talk about this case. Because my understanding is most of this money was not lost by mom and pops. Most of this money comes from relatively sophisticated investors. Is that accurate?
MARKOPOLOS: It is. They were high net worth individuals that received no protection from the SEC. They're considered sophisticated investors. And I would argue that they deserve protection, as well.
QUESTION: I would agree with you. I mean, thus far, all I've heard for the last several years from the SEC and others is that sophisticated investors somehow don't need anything, it doesn't run a systemic risk, and if some multibillionaire wants to lose a billion dollars, why should we worry about it, and I think this particular case, even what this case indicates beyond it would argue just the opposite. And I'm hoping that's something you would agree with.
MARKOPOLOS: Because of the people that were involved and their wealth, a lot of charities were wiped out, medical services are not being provided today to people in the communities. Community services, scholarships, people have no retirement income left. They're wiped out. So I would -- I think those wealthy people deserve protection, as well.
REP. MICHAEL CAPUANO, (D) MASSACHUSETTS: Good. I agree with you. Again, I just want to make sure that this is not -- I've had my problems with the SEC in the last couple years, because I think they have been asleep at the switch, and again, not just on the Madoff case, I didn't see this, but I think the entire problem we have right now is probably not -- you can't pick one item, but if you had to pick one tem, I think the lack of regulation is it. And I just want to hear from you, too, it's my understanding that if we had had aggressive or at least adequate regulation across the board, that first of all, the Madoff situation might have been if not avoided -- you're always going to have criminals, at least minimized, and maybe we wouldn't be in some of the economic problems we're having today, would you find that statement agreeable or not?
MARKOPOLOS: (INAUDIBLE) in the capital markets you have to increase the risk of protection of the frauds, and right now, in such high reward, low risk to commit fraud, the markets feel green lighted because they have gotten away with it for so long and until you have trust, the American investor isn't coming back into our markets, and worse, foreign investors won't either.
REP. MICHAEL CAPUANO (D), MASSACHUSETTS: Do you think that the current -- again, absent the structure of it and absent the adequacy of the individuals or the pay of the individuals, the laws relative to what's legal and not legal, if there were adequate -- if they were fairly interpreted, do you think the laws we have now are currently adequate, or are they totally inadequate? Again, you can always -- I'm not talking about fine-tuning. I'm talking about major adequacy.
MARKOPOLOS: You need a lot more laws because you're always going to be outdated as soon as you pass a new set of of laws, because there will be new financial instruments created to avoid whatever existing regulatory scheme there is. So, you're always going to be behind the eight ball.
So you really have to look at the securities laws as the absolute bare minimum standard you have to follow. And then you have to have regulators that enforce a much higher standard, which is good ethics, full transparency, a fair dealing for all, and full disclosure. And if you do that, if you go -- if you set ethics as a higher standard than the law, which it always is, then I think -- and you have a regulator that's willing to attack bad ethics, you'll get somewhere.
CAPUANO: Thanks, Mr. Markopolos. And think about that job, will you?
UNIDENTIFIED MALE: Thank you very much, Mr. Capuano. Gentleman from Alabama.
UNIDENTIFIED MALE: Thank you. Mr. Markopoulos, thank you. Reading your testimony and having talked to you last month and to the staff, you called the SEC, you wrote the SEC, you pled with them, you badgered them. There's four pages of contacts with them. I mean, probably over 100 attempts on your behalf to lay out a case.
You had extended telephone conversations, extended meetings with them. And you laid out chapter and verse, you know, handed them on a silver platter a case. Was it incompetence? I'm amazed they could ignore what you gave them. Was it incompetence? Was it a conflict of interest? Was it just a lack of willingness to take Madoff on?
MARKOPOLOS: I think it was a combination of incompetence and an unwillingness to take on a major player like Mr. Madoff. They fear the big cases.
UNIDENTIFIED MALE: The chairman has talked about more funding, more investigating. But you know, that doesn't seem to be the case here. I mean, it seems like they're not using the resources they have. You got any ideas on that? And there were all kinds of regulations. You laid out regulations, laws. I mean, there were all sorts of violations.
MARKOPOLOS: There were turf battles. You had regional rivalries between New York and Boston. And by the way, neither New York or Boston likes Washington very much.
UNIDENTIFIED MALE: So dumping more money on that doesn't solve those problems, does it? MARKOPOLOS: It doesn't solve the problems. They do need some more funding, though. They need a lot more funding in certain areas. They need to increase the compensation levels so they can attract industry-experienced veterans on the team level. Because the teams --
UNIDENTIFIED MALE: They've already been authorized to do that, I believe.
MARKOPOLOS: They need to add incentive compensation, just like Wall Street. It's base salary, plus incentive for what you bring in, so you're incentivized to bring in the big cases.
UNIDENTIFIED MALE: In other words, if you catch people, if your job's to catch people, you catch them, you're rewarded. If you don't, you're not.
MARKOPOLOS: Right. And what I like about that is that if someone tries to stop you from bringing a big case and you're incentivized to bring a big case, you'll run them over with a bulldozer if you have to to get that big case in the door. And right now, there's no incentive, no reward for bringing those big cases in the door.
UNIDENTIFIED MALE: So it's not just throwing more money at it, it's doing it the right, smart way. And incentives are a way to do that. How do you address those turf fights? How do you address sort of the sacred cows out there that they just won't take on?
MARKOPOLOS: I think that if you're Boston referring a case to New York, you get incentive credit for that as part of the bonus scheme for turning in a case on to another region. You need to increase cooperation that way.
UNIDENTIFIED MALE: Thank you. What would you ask us to do? What could we do differently?
MARKOPOLOS: As Congress?
UNIDENTIFIED MALE: Yes. And I will tell you this. You've heard the so-called pay for play in municipal bonds.
MARKOPOLOS: Yes.
UNIDENTIFIED MALE: Well, actually, ten years ago, we laid out a case to the SEC on what was going on. Again, two years ago, we laid out a case exactly what was going on in Jefferson County. They did nothing for a year. Finally, someone, a whistle-blower, someone came forward on something else and was caught. So, I mean, your experience, you know, is very similar experience to some of us on the Hill had.
MARKOPOLOS: Congressman, I know what happened in Birmingham, Alabama, and it happened in my hometown of Erie, Pennsylvania, the same thing with the municipal securities fraud. It happened in Massachusetts, as well. The Massachusetts Turnpike Authority lost $450 million on some over-the-counter swaptions (ph) that they never understood, that they were deceived into entering in a transaction with several Wall Street investment banks.
And the SEC has been nowhere to be found regulating there and enforcing action for the crimes that occurred. As a result, Massachusetts plans on doubling our tolls. So, we're going to pay for that out of our own pockets.
UNIDENTIFIED MALE: And, you know, that happened under the Clinton administration. It happened under the Bush administration. My letter was actually to the Clinton administration. But I'd like to, with permission of the committee with unanimous consent, to introduce my letter to the SEC, a similar experience you had.
Now, the difference is, I was relying on other people. I actually had trusted them or relied on them to look at the information and tell me whether it was true or false. And they told me there wasn't anything to it, basically.
MARKOPOLOS: I think what you'll see is that the SEC is busy protecting the big financial creditors from investors. And that's their modus operandi right now.
UNIDENTIFIED MALE: I appreciate that. And I want to again just tell you how truly grateful we are to you. Unfortunately, if your warnings had been taken, and if the warnings of other people had been taken, 10 and 12 years ago, the bill -- literally, millions of Americans wouldn't be suffering today from losing their entire retirement. So thank you.
UNIDENTIFIED MALE: Thank you very much. And without objection, the letter of the gentleman from Alabama will be entered into the record. Chair hearing none, so ordered. Mr. Sherman of California.
REP. BRAD SHERMAN (D), CALIFORNIA: Thank you. To build on the comments of Mr. Capuano, we need you in government service, and maybe that whistle-blower office needs to be established in Boston for the next two years. I look forward to working with my colleagues to make the changes necessary in law, so that we don't have a circumstance where today Madoff is on the streets, and his accountant has not even been arrested or indicted.
You point out how you were able to use your professional skills in roughly four hours, if not four minutes, to convince yourself that there was probably fraud going on here. I'm a CPA by traing, and I would think it would take someone who is a CPA about the same amount of time, maybe -- maybe even a little less. Because as I understand it, the financial statements filed by Madoff showed numbers as high as, like, 10 set to $17 billion, is that right?
MARKOPOLOS: Yes. Let me explain -- I think there's going to be two numbers that the press will start reporting -- $50 billion is what Madoff has self-reported. And is that was the notional (ph) amount of loss from all of the investor statements combined, but what they thought they had earned over many decades of investment returns with Mr. Madoff. And then there's a different number, probably a truer number. It's much lower. And that number is probably between $15 and $25 billion, which was actually cash received by Mr. Madoff. SHERMAN: I'm focusing on a different number. And that is, if you just looked at the financial statements filed by Mr. Madoff, they would show numbers in the ten -- well over $10 billion. And then they would be attested to by the Freeling accounting firm, which had one active CPA.
So, the first thing anybody looking at those financial statements would have done is say, well, this is a pretty big operation. Ten, 20, $17 billion. And the accounting firm isn't registered with the PCAOB, and what accounting firm is this? Oh, they have only one CPA. Now, it is physically impossible for one CPA to audit a $17 billion firm.
But even if it was possible, you're supposed to be an independent auditor. Independence includes not getting more than, say, about a fifth of your revenue from any one client. So unless you think that one CPA can audit a $17 billion operation and be done in a couple of months, you've got a fraudulent financial statement in your hand.
Not to mention, your professional expertise focused on the fact that you cannot earn those kinds of continuously positive, even returns. I think either of our two professions could have spotted this rather quickly. Did you have a chance to bring your accusations to FINRA or the NASD?
MARKOPOLOS: I would have never taken them to NASD or FINRA. I had a lot of bad experiences as on over-the-counter trader in the late '80s with the NASD. What I found them to be was a very corrupt, self- regulatory organization that if you took fraud to them, they would ignore it as soon as they received it. They were there to assist industry by avoiding stricter regulation from the SEC.
SHERMAN: Sir, you're using some strong terms, and from anybody else, you know, we would say that's the wild-eyed populist. But you've basically said that our two main --
(END LIVE FEED)
HEIDI COLLINS, CNN ANCHOR: Testimony, very interesting testimony that we are hearing from the whistle-blower in the Bernie Madoff case. Harry Markopolos, you've been listening to him testify and tell what he knows, what he thinks about this situation. He used to work for a competing firm and began investigating why Madoff was making so much money.
His firm said, hey, you know, why can't we do this, and then learned of the tactics and strategies that Madoff was using. So, he's testifying today, again as the whistle-blower. Actually has been saying quite a few things about the SEC, suggesting that senior staff should be replaced, and also said that they're just too young and too undereducated. So we'll continue to watch this and monitor that hearing happening on Capitol Hill today.
Meanwhile, want to get back to this. Before and after pictures of an autistic girl. Thirteen-year-old Marissa's (ph) behavior is out of bounds, and her family does suffer. Now, some scenes of calm. A family's journey, expert guide's help. A CNN exclusive.
(COMMERCIAL BREAK)
COLLINS: This week we've been on part of a long journey with the Billson (ph) family. Thirteen-year-old Marissa (ph) has autism, and her behaviors have driven her family crazy. A therapist came to help, visiting with the family every day for a week. CNN senior medical correspondent Elizabeth Cohen joining us here now to talk about the strategies that worked, Elizabeth, and some of them that didn't.
ELIZABETH COHEN, CNN SENIOR MEDICAL CORRESPONDENT: Right. The general strategy here by this therapist has been to hold Marissa (ph) accountable for her behavior. Now, that may sound like too much to ask from a child with autism, but take a look at what happened.
(BEGIN VIDEOTAPE)
(SCREAMING)
COHEN (voice-over): At the beginning of the week, Marissa Billson (ph), a 13-year-old girl who has autism, couldn't stop having fits when she didn't get her way, and her parents felt pretty powerless to stop her.
UNIDENTIFIED FEMALE: Do you want to go sit down at the table with me?
MARISSA BILLSON, AUTISTIC GIRL: No!
COHEN: There are many approaches to helping children with autism. Therapist Rick Schroeder uses the behavior modification technique. He spent the week helping Marissa change, to make her life and her family's life better.
RICK SCHROEDER, THERAPIST: Are you happy?
BILLSON: Yes.
SCHROEDER: Good.
COHEN: There have been successes.
COHEN (on camera): Do you think she's proud of herself, that she's learned how to obey these rules?
SCHROEDER: I think she really loves the system. It seems like it's comforting to her.
COHEN (voice-over): But some behavior can't be changed. Every night, Marissa has a ritual. She drags her toys outside and doesn't want to come back in.
(SCREAMING)
COHEN: Schroeder says there is no way to change this, because it's more than behavior, it's become an obsession. SCHROEDER: Once the obsession starts, it's tough as nails to stop. Because she has got -- that's what defines an obsession, right? It has to get done.
UNIDENTIFIED FEMALE: So then just get rid of the toys?
SCHROEDER: yes.
COHEN: With the toys gone, there is another problem for the Billsons (ph) to solve, an even bigger one. Taking Marissa (ph) out of the house is still a nightmare. Here's a fit she had when her favorite candy wasn't at the store.
SCHROEDER: You can have purple Skittles.
(SCREAMING)
COHEN: That was day four. On the fifth and final day, they try again.
SCHROEDER: Remember, the rules.
No touching.
BILLSON: No screaming.
SCHROEDER: No screaming.
BILLSON: No stealing.
SCHROEDER: No stealing. OK, no ice cream, either, OK?
COHEN: This time, Marissa (ph) manages to follow the rules.
UNIDENTIFIED FEMALE: Great job, Marissa (ph).
COHEN: They leave the store triumphant.
UNIDENTIFIED FEMALE: I am very happy, yes.
COHEN (on camera): Do you think they'll do OK?
SCHROEDER: I think they'll do OK.
COHEN: You think they've learned something?
SCHROEDER: Absolutely.
COHEN (voice-over): But will it last? Marissa (ph) will never be like most other girls. All her family can do is hope to make the best life possible for her and for them.
(END VIDEOTAPE)
COHEN: That story you just saw, we actually taped it in November. And we've been back in touch with the Billson (ph) family, and they say that things are far from perfect, but significantly better. To learn more about how Marissa (ph) is doing, go to CNN.com/autism.
COLLINS: You know, Elizabeth, we also have been talking about in your series here how expensive this type of therapy is, like $20,000 to have someone like this man come over to your house and visit with you so frequently. And then insurance often doesn't pay for it, either. So, is there anything that parents can glean from this type of therapy that they were able to watch?
COHEN: There are. There are some things that you can glean. Because a lot of people can't afford -- most people probably can't afford $20,000. The Billsons (ph) couldn't afford it. They got it for free because we were there taping.
So what you can do if you want to help a child with autism but don't have 20,000 spare dollars is again go to CNN.com/autism. And we have some tips there for how to find free services. Many areas have them. Different states have different services. And you can find all the information listed there.
COLLINS: It's really been a great, great series. I do wonder, though, if Marissa's (ph) parents, because watch them and how excited they seem to be, were they surprised by how well she did?
COHEN: They were surprised, and I think that to me this was one of the most important things about the time that we spent with them, which is that Mrs. Billson (ph) said to us, I was -- I didn't give Marissa (ph) enough credit. That's how she put it. I didn't give her enough credit. I didn't think that she could learn how to change her behavior. And so she was really stunned at how much Marissa (ph) could learn.
COLLINS: Well, great. We've enjoyed watching the pieces very much. Elizabeth Cohen, thank you.
Quickly now, a check of the big board for you. The New York Stock Exchange and the Dow Jones Industrial Average is up double digits there about 50 points, resting at 8,125. Nasdaq and S&P up as well. We're back in a moment right here in the CNN NEWSROOM.
(COMMERCIAL BREAK)
COLLINS: Very quickly, we want to get to this breaking news that we are getting in. Via our affiliates in the West Memphis, Arkansas area, something that's happened near the Mississippi border. Police are on the scene of an explosion.
We are being told that a prominent doctor in the area got into his car when it exploded. He was airlifted and is apparently in extreme critical condition. Again, attributing all of this to our affiliates in the area that you see on the map. We understand the doctor is a general practitioner. Don't have the name yet, but it is possible early reporter are pointing to this explosion happening at the doctor's home or office. FBI, ATF on the scene, trying to figure out what happened. And, of course, we will stay on top of this story. But, once again, police are on the scene of a car explosion, where we are being told that a prominent doctor in the area of West Memphis, Arkansas got into his car when it exploded. Bringing you more information on this story just as soon as we get it here.
President Obama wants a say on executive pay. After all, the federal government has given hundreds of billions of dollars to bail out struggling companies, but many Wall Street firms are still handing out massive pay charges. Susan Lisovicz is on the floor of the New York Stock Exchange now with details on what we are expecting from the president. Hi there, Susan.
SUSAN LISOVICZ, CNN CORRESPONDENT: Hi, Heidi. Well, it's a hot- button issue. It really sticks in the craw of a lot of consumers, when they're worried about their jobs and we're supporting -- taxpayers, that is -- supporting these financial companies, that a lot of executives of these companies are still getting bonuses -- $18 billion, to be exact, in bonuses handed out on Wall Street last year.
It doesn't matter to the public that it's half of what was received the year before. President Obama telling our Anderson Cooper that it infuriates the public. So, within minutes, he's expected to propose pay caps on executives who take significant amounts of government bailout money. And the pay limit, well, it would work for a lot of us -- $500,000 annually. Any amount over that would be through stock, and those shares would be -- they'd be restricted, because they wouldn't be able to be sold until Uncle Sam got paid back.
Some other things that are expected to be addressed, shareholders will get a greater say on pay. And transparency on things like parties, office decorating, things like that. In any case, we're expecting those questions to be addressed in the wake of the Citigroup jets and the Wells Fargo Vegas meetings that have now been cancelled, the jets that have been cancelled, those kind of things.
In the meantime, well, we're seeing a little bit of a bonus on Wall Street, Heidi. We've got a rally. We've got some positive momentum following through. The Dow right now is up 46 points or half a percent. The Nasdaq is up nearly 2 percent -- Heidi.
COLLINS: All right. Susan, sure do appreciate this. Quickly, unfortunately, we've got to get back to this breaking news, Susan, so thank you.
Again, the story that we've been telling you about out of West Memphis, Arkansas. It's on the border of Mississippi, where we are learning from our affiliates there that a prominent doctor in the area got into his car and it exploded.
Once again, we are learning that he is in extreme critical condition. He was airlifted, and we're going to get the very latest coming up here in just a moment.
(COMMERCIAL BREAK)
COLLINS: Quickly want to get back to this breaking news that we are following here in the CNN NEWSROOM, a story coming to us out of West Memphis, Arkansas. We are being told by our affiliates in the area that a prominent doctor got into his car, when it exploded. He was apparently airlifted and in extreme critical condition at this point. You see all of the authorities on the ground there.
We're being told that FBI and ATF are, of course, there, trying to figure out what happened. Also, information from our affiliate saying that he is a general practioner. Police have not released his name, but they do have an address that seems to match either the home or the office of this physician. So, again, we're going to confirm this story coming out of our affiliates near the Mississippi border there, Arkansas and Mississippi border.
We'll continue to follow it on CNN. I'm Heidi Collins. Join us again tomorrow morning at 9 a.m. Eastern. For now, CNN NEWSROOM continues with Don Lemon.
