The whistleblower who detected the alleged Bernard Madoff fraud nine years ago yesterday subjected the US Securities and Exchange Commission (SEC) to a devastating public attack.

Testifying to Congress, Harry Markopolos accused the US regulator of being scared of confronting big Wall Street investors and of being crippled by internal squabbling and incompetence. Mr Markopolos said that many banks and funds on Wall Street knew about Mr Madoff’s fraud before it was exposed but “those in glass houses don’t throw stones”.

The former Boston fund manager, who began his quest in 2000 to uncover what was to become the world’s biggest scam, said that the Madoff debacle was part of a pattern of incompetence by the SEC, which had allowed rating agencies to fuel the sub-prime crisis. He said that the SEC was so useless in policing Wall Street that “they roar like a mouse and fight like a flea”.

The whistleblower insisted that Mr Madoff did not act alone in constructing the alleged $50 billion (£35 billion) fraud, but that he had been aided by an army of colleagues within his investment business in Manhattan.

Facing the House of Representatives Financial Services Committee, Mr Markopolos said: “He [Mr Madoff] had a lot of help. He had a robust IT department, who sent huge reports to investors.”

Mr Madoff, who is under house arrest at his $7 million penthouse in Manhattan, has always indicated that he acted alone. His sons, who worked for their father, have insisted that they are victims, not perpetrators.

In a three-hour hearing, Mr Markopolos explained in detail how he had “gift-wrapped the largest Ponzi scheme in history” for the SEC to use to investigate Mr Madoff, but that the regulators “could not be bothered because they had higher priorities”. He said: “If it had not been for the market downturn, [Madoff] could easily have gone to $100 billion. The SEC would never have caught him. He had to have run out of money first.”

Mr Markopolos, now an independent fraud investigator, claims that he has uncovered another, separate $1 billion fraud, of which he will give details to regulators today. He said that, by using publicly available documents, he realised within four hours that Mr Madoff was operating a scam: “The SEC had enough to get Madoff. I drew them pictures. I gave them a road map. I told them what questions to ask and who to phone.”

He described how he had approached the Boston regional office of the SEC but soon realised that his tip-offs would not be taken seriously by either Boston, the New York office or the regulator’s head office in Washington. This was because all the state offices were suspicious of each other.

The FBI and the SEC are gathering evidence to build fraud cases against Mr Madoff, who is so far the only individual to be charged.

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