Jan. 2 (Bloomberg) -- Harry Markopolos, the former investment-firm employee who said regulators failed to act on his tips about Bernard Madoff’s alleged $50 billion Ponzi scheme, won’t testify before a congressional committee next week.

Markopolos’s plan to appear at a House Financial Services Committee meeting Jan. 5 was canceled because of an illness, said Alex Wilson, an employee in the office of U.S. Representative Barney Frank, the Massachusetts Democrat who leads the panel. Wilson commented in a telephone interview today.

The meeting will help guide Congress as it weighs a “substantial rewrite of the laws governing the U.S. financial markets,” Representative Paul Kanjorski, a Pennsylvania Democrat who leads a subcommittee overseeing capital markets, said in a Dec. 31 statement. David Kotz, the Securities and Exchange Commission’s inspector general, and Stephen Harbeck, president of the Securities Investor Protection Corp., are set to appear.

Madoff, 70, was arrested Dec. 11 after allegedly telling his two sons he had been using money from new investors to pay off old ones in what may be the biggest such swindle in history. Lawmakers are examining why regulators including the SEC didn’t detect the case earlier.

In 2007, the SEC closed an investigation of tips and press reports suggesting Madoff’s investment returns were too good to be true. Markopolos helped trigger that inquiry by suggesting Madoff might be running a Ponzi scheme or front-running, in which traders buy shares for their account before filling customers’ orders, a person with knowledge of the case said.

SEC Chairman Christopher Cox on Dec. 16 ordered an internal probe, to be led by Kotz, that will review “deeply troubling” revelations the agency failed to act for almost a decade on “credible and specific allegations” of wrongdoing by Madoff.

To contact the reporter on this story: David Scheer in New York at dscheer@bloomberg.net.

Last Updated: January 2, 2009 16:16 EST