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Not So Shocking: SEC Really Screwed Up Madoff Investigations
By
Jen Chung
Published Sep 3, 2009
Modified Sep 3, 2009
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By
Jen Chung
Published Sep 3, 2009
Modified Sep 3, 2009
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The Inspector General for the Securities and Exchange Commission said the agency failed to conduct "competent and thorough" investigations about Ponzi schemer Bernard Madoff, even after at least six warnings. IG David Kotz wrote in his report, "Despite numerous credible and detailed complaints, the SEC never properly examined or investigated Madoff’s trading and never took the necessary, but basic, steps to determine if Madoff was operating a Ponzi scheme," adding that even Madoff himself was "shocked" that the SEC didn't check his trading records, which would have revealed the $65 billion fraud.
The NY Times says Kotz's report reveals, "Unseasoned investigators from the Securities and Exchange Commission were alternately intimidated and enthralled by a name-dropping, yarn-spinning Bernard L. Madoff as he dodged questions about his financial house of cards... the agency never verified Mr. Madoff’s trading through a third party. Time and again, it was noted that the volume of his purported options trades were implausible. When the enforcement staff received a report showing that Mr. Madoff indeed had no options positions on a certain date, the agency simply did not take any further steps." The lack of third party verification of trading is what Kotz calls the most "egregious failure" (although one investigator calling Madoff a "wonderful storyteller" is probably embarrassing!).
Here's the report—and SEC Chairman Mary Schapiro said, “It is a failure that we continue to regret, and one that has led us to reform in many ways how we regulate markets and protect investors." The SEC is offering some post-Madoff reforms, like "Revamping the Handling of Complaints and Tips" and "Improving Fraud Detection Techniques for Examiners" but maybe "Checking Tracking Records" should be higher on the list.
Tagged
bad investigation
Bernard Madoff
fraud
incompetent
ponzi scheme
SEC
Jen Chung
Jen Chung is a former WNYC and Gothamist editor.
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